[Senate Hearing 110-1221]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 110-1221
 
  FISHING SAFETY: THE POLICY IMPLICATIONS OF COOPERATIVES AND VESSEL 
                              IMPROVEMENTS

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


                                HEARING

                               before the

     SUBCOMMITTEE ON OCEANS, ATMOSPHERE, FISHERIES, AND COAST GUARD

                                 OF THE

                         COMMITTEE ON COMMERCE,

                      SCIENCE, AND TRANSPORTATION

                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                              JULY 9, 2008

                               __________

    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 TENTH CONGRESS

                             SECOND SESSION

                   DANIEL K. INOUYE, Hawaii, Chairman
JOHN D. ROCKEFELLER IV, West         TED STEVENS, Alaska, Vice Chairman
    Virginia                         JOHN McCAIN, Arizona
JOHN F. KERRY, Massachusetts         KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
BARBARA BOXER, California            GORDON H. SMITH, Oregon
BILL NELSON, Florida                 JOHN ENSIGN, Nevada
MARIA CANTWELL, Washington           JOHN E. SUNUNU, New Hampshire
FRANK R. LAUTENBERG, New Jersey      JIM DeMINT, South Carolina
MARK PRYOR, Arkansas                 DAVID VITTER, Louisiana
THOMAS R. CARPER, Delaware           JOHN THUNE, South Dakota
CLAIRE McCASKILL, Missouri           ROGER F. WICKER, Mississippi
AMY KLOBUCHAR, Minnesota
   Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
Lila Harper Helms, Democratic Deputy Staff Director and Policy Director
   Christine D. Kurth, Republican Staff Director and General Counsel
                  Paul Nagle, Republican Chief Counsel
                                 ------                                

     SUBCOMMITTEE ON OCEANS, ATMOSPHERE, FISHERIES, AND COAST GUARD

MARIA CANTWELL, Washington,          OLYMPIA J. SNOWE, Maine, Ranking
    Chairman                         GORDON H. SMITH, Oregon
JOHN F. KERRY, Massachusetts         JOHN E. SUNUNU, New Hampshire
BARBARA BOXER, California            JIM DeMINT, South Carolina
BILL NELSON, Florida                 DAVID VITTER, Louisiana
FRANK R. LAUTENBERG, New Jersey      ROGER F. WICKER, Mississippi
THOMAS R. CARPER, Delaware
AMY KLOBUCHAR, Minnesota
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 9, 2008.....................................     1
Statement of Senator Cantwell....................................     1
Stevens, Hon. Ted, U.S. Senator from Alaska, prepared statement..     1

                               Witnesses

Bundy, John, President, Glacier Fish Company on behalf of the 
  Freezer Longline Coalition.....................................    25
    Prepared statement...........................................    27
Frulla, David E., Partner, Kelley Drye & Warren, LLP, on behalf 
  of the Fishing Company of Alaska...............................    42
    Prepared statement...........................................    44
Hughes, Leslie J., Executive Director, North Pacific Fishing 
  Vessel Owners' Association (NPFVOA) Vessel Safety Program......     9
    Prepared statement...........................................    11
Hyde, Michael, Adviser, American Seafoods Group..................    32
    Prepared statement...........................................    34
Parker, Donna, Director, Government Affairs, Arctic Storm 
  Management Group...............................................    37
    Prepared statement...........................................    39
Sanchirico, James, Associate Professor, Department of 
  Environmental Science and Policy, University of California at 
  Davis and University Fellow, Resources for the Future..........     3
    Prepared statement...........................................     5
Woodley, Commander Christopher, Thirteenth Coast Guard District 
  Staff, U.S. Coast Guard, Department of Homeland Security.......    13
    Prepared statement...........................................    14

                                Appendix

Freezer Longline Coalition's Response to David Frulla's Testimony    82
Response to written questions submitted by Hon. Maria Cantwell 
  to:
    John Bundy...................................................    60
    David E. Frulla..............................................    76
    Leslie Hughes................................................    54
    Michael Hyde.................................................    68
    Donna Parker.................................................    72
    James Sanchirico.............................................    53
    Commander Christopher Woodley................................    57


                       FISHING SAFETY: THE POLICY

                      IMPLICATIONS OF COOPERATIVES

                        AND VESSEL IMPROVEMENTS

                              ----------                              


                        WEDNESDAY, JULY 9, 2008

                               U.S. Senate,
Subcommittee on Oceans, Atmosphere, Fisheries, and 
                                       Coast Guard,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:30 p.m., in 
room SR-253, Russell Senate Office Building, Hon. Maria 
Cantwell, Chairman of the Subcommittee, presiding.

           OPENING STATEMENT OF HON. MARIA CANTWELL, 
                  U.S. SENATOR FROM WASHINGTON

    Senator Cantwell. Good afternoon. This Senate Committee on 
Commerce, Science, and Transportation's Subcommittee on Oceans, 
Atmosphere, Fisheries, and Coast Guard will come to order.
    We thank our witnesses for being here and for your 
indulgence for not starting on time since we just had two floor 
votes. We appreciate your patience with us.
    I understand my colleague, Senator Stevens, was here in 
between those two votes, and I want to recognize that his 
presence was here earlier and I am not sure if he will be 
returning. But we do have a statement for the record. I will 
make sure that we enter that statement in the record.
    [The prepared statement of Senator Stevens follows:]

    Prepared Statement of Hon. Ted Stevens, U.S. Senator from Alaska
    The Bering Sea and Aleutian island region off the coast of Alaska 
is home to the most productive and well managed fisheries in the world. 
We have no stocks subject to overfishing.
    However, operating in this region does not come without its risks. 
Commercial fishing is one of the most dangerous occupations in the 
United States, with an occupational fatality rate that is 35 times 
higher than the national industry average.
    In recent years commercial fishing safety has improved in Alaska. 
The Coast Guard attributes improvements in fishing vessel safety 
measures with saving 250 lives in Alaskan waters since 1993. In 1992, 
36 fishermen lost their lives off the coast of Alaska, and in 1994 this 
number dropped to 8. These lives were saved not only by vessel 
improvements but also by fishery management measures such as 
cooperatives and individual fishing quotas, or IFQs.
    IFQs and cooperatives have been enormously beneficial to the 
fishing community in Alaska. They have helped to put an end to the 
``race for fish'' and brought about significant conservation and safety 
benefits.
    However, as we examine the proposals today we must ensure that the 
needs of Alaska's fishermen and Alaskan coastal communities are 
properly addressed. All stakeholders must be consulted through an open 
process. This will allow us to prevent loss of jobs due to potential 
fleet consolidation as well as to ensure that there are no negative 
impacts to fisheries outside the Bering Sea and Aleutian Islands.
    I thank the witnesses for testifying today and look forward to your 
testimony.

    Senator Cantwell. We are here today for a hearing on 
fishing safety, the policy implications of cooperatives and 
vessel improvements. We are going to hear from Dr. James 
Sanchirico. Is that close? Close enough, I guess. Ms. Leslie 
Hughes, who is Executive Director of the North Pacific Fishing 
Vessel Owners' Association; and Commander Chris Woodley, Chief, 
External Affairs Division from the U.S. Coast Guard. So thank 
you all for being here.
    I want to thank the staff and other Committee members' 
staff for helping us with this Subcommittee hearing today to 
examine fishing safety and the policy implications of 
cooperatives and vessel improvements.
    Fishing has long been a part of both the American culture 
and our Nation's economic health. But the continued vitality of 
the fishing industry faces multiple challenges. Many marine 
species are overexploited and face threats from climate change, 
pollution, and habitat degradation. Moreover, commercial 
fishing is deemed as one of the most hazardous occupations in 
the United States, an issue that I know we are going to 
continue to explore here today.
    In the Pacific Northwest, our history is based on rich 
maritime tradition that contributes billions of dollars to the 
region's economy each year. There are 3,000 vessels in 
Washington's fishing fleet that employ 10,000 fishermen. 
Seafood processors are 3,800 and fish wholesalers employ an 
additional 1,000.
    For many coastal communities, these histories and economies 
have ebbed and flowed almost with our tide, and it is important 
for us to remember that these ocean resources are things that 
these communities depend on. They depend on the public trust 
and the resource to be managed appropriately.
    As guardians of the ocean and the plentiful resources, it 
is necessary that we examine the issues that are here today 
with the utmost transparency. We are here today to talk about 
two issues: what improvements, if any, need to be made to the 
10-year-old American Fisheries Act, balancing fleet safety and 
economic challenges; and the role of fishing cooperatives in 
improving safety and natural resource management.
    Safety is a collective responsibility, from the individual 
crew members that sail in the open waters to the vessels and 
owners and to Government policymakers. When we grapple with 
these issues, it is necessary that we understand the gravity 
and the shared responsibility. It is a responsibility that can 
have a profound impact on the lives of those who depend on this 
for their economic vitality, and it is important that we 
continue to work together to resolve these issues.
    On March 23, we experienced a tragic reminder of how things 
can go wrong. The fishing vessel, Alaska Ranger, based out of 
Seattle began sinking at approximately 2:50 a.m., and 43 crew 
members were rescued when the Coast Guard responded, but 
another five of the vessel's crew, including Captain Eric Peter 
Jacobsen, stayed behind to ensure the rest of the crew escaped 
safely. These five fishermen did not make it out of the harsh 
waters of the Bering Sea.
    And their story is not all that uncommon. In 2006, the 
Coast Guard reported that in the decade from 1994 to 2004, 
1,398 fishing vessels were lost. Most of these fishing vessels 
and their fatalities that resulted occurred in the north 
Pacific where the fishermen from my home state of Washington 
make their living and where, obviously, we have some of the 
biggest challenges with weather and rough waters. When things 
go wrong, it is really due to devastating failures at multiple 
levels, and these multiple levels require coordination between 
different people.
    Fishing safety is not only about vessels. It is about 
inspections, about safety equipment, and about training. In 
fact, fishing safety is closely related to how fisheries are 
managed and the very foundation that fishing has come to be 
built on, competition. It is a tough business and a tough 
business for those who work the boats and those who make the 
businesses run in the end. It is a tough business that is 
driven by incentives and dangerous conditions that work 
together to place a countless number of fishermen at risk.
    But it does not need to be that way. Improvements to 
fishing safety and good fishing management practice can and 
should be continued to be pursued. If we change the incentives, 
we change the way people fish. If we change the way people 
fish, we can improve the safety and prevent future tragedies at 
sea.
    As we discuss these issues today, safety for our vessels 
and fishermen, it is imperative that we continue to have an 
open process and to talk about policies and resource management 
that will help all of us be successful in this effort.
    I look forward to the testimony of our witnesses in 
exploring the benefits and challenges of utilizing various 
frameworks for better management of this resource.
    I look forward to continuing to dialogue with my colleagues 
here in the Senate and in the House of Representatives on 
various proposed changes in these areas of both safety and 
fisheries management. We owe it to our coastal communities and 
to our fishermen and the American people to collectively act as 
stewards for one of our greatest resources, our oceans.
    And with that, we will turn it over to our panel and start 
with Dr. James Sanchirico. Is that right?
    Dr. Sanchirico. It is Sanchirico.
    Senator Cantwell. Sanchirico. Thank you.
    And if the witnesses could take 5 minutes for your 
testimony. We certainly will take information that is longer 
than that and you can submit that for the record. But welcome 
and thank you for being here.

STATEMENT OF JAMES SANCHIRICO, ASSOCIATE PROFESSOR, DEPARTMENT 
 OF ENVIRONMENTAL SCIENCE AND POLICY, UNIVERSITY OF CALIFORNIA 
    AT DAVIS AND UNIVERSITY FELLOW, RESOURCES FOR THE FUTURE

    Dr. Sanchirico. Good afternoon, Chairman Cantwell, and 
thank you for the opportunity to speak with you today. I am 
James Sanchirico, Associate Professor at the University of 
California-Davis, and University Fellow at Resources for the 
Future. The opinions I offer today are my own and should not be 
attributed to the University of California, Resources for the 
Future, or the NOAA Science Advisory Board, of which I am a 
member.
    The purpose of my remarks is to provide a brief overview of 
the economic benefits of cooperatives and individual fishing 
quota systems for the management of marine commercial 
fisheries.
    As the Committee is fully aware, the marine species 
residing in U.S. territorial waters and the men and women who 
make their livelihood from them are at a critical juncture. 
Without secure access to the resource, individual rational 
actors compete with each other to capture as much of it as 
possible. Operating under so-called rule of capture incentives 
whereby resources are not owned until on board a vessel results 
in a competition for fish that leads to low wages, dangerous 
working conditions, low-valued products, excess harvesting and 
fish processing capacity, and ever shorter fishing seasons. 
Economically depressed fisheries are vulnerable to short-term 
thinking and risk taking, and fishery participants cannot 
afford to invest in long-term sustainability.
    This outcome is in nobody's best interest. In other words, 
a tragedy of the commons ensues.
    Policies that address the rule of capture incentives 
include individual fishing quota systems and cooperatives. In 
each policy, the allocation of a catch share reduces the 
incentives to invest in the race for fish. Participants have 
greater certainty on their catch levels and the ability to buy 
and sell shares provides flexibility for participants to adjust 
the scale of their operations.
    Around the world, fisheries managed with individual fishing 
quotas or cooperatives experience sustainable profit rates, 
ranging from 20 to 60 percent. These overall economic benefits 
are indicative of both cost savings and revenue increases and 
derive from two aspects of the programs. First, there are 
benefits that result directly from providing ownership of the 
catch shares, and second, there are benefits that derive from 
the ability to transfer the shares from one fishing participant 
to another.
    The three main benefits from ownership include: the reduced 
incentive to race for fish which results in longer fishing 
seasons; and second, the slower pace of fishing improves the 
ability to optimize on-board processing facilities that has 
resulted in increases in the product recovery rate per pound of 
fish caught. For example, the Pacific Whiting fishery has 
experienced increases in product recovery rate from 17 to 24 
percent, and according to one statistic that I found, this 
corresponds to approximately 10 million pounds of additional 
product from the same catch.
    The third benefit from ownership of shares is that it 
shifts the incentives from maximizing the quantity of fish 
caught to maximizing the value of the catch. Throughout the 
world, we have seen shifts in the product mix to more valuable 
products, whether it be in the New Zealand red snapper fishery 
that went from a frozen product to selling in the live fish 
market in Japan. We also see changes in the type of fishing 
methods, timing, and location of fishing, all with the goal of 
improving the quality and the value of the fish caught.
    The three main benefits that stem from the transferability 
of the shares include: one, the reduction in the number of 
vessels and fishing capacity. For example, after the first year 
in the implementation of the Pollock Cooperative, only 16 out 
of the 20 vessels fished. In the Pacific Whiting Cooperative, 
only 6 out of the 10 vessels fished.
    Transferability also provides greater flexibility for 
participants to match quota holdings with catches. In the 
fisheries I have looked at around the world that are operated 
under individual fishing quota systems, we find that on average 
30 to 40 percent of the TAC is being traded in any given year, 
which illustrates the importance and the economic value of 
allowing transferability.
    Finally, transferability provides incentives that lead to 
the total allowable catch being caught at the lowest possible 
costs, as higher-cost vessels find it more profitable to sell 
or trade their shares than to fish them.
    I want to conclude with a comment. One of the most powerful 
forces of change created by catch share programs is the 
development of a constituency whose wealth is a function of the 
health of the marine environment. Wealth creation in fisheries 
will lead to improved stewardship, sustainability, and further 
innovation to increase value.
    To summarize, in many fisheries, stocks are overfished, 
habitats are degraded, and fishermen are scraping by from one 
season to the next, and the public is receiving very little 
return from its marine assets.
    This does not have to be the case. There is a growing body 
of evidence that management tools, such as cooperatives and 
individual fishing quotas, are a means to achieving sustainable 
marine populations, fishing communities, and returns on our 
natural assets.
    Thank you.
    [The prepared statement of Dr. Sanchirico follows:]

Prepared Statement of James Sanchirico, Associate Professor, Department 
of Environmental Science and Policy, University of California at Davis 
            and University Fellow, Resources for the Future
    Good afternoon, Chairman Cantwell and Members of the Committee and 
thank you for the opportunity to speak to you today. I am James 
Sanchirico, an Associate Professor at the University of California at 
Davis and a University Fellow at Resources for the Future, a 
nonpartisan, independent research organization specializing in 
environment, energy, and natural resource issues. The opinions I offer 
today are my own and should not be attributed to the University of 
California, Resources for the Future, or the NOAA Science Advisory 
Board, of which I am a member.
    The purpose of my remarks is to provide a brief overview of the 
economic benefits of cooperatives and individual fishing quota systems 
for the management of marine commercial fisheries.
    I use the vernacular individual fishing quota systems (IFQs) rather 
than dedicated access privileges (DAPs) or limited access privilege 
programs (LAPPs) to describe management (cap-and-trade) systems in 
which a share of the total annual allowable catch is allocated to 
fishing participants.
    Before I begin to discuss specific types of benefits from 
implementing cooperatives and IFQs, it is instructive to provide the 
baseline from which we are measuring these benefits.
    As the Committee is fully aware, the marine species residing in 
U.S. territorial waters and the men and women who make their livelihood 
from them are at a critical juncture.

   Many species are overexploited and face additional threats 
        from land-based pollution, habitat damage, and climate change. 
        Still unknown is the extent to which our actions affect the 
        nature of food webs and ecosystems, with consequences yet to be 
        determined.

   The vessels and fishing power of many U.S. fisheries exceed 
        levels that would maximize economic returns to society.

   Competition for fish leads to low wages, dangerous working 
        conditions, and ever shorter fishing seasons. Short seasons 
        with large catches, in turn, force fish processors to invest in 
        facilities that can handle large quantities but run at partial 
        capacity for most of the year, creating boom-and-bust cycles in 
        local employment. With supply gluts, most fish are processed 
        and frozen, even though consumers seem to prefer fresh fish 
        throughout the year.

   Economically depressed fisheries are vulnerable to short-
        term thinking and risk-taking, and fishery participants cannot 
        afford to invest in long-term sustainability.

    These conditions are not fated, however. There is a body of 
research dating back to the 1950s that highlights the cause of these 
symptoms.\1\ Without secure access to the resource, individual rational 
actors will compete with each other to capture as much of it as 
possible. Operating under so called ``rule of capture'' incentives, 
whereby resources are not ``owned'' until onboard a vessel, results in 
the popular phrase, ``too many boats chasing, too few fish'', which is 
an outcome that is in nobody's best interest. In other words, a tragedy 
of the commons ensues. I would argue, however, that the problem is more 
complicated than just too many boats chasing and too few fish. Rather, 
our marine commercial fisheries are better described as having too many 
boats, too much fishing power, too little wealth, too few top 
predators, too much habitat damage, too much human and capital at risk, 
too few resources for monitoring and enforcement, and so on.\2\
---------------------------------------------------------------------------
    \1\ See, for example, H. Scott Gordon, Economic Theory of a Common 
Property Resource: The Fishery, 75 Journal of Political Economy 124 
(1954); Garrett Hardin, The Tragedy of the Commons, 162 Science 1243 
(1968); and James Sanchirico and Susan Hanna, Navigating U.S. Fishery 
Policy into the 21st Century, 19 Marine Resource Economics 395 (2004).
    \2\ For a historical perspective on how the U.S. arrived at the 
current state of our marine fisheries, see J. N. Sanchirico and J. E. 
Wilen. Global Marine Fishery Resources: Status and Prospectus. 
International Journal of Global Environmental Issues. Vol. 7, No. 2/3 
(2007).
---------------------------------------------------------------------------
    Policies that address the ``rule of capture'' incentives include 
IFQs and cooperatives.

   IFQ programs are analogous to other cap-and-trade programs, 
        such as the sulfur dioxide allowance-trading program. They 
        limit fishing operations by setting a total allowable catch 
        (TAC), which is then allocated among fishing participants, 
        typically based on historical catch. In most IFQ fisheries 
        throughout the world, participants are able to trade their 
        perpetual right to a share of the TAC and their annual catch 
        equivalent. The initial allocation process and market rules are 
        designed and implemented by the Regional Fishery Management 
        Councils.

   Cooperatives, such as the Pacific Whiting Conservation 
        Cooperative, the Montauk Tilefish Association, and the two in 
        the North Pacific Pollock Fishery, are formed around a fishing 
        sector that has received an allocation of the allowable catch 
        and has a fixed set of participants. The allocation of the 
        cooperative's allowable catch to each member along with any 
        trading between the members is done through private 
        negotiations and rules as outlined in their charter.

    While each policy is slightly different from an instrument design 
perspective and the respective roles of government intervention, the 
key point is that both treat the cause rather than the symptoms of 
insecure rights to our marine resources.\3\ That is, the allocation of 
shares of the TAC reduces the incentives to race for fish, as 
participants have greater certainty about their catch levels, and the 
ability to buy and sell shares provides flexibility for participants to 
adjust the scale of their operations.
---------------------------------------------------------------------------
    \3\ See, for example, James E. Wilen, Why Fisheries Management 
Fails: Treating Symptoms Rather Than Causes, 78 Bulletin of Marine 
Science 529 (2006).
---------------------------------------------------------------------------
    After discussing the overall economic benefits, I divide up the 
discussion of the societal benefits from these instruments into the 
gains from ownership of a share and the gains from trading the shares. 
I also provide examples of those gains being realized. Because there 
are virtually no differences between a cooperative and an IFQ-managed 
fishery along these two dimensions, I will not make a distinction 
between the benefits arising from a cooperative or IFQ fishery.
Overall Economic Benefits
   Between 1990 and 2003, the value of IFQ fisheries in New 
        Zealand (NZ) more than doubled, while at the same time fish 
        stocks were rebuilding.\4\
---------------------------------------------------------------------------
    \4\ See, R. Newell, K. Papps, and J. N. Sanchirico. Asset Pricing 
in Created Markets for Fishing Quota. American Journal of Agricultural 
Economics. Vol. 89 No. 2 (2007); Newell, R., J. N. Sanchirico, and S. 
Kerr. Fishing Quota Markets, J. of Environ. Economic. Management, Vol. 
49 No. 3 (2005); J. N. Sanchirico and R. Newell. Catching Market 
Efficiencies: Quota-based Fishery Management, Resources, No. 150, 
Spring (2003).

   The profit rate for 33 of NZ IFQ fisheries between 1990 and 
        2003 was estimated to be 20 percent, with significant variation 
        between fish stocks, where high-valued stocks experienced 
        greater rates than low-valued stocks, everything else being 
        equal.\5\
---------------------------------------------------------------------------
    \5\ Newell et al. supra note 4.

   Icelandic IFQ fisheries were estimated to yield a profit 
        rate of 25 percent.\6\
---------------------------------------------------------------------------
    \6\ R. Arnason. The Icelandic Individual Transferable Quota System: 
A descriptive account.'' Marine Resource Economics Vol. 8, No. 3 
(1993).

   The British Columbia (BC) Pacific Halibut Fishery is 
        estimated to have profit rates on the order of 60 percent.\7\
---------------------------------------------------------------------------
    \7\ James E. Wilen. Property Rights and the Texture of Rents in 
Fisheries in Evolving Property Rights in Marine Fisheries (ed. D. 
Leal). Rowman and Littlefield Publishers. Oxford. UK (2005).

   In fisheries without sufficient economic data to measure 
        profit changes, total revenues of fisheries under an IFQ or 
        cooperative have more than doubled.\8\
---------------------------------------------------------------------------
    \8\ Redstone Strategy Group and Environmental Defense Fund. 
Assessing the potential for LAPPs in U.S. Fisheries. (2007) (Available 
at http://www.redstonestrategy.com/documents/2007-03-
26%20Assessing%20the%20Potential%20for%20LAPPs%20in%20US%20Fisheries.pdf
)

   In NZ IFQ fisheries, approximately 30 percent of the cost of 
        monitoring and enforcing, including scientific research, is 
        funded by the quota owners.
Benefits of ownership of the catch shares include:
   Reduced incentive to race for fish, resulting in longer 
        seasons

     In the BC Halibut Fishery, the season length went from 
            10 days the year before the implementation of the IFQ 
            (1990) to 260 days the year after.\9\
---------------------------------------------------------------------------
    \9\ M. Herrmann. Estimating the induced price increase for Canadian 
Pacific halibut with the introduction of the individual vessel quota 
program. Canadian Journal of Agricultural Economics Vol. 44 No. 2 
(1996).

     In the U.S. Pacific Halibut fishery the season length 
            prior to implementation of the IFQ (1994) averaged 2-3 
            days. After implementation, the season length increased to 
---------------------------------------------------------------------------
            an average of 245 days.

     The season length went from 75 days in 1998 to 149 
            days in 1999 after the creation of the cooperatives in the 
            North Pacific Pollock fishery, even though the offshore 
            sector had a reduction in their allocation of the TAC. A 
            similar result occurred in the Pacific Whiting 
            Cooperative.\10\
---------------------------------------------------------------------------
    \10\ R. Townsend. Producer Organizations and Agreements in 
Fisheries: Integrating Regulation and Coasean Bargaining in Rents in 
Fisheries in Evolving Property Rights in Marine Fisheries (ed. D. 
Leal). Rowman and Littlefield Publishers. Oxford. UK (2005).

   Slowed pace of fishing, improving the ability to optimize 
        onboard processing facilities, resulting in increases in the 
---------------------------------------------------------------------------
        product recovery rate per pound of fish caught

     The Pacific Whiting Cooperative experienced increases 
            in product recovery from 17 percent to 24 percent, which 
            corresponds to approximately 10 million more pounds of 
            seafood from the same catch.\11\
---------------------------------------------------------------------------
    \11\ G. Sylvia, H. Munro Mann, and C. Pugmire. Achievements of the 
Pacific whiting conservation cooperative: rational collaboration in a 
sea of irrational competition in Case Studies in Fisheries Self-
goverance (Eds. R. Townsend, R. Shotton, and H. Uchida) FAO Fisheries 
Technical Paper No. 504. Rome, FAO. 2008.

     North Pacific Pollock Cooperatives product recovery 
            rate went from 19 percent in 1998 to 30 percent in 
            2007.\12\
---------------------------------------------------------------------------
    \12\ Pollock Conservation Cooperative and High Seas Catchers' 
Cooperative Final Joint Annual Report 2006 to the North Pacific Fishery 
Management Council, January 31, 2007.

   Incentives shifted from maximizing the quantity of fish 
---------------------------------------------------------------------------
        caught to maximizing the value of the catch.

     The product mix shifts to more valuable products, 
            which results in higher net value per pound of fish caught.

                  Since the creation of the cooperatives in the
                           Pacific Pollock fishery, the share of catch
                           going to produce fillets has increased.\13\
                           The shift to higher-valued end products was
                           also evident in the Pacific Whiting
                           Cooperative.
\13\ Id.
                  The NZ Red Snapper fishery moved from mainly a
                           frozen product to the live fish market in
                           Japan.\14\
\14\ R. Boyd and C.
 Dewees. Putting theory
 into practice:
 individual transferable
 quotas in New Zealand's
 fisheries. Vol. 5, no.
 2 (1992).
                  In the BC Halibut fishery, fresh product
                           increased from 42 percent of the catch to
                           over 90 percent after implementation.\15\
\15\ K. E. Casey et. al.
 The Effects of
 Individual Vessel
 Quotas in the British
 Columbia Halibut
 Fishery. Vol. 10 no. 3
 (1995); supra note 9.
                  Iceland's demersal fisheries experienced total
                           revenue increases of $6 million in 1984 due
                           to higher quality fish.\16\
\16\ supra note 6.


     Changes to the types of fishing methods (gear), 
            timing, and location of fishing improve the quality and 
            value of the fish caught

                  A skipper in Canada's fishing quota system is
                           quoted as saying how participants have the
                           opportunity to fish when prices are high or
                           ``work the market more.'' \17\
\17\ Knudson, T. 2003.
 ``Harvesting the Sea''
 Sacramento Bee
 (available online at
 http://www.sacbee.com/
 static/live/news/
 projects/denial/)



                  Surveys of Canadian fish processors working
                           with the BC Halibut fishermen support this
                           statement. For example, they noted that
                           fishermen were calling in to find out the
                           expected price of fish before heading out to
                           sea.\18\
\18\ supra note 15.



                  NZ fishermen reported shifting fishing trips
                           to later in the season when prices were
                           traditionally higher.\19\
\19\ supra note 14.
                  North Pacific Pollock fishermen report being
                           able to better target females during the roe
                           season.\20\
\20\ supra note 7.
                  NZ fisheries experienced changes from trawl or
                           seining to long-lining or gill netting to
                           improve on-board handling and quality of the
                           caught fish.\21\
\21\ supra note 14.


Benefits of the transferability of the catch shares include:
   Reduced number of vessels and fishing capacity.

     In the first year after the implementation of the 
            Pollock Cooperative, only 16 out of the 20 vessels fished; 
            only 6 out of 10 fished in the Pacific Whiting fishery 
            post-implementation of the cooperative.\22\
---------------------------------------------------------------------------
    \22\&& Townsend, supra note 10.

     New Zealand fisheries have seen a reduction in quota 
            owners on the order of 35 percent since the program's 
            inception in 1986. As of 2003, the majority of the 
            reductions were in mid-size firms.\23\
---------------------------------------------------------------------------
    \23\ J. N. Sanchirico and R. Newell. Analysis of Concentration and 
Consolidation in NZ Fishing Quota Markets: A Report to the New Zealand 
Ministry of Fisheries, June 2003.

     The Mid-Atlantic Surf Clam and Ocean Quahog fishery 
            has seen over a 54 percent decline in the number of 
            vessels.\24\
---------------------------------------------------------------------------
    \24\ S. Wang. The Surf Clam ITQ Management: An Evaluation. Marine 
Resource Economics Vol. 10, No. 1 (1995).

   Greater flexibility provided for participants to match quota 
---------------------------------------------------------------------------
        holdings with catches.

     The Pacific Whiting Cooperative reported lower rates 
            of bycatch post implementation.\25\ Whether the reduction 
            is due to the formation of the cooperative, however, is not 
            clear as the other non-coop sectors have also seen a 
            decline.\26\
---------------------------------------------------------------------------
    \25\ Townsend, supra note 10.
    \26\ Sylvia, supra note 11.

     Annual trades or leases of catches for the median fish 
            stock are on the order of 40 percent of the total allowable 
            catch in New Zealand, 30 percent in Iceland, and 40 percent 
            in South East Australian trawl IFQ fisheries.\27\
---------------------------------------------------------------------------
    \27\ J. N. Sanchirico, D. Holland, K. Quigley, and M. Fina. Catch-
quota balancing in Multispecies Individual Fishing Quotas. Marine 
Policy Vol. 30 No. 6 (2006).

   Incentives provided that lead to the TAC being caught at the 
        lowest possible costs, as higher-costs (less efficient) vessels 
        find it more profitable to sell or trade their shares than to 
---------------------------------------------------------------------------
        fish them.

     Unfortunately, the fact that very little economic data 
            and even less data on the costs of fishing in IFQ and 
            cooperative fisheries exist precludes me from providing 
            examples on the realized costs savings, although the 
            substantial values of quotas are indicative of both cost 
            savings and revenue increases.

     There are, however, some ex ante predicted estimates 
            of the potential cost reductions, which are on the order of 
            50 percent of total revenues in the Mid-Atlantic surf clam 
            and ocean quahog IFQ and cost reductions ($8 million) 
            greater than two times the potential revenue gains ($3 
            million) for 1993 in the Gulf of Mexico Red Snapper 
            fishery.\28\
---------------------------------------------------------------------------
    \28\ Q. Weninger. Assessing efficiency gains from individual 
transferable quotas: an application to the Mid-Atlantic surf clam and 
ocean quahog fishery. American Journal of Agricultural Economics Vol. 
80 No. 4 (1998); Q. Weninger and J. R. Waters. Economic benefits of 
management reform in the northern Gulf of Mexico reef fish Fishery, 
Journal of Environmental Economics and Management Vol. 46, No. 2 
(2003).
---------------------------------------------------------------------------
    One of the most powerful forces of change created by catch-share 
programs is a constituency whose wealth is a function of the health of 
the marine environment. In an IFQ fishery, the asset value from owning 
quota in perpetuity provides incentives to invest in the long-term 
sustainability of the fishery and the income to the members of the 
cooperative provides similar incentives.\29\ For example, Iceland Cod 
quota owners lobbied the government to create no-take marine reserves 
off of the northern coast of Iceland to protect spawning areas; New 
Zealand quota owners invest in scientific and value-added research, and 
have voluntarily shifted fishing efforts away from spawning areas.
---------------------------------------------------------------------------
    \29\ While the same incentives exist under both policies, they are 
arguably not as strong under a cooperative, as there is less long-term 
certainty. See, for example, the discussion in Sylvia supra note 11 
regarding the issues with respect to the Pacific Whiting cooperative.
---------------------------------------------------------------------------
    Wealth creation will lead to improved stewardship, sustainability, 
and further innovation to increase value.\30\
---------------------------------------------------------------------------
    \30\ Wilen, supra note 3.
---------------------------------------------------------------------------
    To summarize, in many fisheries, stocks are overfished, habitats 
are degraded, fishermen are scraping by from one season to the next, 
and the public is receiving very little return from its marine assets.
    This does not have to be the case. We have a large and growing body 
of evidence that management tools, such as cooperatives and individual 
fishing quotas, are a means to achieving sustainable marine 
populations, fishing communities, and returns on our natural assets.
    Thank you.

    Senator Cantwell. Thank you very much.
    Ms. Hughes, thank you for being here.

   STATEMENT OF LESLIE J. HUGHES, EXECUTIVE DIRECTOR, NORTH 
   PACIFIC FISHING VESSEL OWNERS' ASSOCIATION VESSEL SAFETY 
                            PROGRAM

    Ms. Hughes. Good afternoon, Madam Chairman. Thank you very 
much for the opportunity to testify on fishing vessel safety 
today.
    I am Leslie Hughes, the Executive Director of the North 
Pacific Fishing Vessel Owners' Association, or NPFVOA, Vessel 
Safety Program, a nonprofit organization totally dedicated to 
safety training and education of commercial fishermen. I have 
worked in the fishing industry for 33 years and 23 of those 
have been with NPFVOA since its inception. I have served 10 
years on the Coast Guard's commercial Fishing Industry Vessel 
Safety Advisory Committee and have recently been reappointed 
for another 3-year term.
    The vessel safety program was developed in 1985 in 
cooperation with the U.S. Coast Guard as a voluntary effort to 
improve the poor safety record of the fishing industry in the 
North Pacific. The success of the program is evidenced by 
attendance in our courses, which now exceeds 34,000, and of 
that, 70 percent is voluntary and not required by the Coast 
Guard, which speaks very well for the industry. It is regarded 
by the Coast Guard as the model safety training program for our 
country.
    Our program has a regional focus, is part of the community, 
and is very integrated into the fishing industry. Our program 
is ``by fishermen for fishermen,'' and our membership base of 
more than 200 vessels represents a broad range of gear types 
and approximately 150 support businesses and individuals. 
Having a vessel membership is extremely important because it 
further builds community involvement, helps to create a safety 
culture, and funds the program.
    NPFVOA serves a very diverse fleet that home-ports in 
Seattle and operates primarily in Alaska. The Seattle-based 
vessels account for about 85 percent of the catch in Alaska, 
which equates to about 50 percent of the Nation's entire 
seafood harvest.
    Our main interaction with this industry is through safety 
training, which we regard as a key component of safety and 
unquestionably a key factor in the prevention of casualties and 
improved emergency response. Other key factors are professional 
crews, well-constructed and maintained vessels, Coast Guard 
regulations and oversight, and how fisheries are managed.
    And I would now like to address several management schemes 
on which this hearing is focusing, the first being the AFA 
vessel replacement.
    The AFA has by most measures been an extremely good piece 
of legislation as, in part, it has established a well-reasoned 
rationalized fishery management program for our Nation's 
largest fishery, Bering Sea pollock. Its shortcoming is that it 
precludes vessel owners the ability to replace AFA-qualified 
vessels that could become worn out and increasingly unsafe over 
time. Under current law, to be replaced, a vessel must be a 
total constructive loss. This is an unreasonable predicament 
that badly needs to have the language amended so that vessel 
owners can replace aging vessels that become unsafe with new 
and modern vessels.
    Others here can address replacement language details, but 
the need is clear. Most of the Bering Sea pollock trawlers, for 
instance, were built in the 1970s and 1980s with a hull life 
expectancy of about 30 years. So corrective actions now are 
extremely timely.
    Second, rationalized fishery management and vessel safety. 
Rationalized fishery management programs off Alaska now exist 
for halibut, sablefish, Bering Sea/Aleutian pollock, Bering 
Sea/Aleutian king, Tanner, and snow crab and for the Amendment 
80 groundfish trawl fleet. These fisheries are managed by 
either co-ops or IFQ's. These management programs are similar 
in many ways and they share common advantages to vessel 
operations and vessel safety. Harvest quotas are allocated to 
co-op members or to individual owners for their exclusive usage 
during an extended season, which result in the following 
benefits. Vessels can plan for their season and conduct their 
fishing of their quota during reasonable weather at a 
reasonable pace to be safe and maximize economic returns, fleet 
consolidations, especially in the more overcapitalized 
fisheries, and improved economic viability for the active 
vessels.
    Example. The notoriously dangerous crab fishery sustained 
an average of eight fatalities per year in the 1990s, but in 
the past 3 years under IFQ's, there have been zero fatalities 
and no search and rescue missions on vessels participating in 
rationalized crab fisheries.
    And last, the Freezer Longline Cooperative. Thirty-two of 
the 36 vessels in the Freezer Longline fleet are active members 
of NPFVOA. Thirty-four of the 36 are members of the Freezer 
Longline Coalition that are asking Congress to be allowed to 
form a co-op. The NPFVOA strongly supports the Freezer Longline 
Coalition's ability to form a co-op which I believe will 
promote safer operations, minimize loss of life and vessel 
casualties, and improve efficiencies.
    Thank you.
    [The prepared statement of Ms. Hughes follows:]

   Prepared Statement of Leslie J. Hughes, Executive Director, North 
   Pacific Fishing Vessel Owners' Association (NPFVOA) Vessel Safety 
                                Program
    Thank you, Madame Chairwoman and Members of the Subcommittee, for 
the opportunity to testify today at this important hearing on fishing 
vessel safety.
    I am Leslie Hughes, Executive Director of the North Pacific Fishing 
Vessel Owners' Association (NPFVOA) Vessel Safety Program, a non-profit 
association totally dedicated to safety training and education of 
commercial fishermen. Our facility is located in Seattle. I have worked 
for NPFVOA since the inception of the Vessel Safety Program 23 years 
ago, and prior to that I worked for a leading Northwest naval architect 
and maritime law firm. During my career I have worked closely with many 
governmental agencies and served 10 years on the Coast Guard's 
commercial Fishing Industry Vessel Safety Advisory Committee (CFIVSAC). 
I was recently re-appointed to that committee for another three-year 
term.
The Vessel Safety Program
    The NPFVOA Vessel Safety Program was developed in 1985 in 
cooperation with the U.S. Coast Guard as a voluntary effort to improve 
the poor safety record of the commercial fishing industry in the North 
Pacific. Since the mid-1980s, I have seen significant improvements in 
safety practices within the industry. The success of our program is 
evidenced by attendance in NPFVOA's Coast Guard-approved safety 
training courses, which now exceeds 34,000, and of which 70 percent is 
voluntary and not required by the Coast Guard.
    It is extremely important that a program like this is built upon a 
cooperative effort between industry and the Coast Guard. Our program 
has a regional focus, is part of the community, and is very integrated 
into the fishing industry. We maintain that our program is ``by 
fishermen for fishermen.'' We raise funds to support NPFVOA mostly by 
vessel dues for membership, by class fees and by charging for 
educational safety materials we have developed. Having a vessel 
membership is extremely important as it further builds community 
involvement, and helps to create a ``safety culture.'' NPFVOA's 
membership base is comprised of more than 200 vessels, representing a 
broad range of gear types, and approximately 150 support businesses and 
individuals.
    Although NPFVOA's Vessel Safety Program is portable, it has been 
and remains focused on a very diverse and dynamic fleet that home ports 
in the Seattle area and operates primarily in Alaska. Seattle-area 
fishing vessels account for about 85 percent of the catch in Alaska, 
which equates to approximately 55 percent of the Nation's entire 
seafood harvest. The fleet ranges from 32 ft gill net vessels operated 
by crews of one or two people to 350 ft factory trawlers with crews of 
more than 120 people with diverse jobs and skills. NPFVOA's primary 
interaction with this industry is through safety training, which we 
regard as a key component of safety. It has unquestionably been a vital 
factor in improving how casualties can be prevented, and how people 
respond if faced with an emergency.
    Other key factors to the safety of our fishing fleets are 
professional crews, well constructed and maintained vessels, Coast 
Guard regulations and oversight, and how fisheries are managed. The 
Fishing Vessel Safety Act of 1988 implemented by the Coast Guard in 
1991 emphasized response capabilities, with much less emphasis on 
preventative measures. Some regional Coast Guard oversight actions and 
changes to how certain fisheries are managed have contributed 
significantly to prevention of casualties.
    I would now like to address several management schemes on which 
this hearing is focusing:
American Fisheries Act (AFA) Vessel Replacement
    The American Fisheries Act (AFA) has by most measures been an 
extremely good piece of legislation, as in part, it has established a 
well reasoned ``rationalized fishery management program'' for our 
Nation's largest fishery--Bering Sea pollock. The shortcoming of this 
act is that it precludes vessel owners the ability to replace AFA 
qualified vessels that could become worn out and increasingly unsafe 
over time. Under current law, to be replaced, a vessel must be a total 
constructive loss. This is an unreasonable predicament that badly needs 
to have the language amended so that vessel owners can replace aging 
vessels that become unsafe with new and modern vessels. Others on this 
and the next panel are better qualified than I to discuss replacement 
language details but the need is clear. Most of the Bering Sea pollock 
trawlers were built in the 1970s-1980s with hull life expectancy of 25-
30 years. Corrective actions are now extremely timely.
Rationalized Fishery Management and Vessel Safety
    Open access fishery management regimes influence safety because 
they establish the rules by which fishermen compete against one 
another. Under the right conditions, these regimes create latent unsafe 
conditions in the form of a highly competitive economic operating 
environment where fishermen are likely to significantly increase risk-
taking behaviors. These behaviors include vessel overloading, operating 
with minimal or no rest, and intentionally operating in hazardous 
weather in order to maximize catch and improve economic gain. 
Rationalized fishery management has the potential to positively impact 
safety by removing the economic necessity of these risk-taking 
behaviors.
    Rationalized fishery management programs off Alaska now exist for 
halibut, sablefish, Bering Sea/Aleutian pollock, Bering Sea/Aleutian 
king, Tanner and snow crab and for the Amendment 80 ground fish trawl 
fleet or by individual fishing quotas (halibut, sablefish and crab). 
These management programs are similar in many ways and they share 
common advantages to vessel operations and vessel safety. Harvest 
quotas are allocated to cooperative members or to individual vessel 
owners for their exclusive usage during an extended season. In 
practice, this means that vessels can plan for their season, and they 
can conduct their fishing, of their quota, during reasonable weather at 
a reasonable pace to be safe and maximize economic returns. Additional 
benefits under a quota-based system include fleet consolidations, 
especially in the more over-capitalized fisheries, and improved 
economic viability for the active vessels.
    I will offer one example of positive results--the notoriously 
dangerous Bering Sea/Aleutian king, Tanner and snow crab fishery. In 
the decade of the 1990s, prior to rationalization, these crab fisheries 
sustained an average of eight fatalities per year. In the past 3 years 
under new Individualized Fishing Quotas (IFQ's) fisheries management, 
there have been zero fatalities and no Coast Guard Search and Rescue 
missions on vessels participating in rationalized crab fisheries.
Freezer Longline Cooperative
    Thirty-two of the 36 vessels in the freezer longline fleet are 
active members of the NPFVOA Vessel Safety Program. Thirty-four of the 
36 vessels (94.4 percent) are members of the Freezer Longline Coalition 
that are asking Congress to be allowed to form a cooperative. The 
NPFVOA strongly supports the Freezer Longline Coalition's ability to 
form a cooperative, which I believe will promote safer operations, 
minimize loss of lives and vessel casualties, and improve efficiencies.
    To conclude, speaking for the Pacific Northwest and Alaska, there 
is no doubt that significant improvements to safety have occurred since 
the mid-1980s when the NPFVOA Vessel Safety Program was established. 
The National institute of Safety and Health (NIOSH) reports there has 
been a 51 percent decline in fatality rates among commercial fishermen 
in Alaska from 1990 to 2006. I believe such statistics are attributable 
to the safety training infrastructure that exists in our region, the 
proactive safety efforts by our fishermen, and the rationalized fishery 
management systems that have been put in place.
    Thank you for the opportunity to testify today on behalf of the 
NPFVOA Vessel Safety Program, and for holding this important hearing.

    Senator Cantwell. Thank you.
    Commander Woodley, thank you very much for being here.

          STATEMENT OF COMMANDER CHRISTOPHER WOODLEY, 
   THIRTEENTH COAST GUARD DISTRICT STAFF, U.S. COAST GUARD, 
                DEPARTMENT OF HOMELAND SECURITY

    Commander Woodley. Thank you, Madam Chair, for the 
opportunity to testify today. I am Commander Chris Woodley from 
the Thirteenth Coast Guard District in Seattle.
    Today I will provide testimony regarding the safety 
performance of cooperative and quota-based fishery regimes, how 
such regimes may affect the freezer longline fleet of the 
Bering Sea/Aleutian Islands, and will then briefly discuss the 
safety implications of the vessel replacement limitations as 
found in the American Fisheries Act.
    While the Coast Guard has long recognized potential safety 
concerns associated with open access fisheries and the 
attendant problems caused by the race to fish, we as an agency 
historically have been reluctant to support or oppose quota 
cooperative fishery management programs primarily because of 
the associated allocative controversies associated with those 
programs.
    In the past 15 years, however, the North Pacific Fishery 
Management Council has implemented such programs for four major 
fisheries in the Bering Sea/Aleutian Island management areas. 
There has been sufficient passage of time for researchers to 
objectively and scientifically evaluate the safety performance 
in the halibut and sablefish IFQ fishery, the Bering Sea/
Aleutian Island pollock catcher/processor cooperative, and the 
rationalized Bearing Sea/Aleutian Island king and Tanner crab 
fisheries. The safety performance for each of these fisheries 
was evaluated using specific metrics before and after 
implementation of quota-based or cooperative fishery programs. 
A summary of this research is as follows.
    Researchers found that quota-based and cooperative fishery 
management regimes have a strong potential to improve safety 
over open access fisheries. What is of note is that the 
improvements were operational and behavioral in nature and they 
are not easily achieved by the Coast Guard's limited 
legislative authority over commercial fishing vessels and their 
crews.
    Within each of the fisheries researched, we found that the 
fishing season lengths had increased, reducing pressure to take 
shortcuts on safety and allowing vessel masters the ability to 
avoid fishing in poor weather. Furthermore, more fishing days 
provided stable employment opportunities for full-time 
professional crews, and another improvement noted was that the 
fisheries proceeded at a slower pace, which resulted in reduced 
fatigue for crew members and higher quality product.
    Fishery-specific safety improvements are as follows. In the 
Alaska halibut and sablefish fishery, there were measurable 
declines in the fatality rates and search and rescue rates 
after the implementation of the IFQ system in 1995. In the king 
and Tanner crab fishery, vessels were found to carry fewer 
pots, reducing overloading and capsizing lists, and most 
importantly, there have been no fatalities, no vessel losses, 
and no search and rescue cases conducted by the Coast Guard 
since the implementation of the crab rationalization program.
    Based upon the record of safety improvements documented in 
other fleets, formation of the Freezer Longline Cooperative 
could potentially lead to slower fishing and processing pace, 
increased fishing days, flexibility to allow operators to avoid 
severe weather, reduced fatigue among crew members, a more 
experienced professional crew, and finally reduced pressure to 
fish when the vessel and crew are not ready.
    While this academic research has recorded positive results 
and identified a potential for safer operations in these 
fisheries, it is important to note that fishery management 
changes alone are not a panacea. There still remain very real 
economic pressures which can influence risk-taking behaviors by 
fishermen. As such, the Coast Guard believes that optimizing 
safety performance in the context of quota and cooperative 
fisheries can best be achieved through concurrent improvements 
in overall vessel condition and crew competencies.
    Within the freezer longline fleet, 30 of 36 vessels are 
already enrolled in the Alternate Compliance and Safety 
Agreement. This program was specifically developed for this and 
the freezer trawler fleet and participation requires vessel 
owners to possess updated stability reports, conduct regular 
dry dockings, inspect main propulsion and electrical machinery, 
upgrade fire prevention systems, carry enhanced lifesaving 
equipment, and greatly increase crew emergency training 
requirements. To date the fleet has invested over $40 million 
to meet these ACSA standards. The high safety standards of this 
program, combined with the potential safety benefits of a 
cooperative fishery structure, should significantly enhance 
safety for the 1,200 people working in the freezer longline 
fleet.
    Last, I would like to discuss the provisions of the 
American Fisheries Act.
    Provisions of the American Fisheries Act restrict 
construction of new fishing and fish processing vessels in 
certain Bering Sea/Aleutian Island fisheries and impose length, 
tonnage, and horsepower limitations on new vessels constructed 
in other fisheries. With the average age of fishing vessels in 
the Bering Sea/Aleutian Island fleet being 25 and 30 years old, 
these vessels are nearing the end of their service life. Given 
the increased safety risks associated with older vessels, 
safety would best be served by providing vessel owners the 
ability to retire aging vessels and replace them with modern 
vessels. In removing AFA restrictions, safety would be greatly 
enhanced because replacement vessels will be built to meet more 
stringent safety requirements, especially as it relates to 
watertight integrity and stability, and in the case of fish 
processing vessels, vessels would need to be classed and load-
lined.
    That concludes my testimony, Madam Chair, and thank you for 
this opportunity again. I would be pleased to answer any 
questions that you have.
    [The prepared statement of Commander Woodley follows:]

 Prepared Statement of Commander Christopher Woodley, Thirteenth Coast 
Guard District Staff, U.S. Coast Guard, Department of Homeland Security
    Good afternoon, Madam Chair, and distinguished Members of the 
Committee. I am Commander Christopher Woodley, Chief of External 
Affairs for the Thirteenth Coast Guard District. I am pleased to have 
this opportunity to appear before you today to discuss Commercial 
Fishing Vessel Safety and the Coast Guard's safety program and 
initiatives.
    The Coast Guard's Commercial Fishing Vessel Safety (CFVS) Program 
is aimed at improving safety in the commercial fishing industry, 
reducing the number of vessels lost, and reducing the number of 
fishing-related fatalities. The thrust of the existing CFVS Program is 
to gain compliance with the CFVS regulations through educational, 
voluntary, no-fault, dockside safety examinations and other outreach 
efforts. Regulatory enforcement is accomplished through at-sea 
boardings, which complement the CFVS Program. We also balance our 
prevention efforts with our response capabilities to minimize the 
consequences of the inevitable casualties that do occur.
    Historically, commercial fishing has been one of the most, if not 
the most, hazardous occupations, in the United States. In 2006, the 
Bureau of Labor Statistics found that commercial fishermen and workers 
aboard uninspected fishing vessels died at a rate of 141 per 100,000. 
For comparison, the fatality rate for the towing industry, another 
uninspected segment of the marine industry, was 17 per 100,000 workers, 
and in the American workplace as a whole, the rate was four deaths per 
100,000 workers.
    CFVS has long been a matter of concern to the Coast Guard, but 
limitations on regulating the safety of commercial fishing vessels have 
been encountered because they are classified as ``uninspected 
vessels.'' From the 1930s to the 1980s, various legislative proposals 
were introduced to increase safety standards for commercial fishing 
vessels, such as requirements for periodic safety inspections, 
watertight compartments, and licensing of vessel operators, but none of 
these proposals came to fruition.
    In 1971, the Coast Guard conducted a study and cost-benefit 
analysis of alternative safety programs for commercial fishing vessels. 
The report documented the fishing industry's poor safety record and 
attributed it to the fact that fishing vessels, with few exceptions, 
have traditionally been exempted from the safety regulations required 
of other commercial vessels. The study recommended licensing of 
masters, mandatory safety standards including full inspection and 
certification of new vessels, and mandatory and voluntary standards 
combined with inspection and certification of existing vessels. The 
report also drew parallel comparisons to the Small Passenger Vessels 
Safety Act of 1956, which required structural and loading standards and 
inspections on those vessels and led to an 80 percent reduction in 
passenger deaths.
    Proposed fishing vessel safety legislation based on the study was 
deferred until the National Marine Fisheries Service (NMFS) of the 
Department of Commerce (DOC) could complete a study on commercial 
fishing vessel insurance. In 1975, DOC recommended an alternative 
proposal for a voluntary safety program for fishing vessels. In July 
1976, the Secretary of Transportation forwarded copies of the Coast 
Guard's 1971 study to the Senate Committee on Commerce and the House 
Committee on Merchant Marine and Fisheries, but did not recommend a 
legislative program, citing the inflationary impact to the economy and 
an increased interest in a voluntary program by the commercial fishing 
industry.
    In 1978, the Coast Guard initiated a voluntary dockside uninspected 
vessel examination program. The purpose of the program was to improve 
safety throughout the uninspected fleet, including commercial fishing 
vessels. A project to develop a triennial dockside educational 
examination program was initiated, but was terminated in 1981.
    The 1980s saw a renewed awareness of fishing vessel safety, several 
tragedies, and finally safety standards legislation. A Coast Guard 
Fishing Vessel Safety Initiative Task Force 1984 studied how fishing 
vessel safety could be improved, and the Task Force recommended a two-
pronged approach. One part of the program promoted vessel safety 
through voluntary standards published in a Coast Guard Navigation and 
Vessel Inspection Circular (NVIC) in 1986. The standards were written 
primarily for fishing vessel designers, builders, outfitters, and 
marine surveys, and they are still referenced today. The second part of 
the program promoted crew safety through a safety guide developed by 
the Coast Guard and the North Pacific Fishing Vessel Owners' 
Association (NPFVOA), and both were permanently adopted by the Coast 
Guard Marine Safety Program in January 1987.
    The House Merchant Marine and Fisheries Committee's Subcommittee on 
Coast Guard and Navigation held a series of hearings on marine safety 
in 1984, which resulted in statutory amendments defining fishing 
industry vessels and clarifying inspection, licensing and manning 
requirements for fish processing vessels.
    In August 1985, the WESTERN SEA, a seventy-year-old purse-seiner 
with a crew of six, disappeared in the Bering Sea. Only the body of 
crewmember Peter Barry was recovered. After the death of their son, 
Ambassador Robert Barry and his wife Peggy Barry worked to galvanize 
safety advocates, government officials, lawmakers, casualty survivors 
and families of other fishermen lost at sea to renew the campaign for 
congressionally mandated safety standards.
    By 1987, bills were introduced to address fishing vessel safety and 
insurance liability. One bill specifically addressed vessel 
inspections, on-board equipment requirements, licensing and training of 
masters and crew, casualty reporting, and the establishment of a 
Fishing Vessel Safety Advisory Committee. A September 1987 National 
Transportation Safety Board (NTSB) study on ``Uninspected Commercial 
Fishing Vessels'' added support for the safety legislation being 
considered. The NTSB testified at hearings on their recommendations, to 
include minimum standards for: safety training, basic lifesaving 
equipment to include exposure suits, approved life rafts, emergency 
radios, Emergency Position Indicating Radiobeacons (EPIRBs), flooding 
detection and dewatering systems, fire detection, fixed firefighting 
systems, periodic inspection, prohibition of the use of alcohol or 
drugs when engaged in commercial fishing operations, education 
regarding the dangers of toxic gases in unventilated spaces, and the 
need for research on vessel stability.
    The Commercial Fishing Industry Vessel Safety Act of 1988 (P.L. 
100-424) was signed into law by the President on September 9, 1988. 
This resulted in the first safety legislation enacted in the United 
States applying specifically to commercial fishing vessels, and the Act 
gave the Coast Guard authority to prescribe safety regulations. The 
Commercial Fishing Industry Vessel Safety Advisory Committee (CFIVSAC) 
was formed, and in 1989, it began to aid the Coast Guard in the 
development of safety regulations. They were published as 46 CFR Part 
28, Requirements for Commercial Fishing Industry Vessels and became 
effective on September 15, 1991. In 1996, some requirements for safety 
equipment and vessel operating procedures were modified, but actions 
related to immersion suit and extended stability requirements were 
deferred. Those pending proposals were terminated in 1998.
    Pursuant to the Act, the Coast Guard began developing a plan for 
licensing operators of federally documented fishing industry vessels. 
The CFIVSAC prepared a detailed report for the Coast Guard and 
recommended ``certification'' of operators including ``competency'' 
requirements. In January 1992, ``A Plan for Licensing Operators of 
Uninspected federally Documented Commercial Fishing Industry Vessels'' 
was submitted to Congress. In May 1993, a revised plan was submitted. 
In 1996, a request was made for authority to license operators of 
commercial fishing industry vessels. Despite these efforts, to date no 
such authority has been granted.
    Also as mandated by the Act, the National Research Council (NRC) 
conducted a study on fishing vessel safety and the need for vessel 
inspections. Their report ``Fishing Vessel Safety--Blueprint for a 
National Program'' was published in 1991. It was reviewed by the Coast 
Guard and the CFIVSAC. Several of the recommendations were endorsed 
including the establishment of an inspection program for commercial 
fishing industry vessels.
    In November 1992, the Coast Guard submitted a report to Congress 
requesting authority to carry out commercial fishing industry vessel 
inspections under a three-tiered approach: (1) Allow for self-
inspection of new and existing vessels less than 50 feet in length, (2) 
Allow for third party examination of new and existing vessels greater 
than or equal to 50 feet but less than 79 feet in length, and (3) 
Require more extensive Coast Guard inspection and load line assignment 
on vessels 79 feet or greater in length. In addition, the inspection 
plan would have required new vessels 79 feet or more in length to be 
designed and built to class standards, and existing vessels of that 
length could have additional hull and machinery standards imposed if 
authority was granted. As with the licensing plan, no additional 
authority has been granted.
    In the absence of authority to inspect commercial fishing industry 
vessels, the Coast Guard embarked on an outreach and education program. 
The most noteworthy of these efforts is our voluntary dockside 
examination. During these voluntary examinations, a Coast Guard 
examiner works with vessel owners, operators and crew to explain 
requirements, check compliance with all Federal regulations, and when 
possible, assist the crew in correcting deficiencies. Any discrepancy 
discovered is brought to the crew's attention, but no penalties result.
    In carrying out the CFVS Program, the Coast Guard established new 
positions that were distributed across Coast Guard Headquarters, each 
District Office, and all Marine Safety Offices (now Sectors) throughout 
the country. Several additional positions were established in the 
program in 1996 to assist in training Boarding Officers. To provide 
essential training and encourage fishermen's participation in the CFVS 
Program, the Coast Guard placed damage control training trailers, 
damage stability trainers, intact stability trainers, and EPIRB test 
kits at District or Sector offices throughout the country.
    Aggressive safety outreach initiatives are complemented by 
compliance boardings at sea. Enforcement of certain critical safety and 
survival equipment carriage requirements deter non-compliance. Vessels 
found to be lacking critical equipment, being operated in an unsafe 
manner, or otherwise characterized as having especially hazardous 
conditions on board, have their voyages terminated. In addition, 
vessels identified as high risk, as determined by regional enforcement 
or safety personnel, may be targeted for boardings when sighted 
underway.
    Despite the progress as a result of the Act, the safety 
regulations, and various safety initiatives, the Coast Guard believes 
further significant risks remain. For example, in a three-week period 
during January 1999, four clam-fishing vessels (ADRIATIC, BETH DEE BOB, 
CAPE FEAR, and ELLIE-B), one conch-fishing vessel (PREDATOR), and 
eleven fishermen were lost. As a result of this surge of casualties, 
the Coast Guard convened a Fishing Vessel Casualty Task Force on 
January 27, 1999, that was comprised of representatives from the Coast 
Guard, NOAA, NMFS, NTSB and OSHA, along with industry advisors. The 
Task Force was charged with evaluating the circumstances of the recent 
accidents, examining the incidents in context of historical data for 
loss of life and property, providing quick feedback to the industry on 
the safety issues, reviewing the current CFVS Program and past 
recommendations that have potential for reducing loss, recommending the 
most significant measures that would have great potential for reducing 
loss of life and property, and developing direction and an action plan 
to be pursued by the CFIVSAC, the Coast Guard, and industry.
    The Task Force issued their report in March 1999. For this report, 
the Task Force examined two five-year periods--one period prior to 
passage of the Commercial Fishing Industry Vessel Safety Act (CFIVSA) 
of 1988, and the second period after the safety regulations became 
effective in 1991. From 1984-1988, 519 lives and 1,177 vessels were 
lost during commercial fishing operations. From 1994-1998, 351 lives 
and 699 vessels were lost in the industry. This represents 
approximately 37 percent fewer lives and vessels lost.
    The results of this Task Force indicated that the Coast Guard's 
CFVS Program coincided with a reduction in fishing vessel casualties. 
Several other factors are also believed to have contributed to the 
reduction in fatalities, in addition to the imposition of safety 
requirements. First is the reduction in the number of vessels and 
commercial fishing effort due to the distressed nature of the industry. 
Second, many fisheries management practices overseen by the National 
Marine Fisheries Service (NMFS) have changed to give increased emphasis 
on safety. The third factor contributing to reduced fatalities is 
partnerships with those organizations that are also concerned with 
safety within the commercial fishing industry. Most prominent among 
these partners is the National Institute for Occupational Safety and 
Health (NIOSH). NIOSH opened a field station in Anchorage, Alaska 
shortly after passage of the Act to focus on improved safety within the 
industry. Working with the Alaska Department of Fish and Game has 
resulted in a significant improvement in some Alaskan fisheries as 
well.
    The Task Force also concluded that most casualties could be 
prevented and that the continued high loss rates and risk to fishermen 
was not acceptable. The Task Force believed it was time to go beyond 
the minimal standards and strive for breakthrough levels of loss 
reduction in the fishing industry. The report, ``Living to Fish Dying 
to Fish,'' contained 59 safety recommendations divided into seven 
categories: Coordinate Fishery Management with Safety; Establish 
Operator and Crew Standards; Ensure Vessels Comply with Standards; 
Establish Safety and Stability Standards; Improve Program Management; 
Conduct Research and Development; and Inform Fishermen.
    Subsequent to the Task Force findings, the CFIVSAC met at Coast 
Guard Headquarters to review and evaluate the Task Force 
recommendations. At the same time, CFVS Coordinators from each Coast 
Guard District, the CFVS Program Manager, and fisheries law enforcement 
representatives met to discuss the Task Force report. Both groups 
provided recommendations for implementing the immediate and short term 
initiatives to improve safety in the fishing industry. Many of those 
actions were taken, others have been initiated over the following 
years, and others are still being pursued. The following are key 
actions that have been taken since 2000.

   The Coast Guard expanded training of NMFS agents and 
        observers on the dockside examination program and fishing 
        vessel safety matters and now sends representatives to Regional 
        Fisheries Management Council meetings to promote safety 
        concerns.

   The Coast Guard increased promotional activities on safety 
        and survival and included fishing vessel safety programs in 
        industry day-type activities.

   The Coast Guard expanded the role of the Auxiliary in the 
        CFVS Program. In some areas, Auxiliary examiners account for 
        approximately one third of examinations conducted.

   The Coast Guard established new positions in the CFVS 
        Program and a Fishing Vessel Safety Division at the 
        Headquarters level. The positions added CFVS personnel at each 
        of the Regional Fisheries Training Centers, the CFVS Program 
        staff, and numerous Marine Safety Offices (now Sectors) 
        throughout the country.

   The Coast Guard improved casualty investigation and data 
        analysis to support risk based decisionmaking and examines 
        casualties for ``lessons learned'' to provide feedback to the 
        industry to improve safety. Consequences articles are sent to a 
        national industry magazine.

   The Coast Guard has developed better lines of communication 
        with the commercial fishing industry and established a website 
        (www.fishsafe.info) on fishing vessel safety items.

   The Coast Guard publishes safety information fliers, quick 
        reference cards, and equipment requirement pamphlets for 
        distribution to the fishermen during dockside contacts and 
        other outreach programs. These items are being translated into 
        Spanish and Vietnamese.

   Coast Guard examiners emphasize emergency preparedness 
        drills as part of the voluntary dockside vessel safety 
        examinations.

   The Coast Guard initiated ``Safe Catch'' programs in several 
        regions where certain types of fisheries are known to be high 
        risk, such as Alaska, the Pacific Northwest, and the Northeast. 
        Under these programs, several examiners visit those port areas 
        prior to the season opening offering safety examinations and 
        drill training to ensure the fishermen and their vessels are 
        ready to get underway. Vessels that do not participate can 
        expect to be boarded during the fishery and checked for full 
        safety and survival equipment compliance.

   The Coast Guard has submitted proposals to conduct projects 
        for mandatory dockside safety examinations in certain regions 
        of the country where data shows fatality rates are the highest.

   The Coast Guard is considering options for developing 
        appropriate fishing vessel operator and crew competency 
        standards that directly addresses casualty risk.

   The Coast Guard is considering options for developing 
        appropriate fishing vessel safety and stability standards that 
        directly address casualty risk. We are currently working on a 
        regulatory project to extend stability and watertight integrity 
        standards to new fishing vessels 50 feet or greater in length.

    These improvements to the Coast Guard's CFVS Program have increased 
safety and have contributed to lower fatality and vessel loss rates in 
the commercial fishing industry. Through increased Coast Guard presence 
on the docks, risk-based and regionally focused compliance boardings, 
and other agencies' requirements for safety examinations, fishing 
vessel safety and awareness have improved. In 2000, the number of 
fatalities dropped to 37, over 50 percent from the 77 fatalities in 
1999. We believe this was a direct result of the findings, 
recommendations, and safety awareness generated by the Task Force 
subsequent to the multiple deadly sinkings in January 1999. In 2001, 
fatalities spiked to 58. Most of these, however, can be attributed to 
one incident, the sinking of the ARCTIC ROSE which claimed 15 lives. An 
overview of the statistics and measures for the CFVS program for 1992-
2007 are provided in Table 1.
    The impact of the safety legislation and regulations, and 
subsequent safety initiatives can be seen in the reduction of fatality 
averages, but are not as significant for vessel losses. Prior to the 
Act passage in 1991, fatalities averaged around 120 per year. After the 
Act and until the Task Force in 1999, the fatality average dropped to 
about 76 per year. Following the Task Force to present, the fatality 
average has been approximately 42 per year. For the same time periods, 
the averages for vessel losses fell from approximately 138 to 100.

                     Table 1.--Commercial Fishing Vessel Safety (CFVS) Statistics 1992-1999
----------------------------------------------------------------------------------------------------------------
                                                   1992    1993    1994    1995    1996    1997    1998    1999
----------------------------------------------------------------------------------------------------------------
Voluntary Dockside Exams                           3,662   7,162   7,212   7,808   6,843   6,351   5,652   7,225
Safety Decals Issued                               1,661   3,432   3,545   3,929   3,719   3,451   3,485   3,992
CFV Fatalities (Operational)                          85      89      75      62      82      61      71      77
Vessel Losses (Operational)                          139     148     153     117     166     138     125     123
----------------------------------------------------------------------------------------------------------------


                       Commercial Fishing Vessel Safety (CFVS) Program Measures 2000-2007
----------------------------------------------------------------------------------------------------------------
                                                   2000    2001    2002    2003    2004    2005    2006    2007
----------------------------------------------------------------------------------------------------------------
Voluntary Dockside Exams                           7,193   6,527   5,826   5,636   7,024   7,408   7,936   7,417
Safety Decals issued                               3,294   3,681   1,846   1,880   2,518   2,500   3,204   3,063
Compliance Boardings                               3,883   3,610   3,845   4,876   6,174   7,088   7,032   7,078
CFV Fatalities (Operational)                          37      58      37      43      37      42      42      31
Vessel Losses (Operational)                           85     133     122     107     112      99      75      61
----------------------------------------------------------------------------------------------------------------

    In a more recent safety initiative, an alternate compliance and 
safety agreement program was developed with the industry. The Bering 
Sea/Aleutian Island (BS/AI) and Gulf of Alaska (GOA) freezer longliner 
and freezer trawler fleet, referred to as the Head and Gut (H&G) fleet, 
occupy a unique niche in the North Pacific fishing industry, both with 
regards to vessel operations and to their regulatory status as 
``fishing vessels.'' \1\ Unlike other catcher vessels which deliver 
fish in the round to shore plants, H&G vessels catch, sort, head, 
eviscerate, clean, and prepare fish into various fish products on board 
the vessel. These products are then frozen, packaged, and stored on 
board until offloaded. There are approximately 40 freezer longliners 
and 23 freezer trawlers which make up the H&G fleet. These vessels 
range in length from 90 feet to 220 feet.
---------------------------------------------------------------------------
    \1\ A fishing vessel is defined in Title 46 United States Code 
(USC), Section 2101 (11a) as a vessel ``commercially engages in the 
catching, taking, or harvesting of fish or an activity that can 
reasonably be expected to result in the catching, taking, or harvesting 
of fish.''
---------------------------------------------------------------------------
    To create fish products on board, H&G vessels have a crew 
complement which range from 15-55 people, with an average size of 20 
crew members for H&G longliners and 35 crew members for H&G trawlers. 
In contrast, the crew size of a fish catcher vessel in the Bering Sea 
is typically 5-6 crew members. Because the H&G operation requires 
production, freezing and packaging of their catch, hazardous gases 
(anhydrous ammonia or Freon), foam insulated cargo holds, and flammable 
packaging materials are present on board in large amounts. 
Additionally, because of their ability to store frozen catch on board, 
these vessels can operate in the most remote areas of the Bering Sea, 
far from search and rescue support. These factors result in increased 
safety and operational risks to this fleet.
    More than any other fishery in the North Pacific, the safety issues 
facing this fleet are inseparably intertwined with the statutory 
definition of ``fish processing,'' fishery resource management issues, 
and an inability to come into compliance with existing safety 
regulations. To address the safety problems and the other conflicts 
associated with the H&G fleet, the Coast Guard developed a broad-based 
initiative called the Alternate Compliance and Safety Agreement (ACSA).
    The Coast Guard developed the ACSA initiative with extensive 
consultation and support from the North Pacific Longline Association, 
the Groundfish Forum, the North Pacific Fishing Vessel Owners 
Association, and numerous vessel owners and operators from the H&G 
fleet. The overarching goals for this initiative are to significantly 
improve safety in the H&G fleet in a reasonable and practicable manner. 
The initiatives allowed the H&G fleet to continue production of its 
historically important fish product lines. It integrates certain 
aspects of fishery management with vessel safety by taking into account 
the H&G fleet's need to meet future by-catch Improved Retention/
Improved Utilization (IR/IU) requirements.
    Freezer longliners are referred to within the industry as longline 
catcher processors or factory longliners. There are 29 Washington-based 
freezer longliners. These vessels are primarily 120 to 190 feet in 
length, steel hulled, shelter decked, predominantly of schooner style, 
but also house forward style. Freezer longliners have limited deck 
lifting gear but have a characteristic starboard side hull cutout line 
hauling station under the shelter deck and a second cut in the stern 
shelter deck area for gear setting. Most freezer longliners are 
equipped with automatic baiting machines which enables them to bait and 
haul about 30,000 to 40,000 hooks per day. Below decks, these vessels 
are set up much like similar-size freezer trawlers with heading and 
gutting machines, plate freezers and lower level freezer holds for 
their frozen products. With one or two exceptions these vessels are not 
loadlined.
    Freezer longliners harvest primarily Pacific cod from the BS/AI. 
Secondary fisheries include halibut and sablefish under the individual 
fishing quota (IFQ) system, and some Greenland turbot. Several vessels 
in this fleet also dress and custom freeze salmon during their off cod 
season summer period.
    A typical vessel in this fleet is corporate owned and has a fair 
market value of $3.5-$6.0 million. This fleet is fairly stable in 
numbers although substantial ownership changes have occurred over the 
past several years due to financial problems of some vessel owners. 
Revenues realized by this fleet likely reached a low point in 1998 due 
both to depressed Asian market prices for headed and gutted frozen cod 
and reductions in Bering Sea cod catch quotas. The economics of this 
fleet have improved. This fleet is very single species dependent and 
would be adversely impacted by further reductions in cod catch quotas. 
Freezer longliner cod fisheries begin January 1, extend into April or 
May, then start again September 15 and carry into November or December. 
Secondary fisheries for Greenland turbot typically follow the spring 
cod fishery. In-port time for freezer longliners is primarily in the 
late spring to early September and in the late fall to mid-December. 
This fleet uses Fishermen's Terminal, but at a modest level due to 
their long season and yard schedules.
    Freezer trawlers homeported in Washington and conducting groundfish 
fisheries in Alaska number 19 vessels. Freezer trawlers are primarily 
130 to 200 feet in length, steel hulled, stern ramp trawlers rigged 
with one or two gantries and on-deck lifting gear much as catcher 
trawlers. Below the fishing deck is the fish processing deck with plate 
freezers where their catches are headed, gutted, cleaned, sized and 
frozen in blocks each weighing about 400 pounds. Below the processing 
deck are the freezer holds capable of storing 200-500 metric tons of 
frozen product. Off loads are primarily to freighters for export of 
their product to Japan and Korea, but also include offloads shore side 
to freezer vans for domestic and European markets. Freezer trawlers 
harvest primarily flounders like yellowfin sole, rock sole, flathead 
sole, and Dover sole, as well as Atka mackerel and a variety of 
rockfishes.
    A typical freezer trawler is corporate owned and has a fair market 
value of $5.0-$8.5 million. The freezer trawler fleet is stable in 
number of vessels, moderately to well maintained and is economically 
viable but somewhat economically depressed at present. Revenues 
realized by this fleet have fallen by more than 20 percent in the past 
5 years due primarily to the state of the Asian economies coupled with 
the closure of some of their best fishing grounds for protection of 
Bering Sea crab and Steller sea lions. The economics of this fleet are 
heavily tied to Asian exports and to the Asian economy. Freezer trawler 
revenues in the next 5 years will likely remain somewhat depressed due 
to the combination of competing supplies of headed and gutted fish from 
Russian waters harvested by Japanese and Korean vessels. Also, bycatch 
restrictions imposed on this fleet in Alaska to protect crab and 
halibut are likely to become more restrictive.
    Freezer trawlers fisheries are spread out over about 9 months per 
year. Their operations begin January 20 and typically wind down in 
October. Their in-port times are primarily late October through early 
January. During this period some freezer trawlers moor at NW Dock 2, 
for repairs and re-provisioning. Overall, this fleet's use of the 
Fishermen's Terminal is fairly limited to shipyard work during their 
limited lay-up period.
    Commercial fishing off the coasts of California, Oregon and 
Washington pose a concern to the Coast Guard's safety program. The 
fatality rate in this region is about double the national rate, with 
the Dungeness crab fishery having the highest rate. Most of the 
fatalities occur as a result of their vessels capsizing or sinking. A 
large percentage of fatalities also occur from falls overboard. Weather 
conditions and large waves are contributing factors in these 
casualties, as well as lack of use of lifesaving equipment. The Coast 
Guard has stepped up initiatives to educate fishermen on the hazards 
they may face, ensuring they have the required safety equipment and are 
trained in its use, and is seeking to examine vessels before the 
fishing seasons.
    In an effort to improve safety throughout the commercial fishing 
industry and in all regions of the country, the Coast Guard is trying 
to reach more fishermen. Compliance with the safety regulations is 
required, but participation in Coast Guard programs and dockside 
examinations is voluntary. The Coast Guard published an Advance Notice 
of Proposed Rulemaking (ANPRM) for Commercial Fishing Vessel Safety on 
March 31, 2008. The proposed changes would further enhance safety by 
adding new requirements for, but not limited to: stability on vessels 
50-79 feet; maintenance and self-examination; safety and other 
training; drill conductors on board; survival suits in seasonally cold 
waters, and documentation of maintenance, testing, and training 
performed. The Coast Guard is seeking comments on the need for and the 
impact of the rules being considered on the industry and individual 
fishermen.
    The Administration, including the Coast Guard and NMFS, strongly 
support improvements in the safety of fishing vessels and fishing 
operations. NMFS is responsible for ensuring that fisheries management 
promotes safety. With a reauthorized Magnuson-Stevens Fishery 
Conservation and Management Act, NMFS has the authority to promote 
safer fishing operations in several ways: (1) better focused 
assessments of the safety impacts of management measures, (2) stronger 
safety requirements of our observer program, (3) limited access 
privilege programs that improve safety, (4) financial incentives that 
reduce the costs of safety upgrades, and (5) collaboration with other 
agencies in negotiations paving the way for eventual ratification and 
entry into force of an existing international agreement on fishing 
safety. We believe that continued progress in vessel standards and 
fisheries management is the most practical and comprehensive strategy 
for achieving sustainable improvements in safety at sea.
    In summary, the Congress, Commercial Fishing Industry Vessel Safety 
Advisory Committee, commercial fishing industry, NMFS, and the Coast 
Guard have all worked to improve safety on commercial fishing vessels, 
but there is still much work that can be done. We are continuously 
improving our response posture and capabilities so as to minimize the 
consequences when vessel casualties do occur.
    Thank you for this opportunity to discuss commercial fishing vessel 
safety. I will be pleased to address any questions that you may have.

    Senator Cantwell. Thank you, Commander Woodley, and thank 
you to all the panelists.
    Actually, Commander Woodley, I think I am going to start 
with you. Do you know, is there a safety record for the fleet 
overall?
    Commander Woodley. For the longline fleet, ma'am?
    Senator Cantwell. In general.
    Commander Woodley. Yes. The Coast Guard does track safety 
at a district level, individual casualties, both major 
casualties such as vessel loss or loss of personnel, down to 
individual casualties such as loss of propulsion, loss of 
electrical, things like that. So, yes, we do track all of that.
    Senator Cantwell. So do you put a grade to it or how do you 
determine----
    Commander Woodley. With the Bering Sea/Aleutian Island 
freezer longline fleet, the fleet actually has a very good 
safety record as compared to other fisheries. Their primary 
problem is man overboard, followed by occasional industrial 
accidents that happen in the factory and are matters of ocean 
jurisdiction. But then you also have the rare but very high 
risk potential of vessel loss such as the fishing vessel Galaxy 
where you can lose numerous crew very quickly, and that was 
actually the reason the Alternate Compliance and Safety Program 
was put together, was to prevent those catastrophic casualties.
    Senator Cantwell. Is that where we should be directing our 
attention? Is that what you are saying?
    Commander Woodley. Yes, ma'am.
    Senator Cantwell. In all the safety issues, you think where 
the Coast Guard or all of us should be directing our attention 
is relation to man overboard or----
    Commander Woodley. Man overboard is a big problem 
nationally, but I think that is probably one of the most 
difficult issues to solve. The focus again that we looked at 
for the Bering Sea and the Alternate Compliance and Safety 
Program was looking at the issue of vessel loss and preventing 
that through preventative measures such as new stability 
reports, hull inspection, dry docking, things like that.
    Senator Cantwell. So where does vessel replacement fit into 
that?
    Commander Woodley. Vessel replacement fits into that in 
that because you have older vessels, as these vessels get 
older, they tend to incur more safety problems over time. It 
gets more expensive to maintain them. So building new vessels 
with the new safety requirements that are required as part of 
the Fishing Vessel Safety Act would significantly upgrade the 
safety of those boats.
    Senator Cantwell. So how would you rank that then? 
Something that is important to get done? I mean, you said you 
had this compliance program for safety and management.
    Commander Woodley. Yes, ma'am. In the context of the Bering 
Sea/Aleutian Island fisheries, that is one of the top 
priorities of the Thirteenth District is to get all those 
vessels through the program.
    Senator Cantwell. So I am asking where does vessel 
replacement fit into that? Is it an addition and----
    Commander Woodley. Yes.
    Senator Cantwell.--desperately needed or is this program 
working well?
    Commander Woodley. I think ultimately because the Alternate 
Compliance Program is an alternative program to class and load 
line, the goal for the--I am speaking particularly of the fish 
processing vessels--would be to get new vessels in there. That 
is where your highest risk is. That is where the most people 
are on board, and that is the Coast Guard's focus. We would 
like to see those boats.
    Senator Cantwell. Better vessels.
    Commander Woodley. Yes, ma'am.
    Senator Cantwell. It is part of the consideration. OK.
    Ms. Hughes, in your experience, do you believe that we need 
more stringent safety regulations?
    Ms. Hughes. My perspective on that is that what we have got 
from the Fishing Vessel Safety Act of 1988 was pretty much the 
closest thing we will see to a one-size-fits-all regulatory 
package, but it is not really looking at prevention. It 
predominantly addresses emergency response. So I think we need 
to collectively be looking at more preventative measures. For 
instance, in the vessel rebuild issue, a safe platform is one 
of the key elements that you want. You want to keep people out 
of the water. That is when their risk is the greatest.
    Another interesting statistic is that the National 
Institute of Safety and Health, NIOSH, their Alaska field 
office did a study of the casualties, which they track very 
closely in Alaska. The casualty rate in the commercial fishing 
industry between 1999 and 2006 was reduced by 51 percent, which 
is really significant. So I think that----
    Senator Cantwell. By reducing the race for fish you are 
saying.
    Ms. Hughes. Well, that is certainly a definite part of it 
for the fisheries that were rationalized during that period of 
time. There are a lot of factors that actually have to play 
together to really get a safety culture and make the 
improvements.
    Senator Cantwell. So what further practices do you think 
that we need to do in vessel replacement?
    Ms. Hughes. I think that when I answered your question 
before, it was really that we need Coast Guard oversight. If 
you look even around the country, nationally the Coast Guard's 
oversight of the industry varies dramatically, and in some 
areas it is virtually nonexistent. So what we have had with 
District 13 and District 17 and largely the work of Commander 
Woodley is some initiatives that absolutely were factors in the 
reduction of the casualty rate.
    Senator Cantwell. Commander Woodley, would you like to 
respond to that?
    Commander Woodley. Madam Chair, the major reduction that 
Leslie spoke of as measured by NIOSH was in the Bering Sea/
Aleutian Island crab fleet from 1999 through 2005 where the 
Coast Guard implemented at-the-dock stability checks prior to 
the start of the red king crab and opilio crab fisheries. The 
Coast Guard came into the ports of Dutch Harbor, St. Paul, and 
King Cove and examined the vessels as they were loading their 
boats to make sure that they were not overloading because what 
we found in our company analysis through the 1990s was that was 
the primary cause of vessel loss, was overloading boats, boats 
operating fully loaded in poor weather and icing conditions. 
And by going on board and spot-checking boats and making sure 
they were not overloaded and also making sure that all the 
proper lifesaving equipment was on board and functional, not 
only did we prevent casualties, but when the rare casualties 
did occur, they had the proper safety equipment and were able 
to get rescued.
    Senator Cantwell. Dr. Sanchirico, is there more that we 
should be doing on fishing management that would help in the 
safety regime area?
    Dr. Sanchirico. I think that this hearing and moving 
rationalization forward throughout the country is the way to 
achieve most of the safety gains that we have heard about 
today. And so as much as this Committee can do that, I think 
that is the way we need to go to address the safety issues. 
There is just no way in a race for fish that safety concerns 
will rise to the level necessary that we think they should as a 
society. There is just too much competition for that catch. And 
so once you remove the race to fish with rationalization, then 
you will see the slower pace of fishing and the gains 
associated with that in safety.
    Senator Cantwell. So, Ms. Hughes, before you were starting 
to talk about the longliner issue and whether you think that 
would be a good management system for more safety in that 
particular area.
    Ms. Hughes. Positively. They are the last major fishery in 
Alaska that has not been rationalized. For instance, in the 
Bering Sea pollock fleet, the requirement for that group to 
form a cooperative was at the 80 percent level, and right now 
the members in the Longline Coalition would be 94.4 percent, 
with just two vessels not in favor of that. So it would seem 
reasonable to me that they should not necessarily be held to a 
higher standard than the pollock fleet. If 80 percent was 
acceptable for them, it would seem reasonable for this group as 
well, given the benefits.
    Senator Cantwell. And how about--I do not know if you are 
familiar, but there is a Coast Guard bill in the House of 
Representatives as well that is considering safety inspections 
twice every 5 years, required safety training and 
implementation of vessel construction standards. Have you 
reviewed that legislation? Do you have any thoughts on that 
language?
    Ms. Hughes. Right, yes. Of course, the devil is in the 
details. But there are certainly a lot of positive aspects to 
that House bill. There are some that I do not honestly know 
what the real repercussions would be nationally to take some of 
those down to a 50-foot length vessel. That would be best left 
to naval architects and class societies.
    Senator Cantwell. Commander Woodley, do you have any 
comments about that?
    Commander Woodley. The Coast Guard supports the section 307 
provisions of House bill 2830, but as Leslie said, there are a 
lot of issues in the details of how it would work out. And we 
would have to be careful to avoid inadvertent consequences.
    Senator Cantwell. We have not talked about--I mean, we are 
talking about safety from a whole variety of perspectives, 
obviously, training and vessels and management policies. But 
Dr. Sanchirico, if you could talk about the environmental 
impacts of fisheries management and cooperatives. Are we 
getting something additionally?
    Dr. Sanchirico. There are a couple areas where slowing down 
the race for fish, addressing the rule of capture incentives 
has environmental benefits. First, it is how the total 
allowable catch is set, where total allowable catch is the 
catch on fishing in these systems. And so, for example, in some 
of the New Zealand fisheries that I have studied, when they 
went into the individual fishing quota system, they had 
significant reductions in the TAC's. Since that time, those 
stocks have since recovered, and what we have found is that 
those fisheries actually turned out to be the most profitable 
or have seen the greatest increases in profit in the New 
Zealand system. In other words, there is an important link 
between the ecological sustainability and the economic return, 
the profitability of a fishery.
    Second, the slower pace of fishing is completely consistent 
with a reduction in habitat damage. For example, in the New 
Zealand red snapper fishery, they went from a trawl fishery, 
which was a frozen product, to a fishery that sells into the 
live fish market. As a result, the fishery is being harvested 
by very different types of gear, and one that is much more 
minimizing in terms of its potential habitat damages.
    With respect to by-catch issues, we have seen discussions 
in the literature about potential reductions in levels of by-
catch on rationalized fisheries. British Columbia groundfish 
fisheries has some of the most work done there.
    And finally, as I touched on in my testimony, the creation 
of wealth in these fisheries creates stewardship incentives, 
and we have seen these incentives manifest around the world. 
For instance, there are examples in Iceland where the cod 
fishery under an individual fishing quota system lobbied the 
government to close spawning areas that were currently open to 
fishing. We have the same sort of experiences in New Zealand 
where the industry turned around and lobbied for creation of 
marine reserves or closures in particular areas or moved their 
fishing at different times of the year to avoid spawning 
aggregations. So we see it through multiple dimensions, but it 
goes back to ending the race for fish, allocating shares to the 
catch and creation of wealth that ensues.
    Senator Cantwell. Well, thank you very much. I want to 
thank the panelists. We have a second panel that I want to get 
to only because I have been handed the note that we are 
probably going to have another vote at 4 o'clock. So I thank 
you for your patience, as I said earlier, and if you would be 
open to any other questions we might submit to you for the 
record. We appreciate your timely answers to those.
    So now we will call up the second panel, if we could. Mr. 
John Bundy, President of Glacier Fish Company; Mr. Mike Hyde, 
Advisor for American Seafoods Group; Ms. Donna Parker, Director 
of Government Relations for Arctic Storm; and Mr. David Frulla, 
Partner at Kelley Drye, representing the Fishing Company of 
Alaska. Welcome to all of you. Thank you for being here today.
    As with the previous panel, if you could keep your remarks 
to 5 minutes. We are, obviously, willing to accept longer 
testimony for the record, but to give us time to get through 
the second panel, that would be much appreciated. It looks like 
we are going to start with you, Mr. Bundy. We appreciate you 
being here, as well as many of the other people from the panel 
traveling from the other coast to be here in Washington, D.C.

              STATEMENT OF JOHN BUNDY, PRESIDENT,

             GLACIER FISH COMPANY ON BEHALF OF THE

                   FREEZER LONGLINE COALITION

    Mr. Bundy. Madam Chair, thank you for having this hearing. 
My name is John Bundy. My perspective is as President of the 
Glacier Fish Company and having recently completed 9 years on 
the North Pacific Council. Glacier is based in Seattle, owned 
by two families principally and in addition by the Norton Sound 
Economic Development Corporation which represents 15 member 
communities of over 8,400 people in the Bering Strait region of 
northwest Alaska.
    Glacier owns and operates two trawl pollock vessels, now 
three, and two freezer longline vessels.
    I am going to talk about first the freezer longline 
proposal. I am testifying on this matter for the Freezer 
Longline Coalition.
    The members of the coalition are the owners of 34 of the 36 
vessels authorized by the council to participate in the freezer 
longline sector of the Bering Sea cod fishery. This fishery is 
the first cod fishery in the world to receive certification 
from the Marine Stewardship Council as sustainable, but under 
the current fishery management plan, it is still a race for 
fish, resulting in substantial safety concerns and unnecessary 
waste.
    Fishery cooperatives and other forms of rationalization are 
not new management concepts to West Coast fisheries. The 
freezer longline cod sector is the last remaining major fishery 
yet to be rationalized in the Bering Sea.
    You have already heard, I think, compelling testimony today 
about voluntary harvest co-ops being superior management tools 
for safety and numerous other reasons. The benefits of those 
co-ops are summarized by the State of Washington in its letter 
of support and also the Environmental Defense Fund in its 
letter of support. They include a list: improved safety, 
reduced ecosystem impacts, increased product quality and supply 
to consumers, removal of incentives for overcapitalization, 
improved financial stability. Fishing in a co-op will allow the 
fleet to slow down and choose better weather. No longer will 
the skipper and crew feel compelled to start on January 1 
regardless of ice and storm conditions.
    The problem that we have is that a voluntary harvest 
cooperative requires 100 percent agreement for the simple 
reason that a non-member is free to continue racing for the 
entire quota. Over 4 years now, our sector has worked to 
establish a cooperative with 100 percent approval, but has 
failed in that respect because one company has refused to 
participate. Faced with this type of situation, Congress in the 
AFA adopted the approach that we advocate here: define a 
subpool of the quota which reflects what the non-joiners would 
reasonably be expected to harvest under current conditions and 
let them race for it and leave the remainder to the co-op to be 
managed by the council and the National Marine Fisheries 
Service.
    The legislation proposed by the coalition would not in any 
manner lesson the council's authority to manage the cod 
fishery. It would simply provide a basic tool, modeled on the 
AFA, that would allow formation of a voluntary harvest 
cooperative.
    Support for this also comes from the State of Washington 
which states in its letter, ``The Department''--``Department'' 
referring to the Department of Fish and Wildlife--``is strongly 
in support of cooperative fishing efforts for the Washington 
and Alaska based fleets,'' supported the recent actions by the 
Council in restructuring the cod fishery, and the department 
expected that the freezer longline sector would be able to form 
a voluntary cooperative as a result of the Council's action.
    But now it appears that without Congressional action, the 
race for fish will continue. And we respectfully ask the 
Members of the Subcommittee to act by introducing legislation 
that would provide the fleet a basic tool to form the co-op.
    Now, in the little bit of time I have left, I am going to 
comment also on the AFA rebuild issue. Really, the first panel 
pretty much covered my arguments. So let me just mention a 
couple of things sort of, I guess, defensively.
    The question has been asked, since those restrictions are 
in the AFA, why do you not stick by your deal? The answer is 
that when we, the pollock industry, did the AFA, it was pretty 
much an experiment. We did not know exactly what would be the 
outcome of the AFA in terms of rationalizing the fisheries. The 
offshore, for example, had to be able to form a voluntary co-
op, which they were able to do. And in fact, every single 
vessel in the pollock industry, over 200 of them, ended up in 
co-ops. So the legislation was very effective in rationalizing 
that fishery, and now we have a known entity. And for that 
reason, the restrictions really no longer make sense because we 
know what we have.
    And only two concerns have been raised that I am aware of. 
One is, will allowing the vessels to modernize themselves and 
to rebuild or replace somehow upset the co-ops and upset the 
rationalization and the achievements that we have achieved? The 
answer is that the co-ops have simply proven so valuable that 
they are going to be staying there, and NMFS certainly supports 
them. And the entire industry, all sectors of the industry, 
supports the ability to rebuild or replace as needed.
    The second concern that I have heard is that perhaps with 
bigger vessels or greater technology, there would be a 
spillover effect into other fisheries. That will not happen 
because the AFA itself has built in a number of restrictions 
preventing pollock vessels participating in other groundfish 
fisheries. This legislation, as passed by the House twice, 
would even add more restrictions so that, for example, if a 
vessel is replaced, the old vessel must exit from all fisheries 
in the U.S.
    So I will end with that. Thank you, Madam Chair.
    [The prepared statement of Mr. Bundy follows:]

 Prepared Statement of John Bundy, President, Glacier Fish Company on 
                behalf of the Freezer Longline Coalition
    Thank you, Madame Chairman and Members of the Subcommittee, for the 
opportunity to testify. I am John Bundy, president of Glacier Fish 
Company. Based in Seattle, Washington, Glacier Fish Company is 
principally owned by two Seattle fishing families and the Norton Sound 
Economic Development Corporation (NSEDC). NSEDC is a private nonprofit 
corporation representing 15 member communities and over 8,400 people in 
the Bering Strait Region of Northwestern Alaska. NSEDC is one of six 
Community Development Quota (CDQ) organizations. I have a broad 
perspective of fisheries management issues in the North Pacific having 
recently completed 9 years of service on the North Pacific Fisheries 
Management Council (Council) on which I was one of three voting members 
appointed by the Governor of the State of Washington.
    Glacier Fish Company owns and operates three trawl catcher/
processor vessels that participate in the Bering Sea Alaska pollock 
fishery. Two of those vessels are eligible as well to participate in 
the catcher/processor sector of the west coast Pacific whiting fishery. 
Our company also operates two freezer longline vessels that participate 
in the Bering Sea/Aleutian Island (BSAI) Pacific cod fishery.
    I am here to testify today in favor of two issues being considered 
by the Subcommittee. The first issue is a legislative proposal to 
facilitate the formation of a fish harvesting cooperative for the 
freezer longline sector of the BSAI Pacific cod fishery. The second 
issue is a provision in the House-passed Coast Guard reauthorization 
bill, H.R. 2830, relating to the replacement, rebuilding and retirement 
of vessels identified in the American Fisheries Act (AFA) as eligible 
to participate in the Bering Sea pollock fishery. This provision was 
also included in the Coast Guard reauthorization bill in the 109th 
Congress, which passed the House, but was not taken up by the Senate.
Freezer Longline Cooperative Proposal
    I am testifying on this matter as a Board member of the Freezer 
Longline Coalition and on its behalf.
    The members of the Coalition are the owners of 34 of the 36 vessels 
authorized by the Council to participate in the freezer longline sector 
of the BSAI cod fishery. Our members are united in their commitment to 
sustainable fishing practices evidenced by the fact that our fishery is 
the first cod fishery in the world to receive certification from the 
Marine Stewardship Council (MSC) as sustainable, eco-friendly and well-
managed. The MSC certification is the most widely recognized and 
respected mark for sustainable well-managed fisheries. The 
certification requires that a team of independent scientists 
investigate and find the fishery resource to be healthy, not in danger 
of being overfished, and harvested in a sustainable manner. The 
Coalition is committed to improving fishing practices and ensuring the 
productivity and sustainability of the Pacific cod resource.
    I would like to provide the Committee a brief overview of the 
freezer longline fleet and how it operates in the Pacific cod fishery. 
The fleet consists of 36 vessels that catch, process, freeze and 
package fish on board the vessel while at sea. The vessels use 
specialized longlines with individually baited hooks to catch the 
resource. Each line is set and hauled every day; the fish are 
individually taken off the hook and flash frozen within a matter of 
hours. This method of fishing allows the operators to maintain the 
highest quality level. The use of longlines also allows the fleet to 
make important adjustments in selective gear and bait methods to avoid 
bycatch, ensuring not only the health of the cod fishery but of the 
other fish species in the marine ecosystem. In addition, the fishing 
methods employed by the freezer longline sector are very low impact, 
minimizing damage to the ocean floor and interaction with corals, plant 
life, and other marine life.
    While the Freezer Longline Coalition is extremely proud of its 
sustainable and low impact fishing practices, it still has concerns 
regarding the management of the fishery. Under the current fishery 
management plan, there is a ``race for fish'' resulting in substantial 
safety concerns, unnecessary waste of the fishery resource, and 
environmental consequences that could be avoided by cooperative harvest 
behavior. Because the fleet is over-capitalized, the total harvesting 
capacity is greater than the available quota of cod. This results in 
extremely short seasons with operators racing to maintain or increase 
their ``share'' of the catch within the short time allowed before the 
quota has been caught. We refer to this as the ``Olympic system'' 
because the incentives inherent in a common pool of fish causes vessel 
owners to concentrate their efforts and investments on catching and 
processing the maximum amount of cod that their vessels can handle in 
the shortest possible time. This practice requires vessel operators to 
take safety risks and naturally leads to waste. Under the ``race for 
fish,'' vessel operators must fish in weather conditions that 
jeopardize vessel safety. Many less valuable parts of the cod fish are 
often discarded along with other bycatch to make room in the hold for 
more valuable products so the vessels can continue fishing as long as 
possible. Fishing crews often throw excess provisions and bait over the 
side to make room for a few more cases of cod before the season ends 
because if not harvested now the cod will be ``lost'' to that vessel 
operator.
    The formation of a cooperative in this sector would eliminate the 
waste inherent in the ``Olympic System.'' Providing this sector with 
tools to voluntarily fish cooperatively will mean that vessel operators 
can slow down their harvest rates with the knowledge that they will 
still be able to catch their share of the resource. The members of the 
cooperative will convert energy and investment previously used only to 
maximize the daily catch of cod to improving safety and maximizing the 
value of their share by increasing yield and quality of all products 
and species caught. Operating in risky weather will no longer be an 
economic necessity. Far less will go to waste. We know that recovery 
rates in some rationalized fisheries have been increased by as much as 
50 percent and bycatch rates have been cut by 40 percent. By operating 
in a cooperative structure, vessel safety will be enhanced and our 
members will become even better stewards of the resource because they 
will have a greater long-term vested interest and better tools to 
manage it sustainably.
    Fishery cooperatives and other forms of rationalization are not new 
management concepts to West Coast fisheries. In fact, the freezer 
longline Pacific cod sector is the last remaining major fishery yet to 
be rationalized in the BSAI region of the North Pacific. A cooperative 
for the freezer longline Pacific cod sector will be similar to other 
successful voluntary harvest cooperatives currently in place, including 
numerous BSAI Pollock cooperatives implemented under the American 
Fisheries Act (AFA), the offshore cooperative in the Pacific whiting 
fishery off the coast of Oregon and Washington, cooperatives in the 
BSAI flatfish trawl fisheries, a cooperative in the Gulf of Alaska 
rockfish fishery, and numerous cooperatives formed in various BSAI crab 
fisheries. A voluntary harvest cooperative for our Coalition members 
will provide the same public and private benefits as experienced by 
these other rationalized fisheries.
    The benefits of a voluntary harvest cooperative are numerous. The 
support letter from the State of Washington Department of Fish & 
Wildlife sums it up well:

        (1) improved safety at sea, (2) reduced impacts to the 
        ecosystem, (3) stronger support for sustainable fishery 
        management, (4) increased product quality and supply to 
        consumers, (5) removal of incentives for overcapitalization, 
        and (6) improved financial stability for participants in the 
        cooperative.

    Fishing in a cooperative will allow the fleet to slow down the 
fishery and choose better weather in which to fish. No longer will the 
skipper and crew feel compelled to start at midnight on January 1 
regardless of storm and ice conditions. A slower pace will allow the 
crew more time to rest and provide greater job stability by extending 
the fishery over most of the year. The fleet can be more selective in 
fishing operations which will help to reduce incidental bycatch of non-
target species and have less fishing impact on the environment. Capital 
investment to enhance a vessel's prospects in the ``race for fish'' 
will be converted to technology to enhance the value of the fishery, 
reduce waste and lower fuel consumption and the fleet's carbon 
footprint.
    A voluntary harvest cooperative requires 100 percent agreement 
because non-members in the same sector are free to continue to race for 
the entire quota. Over the last four and half years, the fishermen in 
the freezer longline Pacific cod sector have worked to establish a 
cooperative with 100 percent approval of the fishery participants. 
However, despite all of the proven benefits of a cooperative, one 
company with two of the fleet's 36 vessels has decided it does not want 
to participate. Faced with this situation, Congress in the AFA adopted 
the approach we advocate here: define a sub-pool of the quota which 
reflects what the non-joiners would reasonably be expected to harvest 
and let them race for it; and leave the remainder for the voluntary 
harvest cooperative to manage under supervision of the Council and 
National Marine Fisheries Service.
    The legislation proposed by the Coalition would not grant any 
resources to any individual, vessel or company. It would not in any 
manner lessen the North Pacific Council's authority and responsibility 
to manage and conserve the BSAI cod fishery, or to make new or 
different allocations in the future. It would simply provide a basic 
tool modeled on the AFA that would allow formation of a voluntary 
harvest cooperative.
    Specifically, it would provide that if 80 percent or more of the 
fleet wishes to form a voluntary harvest cooperative, NMFS will divide 
the total cod quota for the sector into two parts based on historical 
vessel harvests in a reasonably recent set of years. The cooperative 
would then manage the part equal to the collective catch history of its 
members, and parties wishing to continue the derby style of fishing 
would be free to do that by accessing the collective catch history of 
the non-cooperative members.
    The owners of all but two of the 36 fishing vessels in our fleet 
have signed an agreement to form a voluntary harvest cooperative. There 
is broad support for the cooperative form of management from other West 
Coast commercial fishing groups and harvest cooperatives, as well as 
fishery management agencies and financial institutions that provide 
support for the fleet. All six Alaska Community Development Quota (CDQ) 
groups, representing 65 Alaska Native coastal communities, support 
legislation that will permit the formation of a voluntary harvest 
cooperative, which will provide additional resources for needed 
economic development in rural western Alaska. The Environmental Defense 
Fund, fisheries scientists and safety organizations all support this 
outcome, as does the State of Washington. In its letter of support, the 
Director of the Washington Department of Fish & Wildlife states:

        The Washington Department of Fish and Wildlife is strongly in 
        support of cooperative fishing efforts for the Washington and 
        Alaska based fleets operating in Federal waters off the coast 
        of Alaska. . . . WDFW supported the recent actions of the . . . 
        Council in restructuring the Pacific Cod fishery in the Bering 
        Sea and Aleutian Islands (Amendment 85), and expected that the 
        Freezer Longline sector would be able to form a voluntary 
        cooperative as a result of the Council's action.

    But formation of a voluntary harvest cooperative has been stymied 
by a single company. The need for a resolution is urgent. The fishing 
seasons for Pacific cod continue to shorten, creating uncertainty for 
the industry and loss of stable work. This year's ``A'' season was the 
shortest on record, as was the year before that, and the year before 
that. As fuel prices increase and the Pacific cod allocation drops to 
its lowest point in recent years, participants are forced into an 
increasingly dangerous race for the fish. Captains and crews fish 
around the clock, sometimes without sleep and without regard to bad 
weather, to catch as much of the resource as quickly as possible before 
the fishery is closed. The race for fish encourages risk-taking 
behavior and is wasteful. Our sector needs the tools necessary to form 
a voluntary harvest cooperative to slow down the fishery and stabilize 
the industry.
    For more than 4 years, in a transparent process open to all, our 
group has tried its best to include everyone in a voluntary agreement 
to form a harvest cooperative, but it now appears that without 
congressional action the race for fish in the Pacific cod longline 
sector will never end. On behalf of all the members of the Freezer 
Longline Coalition I respectfully ask the members of the Subcommittee 
to act quickly in introducing legislation that provides the fleet with 
tools needed to end the derby style race for fish in the BSAI freezer 
longline cod fishery.
    The freezer longline sector of the Pacific cod fishery has a long 
and positive history of working with fisheries managers and Congress to 
promote sustainable fishing practices. Leaders in the fleet have 
supported Council and Congressional actions to eliminate the race for 
fish, minimize bycatch, and reduce capacity. Establishment of a 
voluntary harvest cooperative is a vital step in this progression, and 
important to the ongoing health of the resource and safety of the 
fleet.
American Fisheries Act Vessel Amendment
    The AFA vessel amendment in the House Coast Guard reauthorization 
bill provides a vessel owner the discretion to replace, rebuild or 
retire an AFA-qualified vessel when there is a business case to do so. 
This proposal updates current law that prohibits the replacement of any 
AFA-qualified Bering Sea pollock fishing or fish processing vessel 
except in the calamitous ``event of the actual total loss or 
constructive total loss'' of the vessel. Current law further limits the 
flexibility of a vessel owner by essentially requiring that any such 
replacement vessel not exceed the length, tonnage and engine horsepower 
of the original vessel. Coupled with an existing regulatory regime that 
essentially limits the rebuilding of an existing vessel to its current 
length, vessel owners are restricted to business plans adopted in the 
1980s when virtually the entire fleet of Bering Sea pollock catcher, 
catcher/processor and mothership vessels entered the fishery.
    As explained below, the AFA vessel provision updates current law to 
promote efficiency, including energy efficiency, and enhanced 
utilization of fishery resources. The provision is intended to promote 
international competitiveness for U.S. fishers and processors in the 
largest and one of the most important U.S. fisheries. This provision 
will not result in overcapitalization of the pollock fleet nor will it 
have adverse conservation impacts. In fact, it could further reduce 
fleet capacity and provide conservation benefits by reducing the 
environmental footprint of the fleet.
    The AFA provided a three-sector split of the Bering Sea pollock 
fishery and identified either by vessel name or qualifying criteria the 
vessels eligible to participate in each sector. While the Act treats 
each sector of the pollock fishery (onshore, mothership and catcher/
processor) somewhat differently, the Act contemplated that a fish 
harvesting cooperative, or cooperatives, would form within each of the 
three sectors, and that proved true. Fish harvesting cooperatives 
establish individual pollock allocations among cooperative members that 
yield a number of benefits, including removing any incentive for 
employing fish harvesting and fish processing capacity beyond what is 
needed to optimize catching and processing of the allowable quota.
    The Bering Sea pollock fish harvesting cooperatives established a 
decade ago are an unqualified success. The cooperatives have achieved 
measurable conservation benefits, resolved overcapitalization concerns, 
and resulted in economic and social stability for fishery participants. 
These improvements are the direct result of ending the ``race for 
fish.'' In considering the AFA vessel amendment, the first public 
policy question to be addressed is whether allowing AFA-qualified 
vessels to be replaced at the owners' discretion and without size 
restrictions will undermine fish harvesting cooperatives and spark a 
return to a race for fish. The answer is clearly ``no.'' The 
efficiencies achieved through individual allocations in terms of 
reducing operating costs and increased revenues from optimized 
utilization of the resource are so significant that the cooperative 
structures in the Bering Sea pollock fishery will be preserved at all 
costs.
    Continuation of the cooperative structure is ensured by other 
safeguards as well. For example, the contractual cooperative agreement 
among catcher/processor sector participants requires unanimous consent 
among co-op members to dissolve the co-op. In short, the smallest 
company or the company with the oldest and least efficient vessel, or 
vessels, has a veto against dissolution of the catcher/processor co-op. 
With regard to the catcher vessel fleet, the AFA provides a formula for 
allocating pollock individually among qualified vessels, so there is no 
incentive to replace or rebuild vessels to catch fish faster since 
individual allocations are fixed in the law. Vessel operators support 
the AFA vessel amendment because it will allow them to operate more 
efficiently within the current co-op structure.
    AFA vessel operators are seeking the amendment as a necessary means 
to maximize the value of their individual fish allocations and reduce 
costs. While the Alaska pollock fleet consists of safe and seaworthy 
vessels, almost all of the 19 AFA-qualified catcher/processors, three 
at-sea processing mothership vessels, and roughly 100 catcher vessels 
were either built, or converted from some other use, to pollock fishing 
and fish processing vessels between 1980 and 1990. The restrictions in 
current law regarding when a vessel can be replaced and to what size 
inhibit further improvements in fleet performance.
    With respect to the catcher/processor fleet, the larger at-sea 
processors have onboard factories equipped to produce two primary 
product forms derived from the flesh of the fish--fillet and surimi 
products. Surimi is a minced fish product used to make imitation crab 
and other analog products. Larger at-sea processors can also 
accommodate machinery for producing fish meal and fish oil from 
inedible portions of the pollock (skin, bones and viscera.) Although it 
has a variety of uses, pollock fish meal is most often sold for fish 
feed in aquaculture operations. Fish oil, which is a byproduct of the 
fish meal production process, is used in boilers onboard the vessels as 
a substitute for diesel fuel and has the advantage of achieving both 
cost savings and lower emissions in generating energy.
    Smaller at-sea processing vessels, however, are limited primarily 
to employing fillet making equipment, which limits product marketing 
flexibility. Space limitations in the factory also preclude making fish 
meal and fish oil from which vessel operators can derive additional 
revenue and reduce costs. Increasing vessel size, which the current AFA 
does not allow for vessels over 165 feet in length, is the only option 
for vessel operators seeking to enhance utilization and derive more 
value from their assigned quota. Increasing vessel size also allows for 
increased onboard cold storage capacity. The more product that can be 
frozen and stored onboard the vessel at any one time reduces the number 
of trips to shore for offloading, which increases efficiency and 
reduces fuel costs.
    Passage of the amendment will also help safeguard family wage 
fishing and fish processing jobs. Removing vessel size restrictions 
that inhibit, or preclude, investments in new technology and value-
added processing equipment helps U.S. fishing operations compete better 
against lower foreign labor costs. If our freezer holds are filled with 
relatively unprocessed fish, value-added processing will be performed 
in China or other countries with low labor costs. We can keep these 
manufacturing jobs in the U.S., however, if we have the latitude to 
configure our vessels to take full advantage of state-of-the-art 
processing technologies.
    For a catcher vessel, increasing vessel size allows for greater 
fish hold capacity. Greater fish hold capacity means fewer trips are 
needed to catch an individual's quota limit, which again means reduced 
fuel usage and greater efficiency. The AFA vessel amendment also 
contains a provision that allows for the retirement of less efficient 
or older catcher vessels. Currently, as implemented, the AFA requires 
the owner of a qualified catcher vessel delivering to an inshore 
cooperative to provide evidence that the vessel holds a valid fishing 
permit before the National Marine Fisheries Service (NMFS) issues that 
vessel's annual pollock allocation. As a result, a fleet owner with a 
less efficient vessel, or vessels, who aggregates his or her catch 
allowances and fishes them on more efficient vessels must still moor, 
maintain and insure vessels that are no longer operating in the 
fishery. The same circumstance applies to vessel owners leasing their 
annual quota to be harvested by owners of other AFA-qualified catcher 
vessels. The AFA vessel amendment allows for AFA-qualified vessels to 
be retired and for the owners of such vessels to assign the quota to 
another vessel or vessels. Importantly, any retired AFA-qualified 
vessel must surrender its fishery endorsement ensuring that it cannot 
fish in any other U.S. fishery.
    A second public policy question to be answered is whether allowing 
AFA-qualified vessels to be replaced or rebuilt without constraints on 
size will have negative effects on other fisheries. The answer is 
``no.'' The AFA already imposes significant restrictions on 
participation by AFA-qualified vessels in other fisheries. The AFA 
vessel amendment adds more restrictions. As noted above, any replaced 
vessel forfeits its fishery endorsement, which disqualifies the vessel 
from participating in any other U.S. fishery. The amendment also 
prohibits any replacement catcher vessel--regardless of whether or not 
the vessel increases its size--from harvesting fish in any region other 
than the North Pacific, except for the west coast Pacific whiting 
fishery. The AFA already imposes this limitation on the three AFA-
qualified motherships and 19 catcher/processors. Any AFA-qualified 
rebuilt vessel that increases beyond its current size will also be 
prohibited from harvesting fish in any region other than the North 
Pacific, except for the Pacific whiting fishery. Within the North 
Pacific region, any AFA-qualified replacement vessel or rebuilt vessel 
that increases in length beyond the vessel length specified on its 
current groundfish license would be prohibited from fishing in the 
North Pacific's Gulf of Alaska management area. In sum, the AFA vessel 
amendment further reduces opportunities for vessels from the Bering Sea 
pollock fishery to ``spillover'' into other U.S. fisheries.
    The Alaska pollock fishery has a number of strengths. Fish stocks 
are healthy and robust. The fishery has undergone an independent 
environmental audit and been certified as sustainable by the World 
Wildlife Fund-backed Marine Stewardship Council. The value of the 
Alaska pollock fish products at the primary processing stage is nearly 
$1.0 billion annually. As one of the largest fisheries in the world, 
Alaska pollock competes strongly in the very competitive global 
whitefish commodity market. Alaska pollock products are high quality 
and in strong demand in the U.S., Japan, U.K. and EU markets, among 
others. Passage of the AFA vessel amendment will provide U.S. fishers 
and fish processors the flexibility to optimize operations, promote 
fuller utilization of the resource, increase operational efficiency, 
and maintain international competitiveness.
    Thank you for the opportunity to testify today on these two 
important issues. I will be pleased to answer any questions that you or 
other Subcommittee Members might have.

    Senator Cantwell. Thank you, Mr. Bundy.
    Mr. Hyde, thank you for being here.

              STATEMENT OF MICHAEL HYDE, ADVISER, 
                    AMERICAN SEAFOODS GROUP

    Mr. Hyde. Good afternoon, Madam Chairman. Thank you for the 
opportunity to speak to the Committee today.
    My name is Mike Hyde. I am appearing on behalf of American 
Seafoods Company. American Seafoods Company is based in 
Seattle. We have 7 of the 20 eligible AFA catcher/processors. 
We also have three freezer longline vessels that target cod. We 
have processing operations in Alabama and Massachusetts. We 
have 28 individual owners and 2 CDQ group owners. The CDQ 
groups own more than half the company and benefit over 9,000 
residents in 21 different communities.
    My personal involvement in the North Pacific fisheries has 
been extensive, more than 30 years. I have been a deckhand, a 
Federal observer, a vessel owner, a lawyer, a fisheries 
manager. From 1998 through 2005, I served as the President of 
American Seafoods Company and was intimately involved in the 
negotiation of the American Fisheries Act and the Pollock 
Conservation Cooperative, the cooperative that governs the 
catcher/processor sector of the Bering Sea pollock fishery.
    My plan is to focus today on one aspect of the American 
Fisheries Act. It is the harvesting cap that was imposed as 
part of the legislative language of the cap. In order to talk 
about our position on that, it might be helpful to describe a 
little bit of background of the American Fisheries Act.
    When that act was passed, American Seafoods was the 
dominant player in the pollock fishery. We had 16 vessels, all 
but 2 of which we had acquired through acquisition of other 
companies. We were 100 percent foreign owned, and there was 
great concern that because of loopholes in the Americanization 
requirements, that we would continue to be foreign owned and we 
would continue to get significantly larger.
    So as part of the American Fisheries Act, a provision was 
included that said no single company can harvest more than 17.5 
percent of the directed pollock fishery. That was intended to 
keep American Seafoods at the level it was anticipated it would 
have at that point.
    The act also included directions to the North Pacific 
Council to look at these caps and to impose a processing cap on 
the pollock fishery.
    That is how we get to where we are today. We have a 
processing cap that the council adopted of 30 percent, and we 
continue to have a harvesting cap of 17.5 percent.
    This leads to significant inequities between American 
Seafoods and our other major competitors, Trident Seafoods and 
Nissui and Maruha, because those companies are allowed to 
continue to process up to 30 percent, but effectively, because 
we only can process what we catch, we are limited to 17.5 
percent. In the ensuing years since the passage of AFA, we have 
watched these other competitors continue to grow while we have 
remained relatively static.
    Another issue that the harvesting cap creates for us is 
because it is described as a percentage of the pollock quota, 
the amount that we can process each year fluctuates greatly. 
The harvest of Alaska pollock has ranged anywhere from under a 
million tons to over a million and a half tons. Because we are 
limited to 17.5 percent of that, the amount that we can catch 
and process and deliver to our customers varies significantly 
year after year, just another issue that faces American 
Seafoods and its owners that is not faced by our major 
competitors.
    When you look at these sorts of restrictions, you have to 
say, why do we have restrictions? In general the approach is 
that you should not have restrictions on operating and economic 
efficiencies on companies unless you can show that there is a 
demonstrated need. So far, we have not seen that demonstrated 
need. We have tried to address some of the concerns that have 
been raised. One of them is that if American Seafoods is 
allowed to get bigger, we will take fish from other companies.
    The response is simple. We cannot take fish from other 
companies. We have a rationalized system, and the only way 
American Seafoods can get more fish is if it is able to 
purchase it from other companies. There has to be a willing 
seller on the other side.
    I have addressed the other arguments that we have heard in 
my written testimony.
    The last issue that I would like to focus on proposed is 
the issue of linkage between the different amendments to the 
American Fisheries Act. There are three proposals that are on 
the table right now.
    The first one would allow replacement of existing American 
Fisheries Act vessels. We have heard testimony about the 
benefits of doing that, and we agree that there are substantial 
potential benefits. In the American Fisheries Act catcher/
processor fleet, though, safety is not one of those benefits. 
Nearly all the vessels are classed and all the vessels are 
load-lined. I do not believe there is any safety issue that our 
fleet faces that can be addressed through a new vessel that has 
not already been addressed on the existing vessels.
    As Ms. Parker's testimony points out, the real issue here 
is efficiency of the vessels. American Seafoods has a fleet 
that is phenomenally efficient compared to our competitors, and 
the replacement vessel proposal would allow our competitors to 
build vessels that are significantly more efficient than the 
American Seafoods vessels. The ramifications of that to us are 
that we are very dependent on our CDQ fisheries. Ms. Parker has 
quoted some numbers in her written testimony. While the actual 
percentages quoted are incorrect, she is correct about the 
trend. American Seafoods is heavily dependent on the CDQ 
fisheries. The reason that we have such a large share of those 
fisheries is because of the efficiency of our vessels. All of 
that is at risk if we allow replacement vessels to come in that 
are more efficient than the American Seafoods vessels.
    In summary, I think the three things that are being 
proposed in connection with the American Fisheries Act all make 
sense, but they really have to be done as a package to be fair 
to all the players in the industry.
    Thank you.
    [The prepared statement of Mr. Hyde follows:]

  Prepared Statement of Michael Hyde, Adviser, American Seafoods Group
    Good afternoon, Madame Chairman and Members of the Subcommittee. My 
name is Mike Hyde and I am testifying today on behalf of American 
Seafoods Group with respect to the harvest cap restrictions in the 
American Fisheries Act. I will also be pleased to respond to questions 
about other issues related to North Pacific fisheries. As background, 
American Seafoods is a Seattle based company that owns seven of the 
twenty catcher processors authorized under the AFA to operate in the 
catcher processor sector of the Bering Sea pollock fishery. It also 
owns three freezer longline vessels that operate in the Bering Sea 
Pacific cod fishery and it operates land-based processing plants in 
Massachusetts and Alabama. The Company employs over 1900 individuals 
and is owned by a diverse group of 28 individual owners and two Alaskan 
Community Development Quota (``CDQ'') groups representing 21 western 
Alaska communities and their more than 9000 residents. I have been 
involved in North Pacific fisheries for over 30 years as a deckhand, 
Federal observer, vessel owner, lawyer and vessel manager. I served as 
the President of American Seafoods Company from 1998 through 2005 and 
was intimately involved on behalf of the Company in the negotiation of 
the American Fisheries Act and the formation of the Pollock 
Conservation Cooperative.
1. American Fisheries Act History
    The American Fisheries Act (the ``AFA'') was adopted in October, 
1998 after months of intense negotiation among industry participants, 
state and Federal regulators and Congressional staff. Four primary 
goals of the AFA were: (1) Americanization of vessel ownership, (2) 
reallocation of pollock to shoreside operations, (3) rationalization of 
the Bering Sea pollock fishery and (4) reduction in the size of the 
overcapitalized catcher processor fleet. In addition, the AFA included 
a number of fishery protection measures.
    In October, 1998, American Seafoods was the largest participant in 
the pollock fishery and was 100 percent Norwegian-owned. It had 
expanded aggressively from its original two catcher processors to 
sixteen vessels through the acquisition of competing companies. Because 
of State Department concerns about investment protection obligations 
between the United States and certain foreign nations, the 
Americanization provisions in the AFA were modified from initial drafts 
to exempt certain foreign-owned companies from the Americanization 
requirements (section 213(g)). This revision gave rise to concerns that 
American Seafoods would remain foreign-owned and continue to grow 
aggressively. In part to address this concern, section 210(e) 
(Excessive Shares) was added to the draft AFA. Section 210(e)(1) 
imposed a limit on the amount of pollock that could be harvested by any 
one entity:

        Harvesting. No particular individual, corporation, or other 
        entity may harvest, through a fishery cooperative or otherwise, 
        a total of more than 17.5 percent of the pollock available to 
        be harvested in the directed pollock fishery.

    The referenced percentage was the approximate amount of the 
directed pollock fishery that American Seafoods was anticipated to 
receive in the negotiations to establish the Pollock Conservation 
Cooperative, the cooperative that rationalized the catcher processor 
sector of the Bering Sea pollock fishery. This harvesting limit 
effectively stopped the growth of what was thought at the time to be a 
foreign-owned pollock harvesting company (as noted American Seafoods is 
now 100 percent U.S. owned).
    In contrast, section 210(e)(2) of the AFA addresses pollock 
processing (as opposed to harvesting) and provides in part:

        Processing. Under 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.

    At its October 2000 meeting, the North Pacific Council took final 
action on the pollock processing cap. The Council analyzed a range of 
possible caps at 10 percent, 20 percent and 30 percent. After extensive 
staff reports, public comment and Council discussion, Council members 
agreed that there was no compelling evidence of any benefit to be 
gained from a processing cap. The feeling of the Council members is 
reflected in the statement of Council member Bob Penney:

        Being big ain't always bad . . . You need big at the times of 
        low, you need the flywheel of stability, companies that can 
        tough it out. In times of good times, nobody likes big, but you 
        like them when it's low because they're in it for the long 
        haul, they have to stay, they bring stability. Now, we don't 
        know for sure what's going to affect this cap, what's going to 
        come out of it. But those people have the capital, they can't 
        quit, they have to stay and they become like a flywheel in 
        times of down markets. So don't think of good times, think of 
        down times, you need big in bad times.

    Although the sentiment of Council members was that no processing 
cap was necessary, the Council acknowledged the mandate from Congress 
in the AFA and adopted the highest cap in the range that it analyzed, a 
processing cap of 30 percent.
2. Issues
    As a general principle, governmental restrictions on economic and 
operating efficiencies of private companies should be limited to 
circumstances in which a need for a restriction is identified and the 
proposed restriction is fair and equitable and addresses the identified 
need. American Seafoods believes that the current harvesting cap fails 
to meet either of these criteria and should be raised to at least match 
the current processing cap.
a. Harvesting vs. Processing Caps.
    As mentioned above, the North Pacific Council members examined in 
great detail the need for processing caps and based on their conclusion 
that no need had been identified, set the pollock processing cap at 30 
percent--the highest level they had analyzed. We believe that if the 
Council had examined the need for a pollock harvesting cap, the Council 
would have reached the same conclusion and these two caps would be 
equal. Unfortunately, because the harvesting cap was established by 
Congress before the Council acted on the processing cap, the two caps 
are not the same and create a very unequal playing field between 
catcher processors and other processors.
    The only sector of the Bering Sea pollock fishery in which the 
American Seafoods vessels are allowed to operate is the catcher 
processor sector. Catcher processors are vessels that perform exactly 
as the name implies: they catch fish and process them directly onboard. 
Because the only source of pollock for a catcher processor is the fish 
that it catches itself, its operations will always be limited by the 
lower of any applicable harvesting or processing cap. This has created 
the inequitable situation in the Bering Sea pollock fishery that 
American Seafoods is limited to harvesting and processing a maximum of 
17.5 percent of the directed pollock catch while large competitors such 
as Trident Seafoods, Nissui and Maruha can effectively control the 
harvesting and processing of up to 30 percent of the directed pollock 
catch.
    In the mothership and shoreside sectors of the pollock fishery, 
processors insure the delivery of pollock to their processing plants 
through the restrictions on the movement of catcher vessels that were 
included in the AFA, through delivery restrictions in each of the coop 
agreements and through private contracts directly with those catcher 
vessels that the processors do not already own. The harvesting cap does 
not restrict the amount those companies process because, in contrast to 
catcher processors, motherships and shoreside processors simply arrange 
for third parties to catch and deliver those amounts of pollock that if 
caught by their own boats would cause them to exceed the 17.5 percent 
harvesting cap.
    For all Bering Sea processors (including catcher processors), the 
important statistic is not how much fish you catch but how much fish 
you process. The majority of processed pollock is sold in export 
markets and the strength of a company in international markets is 
significantly dependent on the volume of processed fish it controls. 
American Seafoods competes with a large handicap when Trident, Nissui 
and Maruha can control up to 30 percent of the Bering Sea pollock and 
American Seafoods has access to only 17.5 percent of the directed 
pollock fishery plus those amounts of the CDQ pollock allocation that 
the Company can lease from CDQ groups.
b. Operating Stability.
    The harvesting cap limits any company to harvesting a maximum of 
17.5 percent of the directed pollock fishery. Because this cap is set 
as a percentage rather than as a fixed amount, it causes unreasonable 
restraints on American Seafoods' ability to maintain a steady business 
operation. The total allowable catch of pollock in the Bering Sea 
fluctuates widely. In recent years, the quota has ranged from a low of 
less than 1.0 million metric tons to a high of nearly 1.5 million 
metric tons. When the quota is near the top of the cycle, nearly all of 
the AFA-eligible catcher processors are used in order to provide the 
necessary capacity to harvest the quota. On the other hand, when the 
quota is near the low end of the cycle, all operators could benefit 
from the option to harvest and process the fish through quota lease 
arrangements aboard the most efficient vessels in the fleet, most of 
which belong to American Seafoods. However, because the harvest cap 
limits the percentage of the pollock quota that American Seafoods can 
harvest, when the quota drops, so does the limit on American Seafoods 
which forces the less efficient vessels to continue operations.
    In addition to reducing the overall operating efficiency of the 
fleet, the harvesting cap works to reduce economic efficiency and 
market stability. To achieve the highest prices and create stable 
relationships, a supplier needs to be reliable. While shoreside and 
mothership processors have no effective limit on how much they process, 
American Seafoods' production varies widely year to year. Given the 
opportunity, in low quota years American Seafoods would lease quota at 
market rates from the less efficient operators who could maximize their 
gain by leasing quota. However, the current harvesting cap makes that 
impossible. This leads to less efficient vessels operating in the 
reduced pollock fishery, depriving both American Seafoods and the 
owners of the less efficient vessels from maximizing operating and 
economic efficiencies.
c. Concerns?
    It is natural to expect companies that hope to acquire additional 
quota to oppose the lifting of restrictions that handicap only their 
competitors. If a statutory restriction removes American Seafoods from 
the quota marketplace, thereby allowing a competitor to purchase quota 
at a reduced value, it is predictable that the competitor will hope to 
maintain that restriction. What is unclear is whether there are 
legitimate reasons to maintain the harvesting cap at its current level. 
Because we have not heard publicly from opponents of raising the 
harvesting cap, I will address those concerns that have been described 
to us in meetings with Congressional staff.

        1. American Seafoods will drive us out of business. In an 
        Olympic style race for fish, the least efficient operators are 
        always at risk of being hurt by the most efficient operators. 
        However, in the rationalized pollock fishery created by the 
        AFA, each company operates with its individual quota and the 
        most efficient operators pose no risk to others. If the harvest 
        cap is increased, American Seafoods cannot unilaterally impact 
        any other company's quota. In order for American Seafoods to 
        purchase or lease additional quota, there has to be a willing 
        seller on the other side of the transaction and any company 
        that is not a willing seller will not be impacted.

        2. American Seafoods will purchase all available quota. History 
        has proven that this concern is not warranted. Since 
        implementation of the AFA, the owners of four of the seven 
        catcher vessels that received allocations of catcher processor 
        quota under the AFA have been sold. The quota amounts on each 
        of these vessels was small enough that American Seafoods could 
        have purchased them and remained under the harvesting cap. In 
        fact, American purchased only one of these four vessels and it 
        was the one with the smallest quota. The other three vessels 
        were all purchased by separate catcher processor companies.

        3. A larger American Seafoods will drive down market prices. 
        This argument reflects just the opposite of what is likely to 
        occur in the event of a larger American Seafoods. Of the four 
        major processors in the Bering Sea pollock industry, American 
        Seafoods is the only one that is not heavily vertically 
        integrated. Vertically integrated companies such as Nissui or 
        Maruha are not hurt by lower commodity prices because they can 
        make up the loss they incur on lower priced raw materials upon 
        the sale of higher margin finished goods. American Seafoods 
        does not have that opportunity and therefore has the motivation 
        to demand the highest possible prices for its processed 
        pollock. These higher market prices then benefit not only 
        American Seafoods but other smaller processing companies and 
        even the fishermen to the extent they are paid based on 
        revenues to the pollock processor.
d. AFA Amendment Package.
    Industry participants have proposed three amendments to the AFA. 
Each proposed amendment is intended to provide vessel owners with new 
flexibility to improve the efficiencies and economics of their 
operations. However, each of the three proposed amendments is likely to 
benefit only a subset of AFA participants. The replacement vessel 
provision is likely to benefit only those owners with the least 
efficient vessels. For companies such as American Seafoods, whose 
vessels are already among the most efficient vessels in the fleet, it 
is actually a competitive disadvantage to allow others to build new and 
more efficient vessels. American Seafoods harvests a large percentage 
of the CDQ pollock because its vessels are already highly efficient, 
giving it both the capacity and the financial strength to pay high CDQ 
lease rates. This competitive advantage will be lost to any new 
replacement vessels. The inshore permit stacking provision will be a 
huge benefit to vessel owners who will be allowed to combine quotas on 
a limited number of vessels and retire their least efficient vessels 
but it will benefit only participants in the inshore sector and does 
not even extend to the catcher vessels in the other two pollock 
sectors. Although the increase in the harvest cap will apply to all 
companies, realistically, only those companies that are at or near the 
current harvest cap are likely to benefit.
    Each of these three provisions provides relief from unnecessary 
restrictions and should be supported. However, it is critical that they 
be supported as a package so that the benefits of any AFA amendments 
are spread equitably among all of the AFA participants. This balanced 
approach is consistent with the approach taken when the AFA was 
originally enacted and should be continued in any AFA amendment 
package.
    In summary, the current harvest cap has created an unequal playing 
field that has unfairly disadvantaged American Seafoods. It has created 
economic and operating inefficiencies that are not producing offsetting 
value. We respectfully ask that this committee look favorably on 
legislation to increase the AFA harvesting cap as part of a balanced 
AFA amendment package.
    Thank you for your time. I am pleased to answer any questions.

    Senator Cantwell. Thank you for your testimony.
    Ms. Parker, welcome. Thank you for being here. We look 
forward to your testimony.

        STATEMENT OF DONNA PARKER, DIRECTOR, GOVERNMENT 
             AFFAIRS, ARCTIC STORM MANAGEMENT GROUP

    Ms. Parker. Thank you, Madam Chair, and thank you for the 
opportunity to testify today.
    My name is Donna Parker. I represent Arctic Storm, a 
company based in Seattle. We have two catcher/processors and 
two catcher vessels with long histories in this industry. All 
four of them are AFA-qualified.
    I am going to speak on two issues. One is in support of 
modernization of the fleet through rebuild and replacement, and 
the other is in opposition to increasing the excessive 
harvesting share cap.
    In support of the modernization, Congress passed the 
American Fisheries Act for a number of reasons, but primarily 
to resolve chronic overcapitalization of the Bering Sea pollock 
fishery. And there were two components to that that AFA 
provided a tool box to solve. One was the buyback. Another was 
a formation of co-ops.
    There was a lot of uncertainty surrounding these. It was 
unknown whether the co-ops would form. It was unknown whether 
the buybacks were sufficient. For that reason, there were 
constraints put in on the rebuild and replacement of these 
vessels so that we would not have a huge capitalization problem 
all over again.
    As those before me have testified, AFA has been a 
remarkable success. The co-ops have formed. The buyback was 
successful. And so what we have now are older vessels that have 
to compete in a world economy with one hand tied behind their 
backs. I will give you an example. A 30-year-old Cadillac, 
marvelous vehicle, kept in prime shape by replacing parts in a 
race across the country with BMWs, Audis, and Mitsubishis. It 
is going to get there. Everyone will arrive safely, but it will 
be a lot more expensive in terms of gas and the repairing of 
parts along the way.
    I will give you a couple of examples for our own vessels. 
The Arctic Fjord is 285 feet compared to the Arctic Storm, 
which is 325. That difference causes a difference of 650 tons 
of freezer hold capacity, which means the Fjord has to leave 
the fishing grounds five times more than the other boat. That 
is a quarter a million gallons in extra fuel. That increases 
our costs.
    Additionally, a fish oil plant, which would supplement our 
diesel fuel 1,200 to 2,500 gallons a day, needs additional 
space.
    Additionally, a fish meal plant, which turns fish waste 
into fish food, and increases our recovery rates from 2.5 to 5 
percent is not possible unless we can do a rebuilding of our 
vessels, an increase in size if necessary.
    So again, allow us to compete in the world marketplace. The 
overcapitalization will not occur because of the success of 
AFA, and the spill-over effects, as Mr. Bundy said, have been 
constrained on other fisheries in Alaska, other fisheries in 
the United States. So we urge you to support that.
    In regards to the excessive share cap, as I said, 
Americanization, overcapitalization, and reallocation were 
primary purposes of the American Fisheries Act. What it was is 
really a course correction. The Magnuson-Stevens Act was passed 
in 1976. One of its primary purposes was to Americanize the 
fishery. But that is not what happened. What happened is that 
within a matter of 10 years, there was extreme 
overcapitalization. Too much of it went offshore. Too much of 
it went to foreign ownership. AFA was a course correction which 
set limits on that, required Americanization, shifted 15 
percent of the offshore to the inshore through the buy-out 
provision, as well as a reallocation, and changed the ownership 
requirements.
    What that did is allowed, through that buy-out, a 
transition. It established a cap, as Mr. Hyde said, at 17.5 
percent. And American was really the poster child for all that, 
a very efficient organization, but it was very large, very 
offshore, very foreign. So it was capped at this.
    When the processing cap was established inshore, there were 
only six inshore companies as opposed to 130 harvesting 
vessels. So it is really apples and oranges. There is nothing 
constraining American from increasing its processing shares or 
increasing its CDQ. American, because it is large, because it 
is more competitive, has been able to increase its CDQ share, 
and they can increase it more.
    But there are three issues at stake here.
    One is this does not apply just to American Seafoods. We 
are talking about them because they are raising the issue. It 
applies to all participants. And if the harvesting share were 
to match the processing share, then all the shore-based 
processors could buy all their catcher vessels, and the more 
that they buy, the less competitive and the less ability of the 
individual catcher vessels to survive.
    Furthermore, as I said, they are unconstrained. They can 
purchase more CDQ.
    And finally, if 30 percent or something like is the number, 
what you are really saying is four players can control the 
largest fishery in the United States. So the real question is 
putting too much of the fishery into too few hands. What do you 
want it to look like? Do you want independent catcher vessels? 
Do you want multiple players? At some point, big is too big and 
the smaller players are marginalized and unable to compete.
    So, for instance, in our company where we have primarily 
five families that own the boats, and they are passing it on to 
their generations, is it going to be marginally able to 
compete, or is it going to put it at a disadvantage and end up 
in a situation where it sells to a corporation? So do you want 
families or corporations owning the fishery?
    Thank you very much.
    [The prepared statement of Ms. Parker follows:]

   Prepared Statement of Donna Parker, Director, Government Affairs, 
                     Arctic Storm Management Group
    Madame Chairman, Members of the Committee:
    Thank you for the opportunity to appear before the Members of the 
Subcommittee and to provide testimony on these important fishery 
issues. I am Donna Parker, the Director of Government Affairs for 
Arctic Storm Management Group. Arctic Storm is based in Seattle, 
Washington and operates four commercial fishing vessels in the North 
Pacific and West Coast fisheries. Two of the vessels are catcher-
processors that harvest and process seafood and two are catcher 
vessels. All four vessels have a long history of participation in the 
development of these fisheries and all four are American Fisheries Act 
(AFA)-qualified vessels that participate as members in AFA pollock 
fishing cooperatives.
    I am here to testify today on two issues of interest to this 
Subcommittee. My first comments are intended to speak in strong support 
of amending the American Fisheries Act (AFA) to promote vessel safety 
and the economic competitiveness of the Alaska pollock fishery by 
providing vessel owners with discretion to replace, rebuild or retire 
an AFA-qualified vessel. The focus of my other comments will be in 
opposition to amending the AFA excessive harvesting share cap. There 
has been an attempt to link these two issues which we believe is 
without merit.
Support Amendment to Replace, Rebuild and Retire AFA Qualified Vessels
    Congress passed the American Fisheries Act (AFA) in 1998, 
principally, to resolve chronic overcapitalization in the Nation's 
largest fishery, the Bering Sea (BS) pollock fishery. The AFA included 
a buyback of certain fishing vessels and created a framework that 
allowed the three industry sectors--onshore, mothership and catcher/
processor--to form fish harvesting cooperatives for the purpose of 
``rationalizing'' the fishery. Rationalizing fisheries means ending the 
often wasteful race among fishery participants to catch as much of the 
available quota as quickly as possible.
    Uncertain whether the vessel buyback program and formation of fish 
harvesting cooperatives would succeed, Congress included an additional 
measure intended to address excess capacity. The AFA included strict 
limitations on replacing vessels identified in the Act as eligible to 
participate in the BS pollock fishery.
    The AFA has proven to be an unqualified success. The vessel buyback 
provisions and the fish harvesting cooperatives instituted in all 
sectors of the fishery have resolved overcapitalization in the fishery. 
The fish harvesting cooperatives are primarily responsible for 
resolving overcapitalization as they effectively remove any incentive 
to employ fishing capacity beyond what is needed to catch the allowable 
fishing quota in a deliberate, economically rational manner.
Removing Unnecessary Restrictions on Vessel Replacement Promotes 
        Safety, 
        Efficiency and International Competitiveness
    Under current law, the AFA permits the replacement of an AFA-
eligible vessel only in such limited instances where a qualified vessel 
is rendered an ``actual total loss or constructive total loss.'' The 
Act should be amended to allow AFA-qualified vessels to be replaced at 
the owners' discretion. Because of the AFA's success in rationalizing 
the BS pollock fishery, restrictions on replacing or improving vessels, 
including arbitrary limits on vessel length, tonnage or engine 
horsepower, are no longer necessary.
    Most AFA vessels were built in the 1980s. Confining their 
operations to business plans and technology available thirty years ago 
does not make sense in a global economy. In any modern business, in 
order to remain competitive you have to operate efficiently. Under the 
current restrictions of the AFA, vessel owners are often constrained by 
space limitations that force them to operate less efficiently. For 
instance, smaller boats are constrained in their ability to operate 
both surimi and fillet lines to meet the needs of the market and the 
appetites of the U.S. consumer. Space limitations also constrain the 
ability to install fish meal plants that allow full utilization of the 
fishery byproducts, fish oil plants that convert fish waste into a 
substitute for diesel fuel, and increased cargo hold capacity which 
reduces the amount of trips required to unload the vessel.
    For instance, one of our catcher-processors, the Arctic Fjord packs 
920 tons of finished product while the larger, Arctic Storm, packs 1540 
tons. That difference in capacity forces the Fjord to make five 
additional trips a year to and from the fishing grounds to unload 
product using approximately 220,000 gallons of fuel. At current costs 
of $4.20/gallon, these trips increase operating costs substantially. It 
also contributes to unnecessarily extending our carbon footprint at a 
time when reduction of carbon usage has been identified as a high 
priority. Related to that issue is needed space to construct a fish oil 
conversion plant. Use of fish oil to fuel a catcher-processor is 
expected to offset diesel fuel consumption by 1,200 to 2,500 gallons a 
day. Like several other AFA catcher-processors, the Arctic Fjord is not 
large enough to accommodate construction of a fish meal plant without 
rebuilding the hull. Fish meal plants turn fish waste into fish food 
for aquaculture operations in Asia. It also increases our recovery 
rates by approximately 2.5 to 5 percent of round weight.
    For a catcher vessel, increasing vessel size allows for greater 
hold capacity and so reduces the number of trips needed to harvest its 
catch quota. The proposed amendment also contains a provision that 
allows for retirement of less efficient and aging vessels. Currently, 
AFA requires that the owner of a catcher vessel delivering to a 
shoreside cooperative maintain that vessel and permit in order to 
receive its annual allocation of pollock. The AFA vessel amendment 
allows AFA-qualified catcher vessels to be retired and for the owners 
of such vessels to assign the quota to another vessel or vessels. To 
avoid negative impacts to other fisheries, any retired AFA-qualified 
vessel must surrender its fishery endorsement and so cannot participate 
in other U.S. fisheries.
    Because current regulations prevent us from replacing our existing 
vessels, we must replace parts of the vessels piece by piece as they 
wear out. We are forced to figure out how to make these hulls last 
forever without the opportunity to take advantage of more efficient 
technology available to our industry. While the AFA fleet is operated 
and maintained to ensure maximum safety conditions, it seems counter to 
the promotion of the safety of human life at sea, as called for in 
National Standard 10 of the Magnuson-Stevens Act, to prohibit AFA-
eligible vessels from being replaced or efficiently rebuilt using 
state-of-the-art technology and architectural designs that can 
simultaneously accomplish premium safety and efficiency.
    The arbitrary limits on length, tonnage and engine horsepower of 
replacement vessels stipulated in the AFA are unnecessary. To help 
foster safety, product quality, innovation and efficiency--all of which 
contribute to Alaska pollock producers remaining competitive in the 
international whitefish market--it is critically important to remove 
limitations in current law on replacement of AFA-qualified vessels.
The Success of Fish Harvesting Cooperatives Demonstrates That There 
        Will Be No Adverse Fishery Management Impacts from Removing 
        Restrictions on 
        Replacement Vessels
    The fish harvesting cooperatives in the BS pollock fishery made 
possible by the AFA are an unqualified success. Under the cooperatives, 
qualified fishermen enter into contractual arrangements specifying each 
individual's share of the catch. Fishing and processing then proceeds 
in the most efficient manner to enhance utilization and maximize the 
value of harvested fishery resources. Prior to passage of the AFA, the 
BS pollock fleet could catch the entire year's quota in approximately 
90 days. Since 1998, the length of the fishing season has doubled. In 
the catcher-processor sector, although 19 vessels are eligible to 
participate in the fishery, each year three or four of the less 
efficient vessels remain in port. The Pollock Conservation Cooperative 
(PCC)--the catcher-processor sector fish harvesting cooperative--
reports that due to the deliberate pace of fishing and use of the most 
efficient vessels, the fleet is producing nearly 50 percent more fish 
products per pound of fish harvested than what the fleet achieved under 
the pre-AFA ``race for fish'' system. Removing unnecessary restrictions 
in the AFA on replacement vessels will allow for more improvements in 
this area.
    There are also demonstrated conservation benefits of cooperative 
fishing. While the mid-water trawl Alaska pollock fishery has always 
ranked as one of the world's ``cleanest'' fisheries, under the fishing 
cooperative less than 0.5 percent of what is harvested is discarded. 
Prior to formation of cooperatives, discard rates were somewhat higher. 
Eliminating the ``race for fish'' has allowed fishermen to target 
market-sized pollock, utilize more of any incidental catches of non-
target species, and to institute voluntary bycatch reduction programs 
to minimize incidental catches of non-target species.
    It is also important to note that there will be no effects on other 
fisheries as a result of removing restrictions on replacing or 
improving AFA-eligible vessels. The AFA provides for strict limits on 
participation by AFA-qualified fishing vessels in other fisheries, and 
this proposal increases those safeguards. For instance, any replaced 
vessel is prohibited from participating in any fishery outside the 
North Pacific and the West Coast hake fishery. And any rebuilt or 
replaced vessel that increases its length would be prohibited from 
fishing in the Gulf of Alaska. Any retired AFA-qualified vessel must 
surrender its fishery endorsement ensuring it cannot fish in any other 
U.S. fishery. In this way all other fishery participants in the U.S. 
are protected from enhanced efficiencies gained by replaced, rebuilt or 
retired AFA vessels.
    In sum, the AFA has succeeded in removing excess capacity from the 
BS pollock fishery. The advent of fish harvesting cooperatives has 
removed any incentive for increasing fishing effort and created 
opportunities for maximizing utilization of fishery resources. We urge 
that the overly restrictive replacement vessel language of AFA be 
amended to enable Alaska pollock producers to meet national fishery 
policy objectives of promoting the safety of life at sea and to enhance 
efficiency and international competitiveness in the Nation's largest 
fishery.
Oppose Amendment of the AFA 17.5 percent Excessive Harvesting Share Cap
    The AFA has been remarkably successful in stabilizing the Bering 
Sea pollock fishery, once marred by bitter allocation battles that 
devalued the fishery and hurt all participants as well as the U.S. 
consumer. When the AFA was enacted in October 1998, it provided the 
tools to accomplish four primary goals; Americanization, 
decapitalization, reallocation and rationalization. During detailed 
negotiations each of these goals were balanced in order to make the 
others possible. One of the key provisions was to reduce the dominance 
of American Seafoods which had grown from three to 16 vessels in 8 
years. Some of these vessels were financed and built in Norwegian 
shipyards. They were among the largest and most modern vessels built 
during the late 1980s and so contributed to the over-capitalization of 
the Bering Sea pollock fishery during the 1990s.
    The AFA authorized a $90 million payment to American Seafoods to 
permanently remove nine of the 16 vessels from the fishery reducing its 
historical harvest share to 17.5 percent. The Federal Government paid 
American $20 million and the remaining $70 million is a federally 
guaranteed loan still being paid off by catcher vessels participating 
in the inshore fishery. This action accomplished two goals; it 
reallocated an additional 10 percent of the pollock fishery to the 
inshore sector and it reduced the dominance of a single company in the 
Nation's largest fishery. While other companies could have offered 
vessels for sale under this arrangement, it made most sense for 
American to offer its most inefficient vessels for sale in exchange for 
keeping its most efficient vessels. To its credit, participation by 
American in this arrangement was a critical ingredient to the 
successful negotiation of AFA.
    To ensure future balance and diversity in the industry, an 
excessive harvesting share cap of 17.5 percent was installed as a key 
feature of the AFA. American Seafoods now proposes to increase the 
harvesting cap and has argued that this increase is linked to the 
proposed amendment which would allow AFA vessels to rebuild, replace or 
retire aging AFA vessels. The rationale for this linkage is unclear but 
seems to focus on two issues.
    The first issue is concern that if AFA vessels are allowed to 
become more efficient, some participants may have an incentive to 
terminate the Pollock Conservation Cooperative (PCC) and return to a 
race for fish. This issue was remedied when members of the PCC agreed 
to require unanimous consent by all members to terminate the coop. This 
means, the offshore catcher-processor cooperative which allocates 
harvest shares among members could not be terminated unless all 
participants agreed to it. In this way American Seafoods and all other 
members would not be put at risk of losing its share of pollock due to 
modification of the AFA rebuild and replacement provisions.
    The second issue seems to be concern that in setting the 17.5 
percent cap, American was allowed to operate the most efficient fleet. 
In allowing other vessels to modernize, the argument seems to be that 
American is losing its competitive advantage and should be compensated 
by allowing it to increase its market share. In other words, if 
American Seafoods is unable to increase its market share, the remaining 
fleet should not be permitted to effectively compete in the world 
marketplace.
    Importantly, these arguments have failed to persuade most AFA 
participants to support an increase in the harvest share cap, including 
other companies that are either approaching the cap or are currently 
limited by the cap. Most participants feel that, in allowing the 
pollock fleet to modernize, the proposed amendment to rebuild and 
replace vessels levels the playing field rather than disadvantages any 
one participant.
    It should also be noted that in owning 17.5 percent of the pollock 
fishery harvesting capacity, American controls 40 percent of the 
offshore sectors allocation. Additionally, American also harvests most 
of the Community Development Quota (CDQ) which is not subject to the 
harvesting cap. The CDQ quota comprises 10 percent of the Bering Sea 
pollock fishery. Before AFA, American harvested only 5 percent of the 
CDQ quota. Today, it harvests about two-thirds of the CDQ quota. In so 
doing, it has increased its total harvesting share to about 23 percent 
of the Nation's largest fishery.
    For our company and others, this issue is simply one of putting too 
much control in the hands of too few. At some point, a much larger 
company puts smaller companies at a significant disadvantage and 
destabilizes the fishery. For the Bering Sea fishery, that point has 
been established at 17.5 percent of the harvesting capacity. The 
majority of Bering Sea participants have not been persuaded that a 
compelling reason exists to change that excessive share limit. We 
continue to believe that a cap set at 17.5 percent is a critical part 
of the AFA package and, if increased, may destabilize the fishery. We 
do not believe updating AFA vessel rebuild and replacement requirements 
will destabilize the pollock fishery or disadvantage any one company. 
These are two separate issues and should be treated separately. 
Specifically, the safety and efficiency of the entire AFA fleet should 
not be jeopardized by the desire of a single company to exceed the 
current harvest share limit.
    Finally, American Seafoods is an efficient and well managed seafood 
company. After passage of the AFA, American was quick to comply with 
Americanization of its ownership. It has diversified its operations 
nationally and internationally. It is a well-respected participant in 
the pollock fishery. Our comments have focused only on American 
Seafoods insofar as it is the only company to request an increase in 
the excessive harvesting share cap.
    Thank you again for the opportunity to testify on these fishery 
issues. We urge you to support the proposed amendment that will allow 
pollock fishery participants to rebuild, replace and modernize our 
fleet so that we can successfully compete in the global marketplace. We 
also urge that you keep the excessive harvesting cap in place to 
protect the current balance and diversity that benefits most 
participants in the fishery as well as the U.S. consumer.
     This concludes my comments.

    Senator Cantwell. Thank you very much.
    Mr. Frulla, thank you very much for being here. We look 
forward to your testimony.

 STATEMENT OF DAVID E. FRULLA, PARTNER, KELLEY DRYE & WARREN, 
        LLP, ON BEHALF OF THE FISHING COMPANY OF ALASKA

    Mr. Frulla. Thank you, Madam Chair. Good afternoon. My name 
is David Frulla. I am here testifying today on behalf of a 
Seattle-based fishing company, the Fishing Company of Alaska, 
or FCA. I am a partner in Kelley Drye & Warren, LLP, resident 
in our Washington, D.C. office. Since 2006, we have served as 
counsel to FCA for certain regulatory and lobbying matters, 
including the legislative proposal for a freezer longline 
cooperative and the vessel replacement issues that are before 
the Subcommittee today. I will address both issues, including 
by offering fair solutions consistent with existing law.
    Detailed written testimony has been submitted for the 
record.
    By way of background, FCA was the first to begin freezer 
longlining operations for Pacific cod in the Bering Sea in the 
late 1980s.
    Unfortunately, the fishery sector has become 
overcapitalized despite efforts by NMFS and the North Pacific 
Council to cap and reduce capacity and to protect historic 
participants. The council implemented a vessel moratorium in 
1995, a license limitation program in 2000, and then a 
fisheries endorsement requirement in 2002. Congress authorized 
a buyout in 2005.
    Despite these efforts, five new very active vessels entered 
the sector between 2000 and 2006. Marginal permits that 
qualified for an LLP based on landings in only 1 of the 4 
qualifying years were placed on new full-time vessels, 
including the newly built, highly efficient Bering Leader. But 
while capacity has increased, the Pacific cod stock and 
allowable catch levels have decreased.
    Nor has the buyback program been particularly effective. 
The $35 million that Congress authorized bought only three 
vessels, including two that began fishing post moratorium and 
one latent permit. We understand, moreover, that one of these 
entities is now seeking to use its buyback funds to reenter the 
fishery with a new vessel.
    Now essentially the same private entity that administered 
this ineffective buyback is proposing legislation for its own 
private cooperative. FCA has four main concerns with this 
legislative proposal. While safety is an important 
consideration, it should not be used to justify a fundamentally 
flawed cooperative proposal that is contrary to legal standards 
and express council and congressional goals for this fishery.
    Madam Chair, the Coast Guard noted the allocation issues 
and our concerns are as follows.
    First, as a matter of policy, North Pacific Council and not 
Congress should be authorizing the formation of cooperatives 
and allocating this fishery to individual participants.
    Second, the proposed cooperative uses landings over only 
the 2003 to 2005 period to allocate the fishery, even though it 
used a 5-year period to administer the buyback. As we have 
shown, other Council and Congressional rationalization plans in 
the North Pacific, including that for Pacific cod, used far 
more comprehensive qualification periods. The allocation time 
period was truncated specifically to secure the participation 
in the co-op of recent aggressive sector entrants. However, 
this has come at the expense of FCA and historic participants 
whose allocations would be reduced as a result.
    Such a reallocation is not consistent with the Magnuson-
Stevens Act, particularly as reauthorized. The MSA requires 
consideration of recent and historic participation in any such 
allocation.
    The legislative proposal is also flatly consistent with the 
moratorium's purpose to protect those who made long-term 
investments. Were Congress to act on this legislative proposal, 
it would knowingly reward speculative entry into a fishery that 
both the Council and Congress have tried to limit.
    Finally, the legislative proposal only partially and 
perhaps temporarily rationalizes this fishery. It does not 
create a durable allocation. Instead, it merely authorizes the 
formation of a cooperative. If this agreement among the 
participants in this historically fractious sector dissolved, 
the fishery would revert to a status quo race for fish, and 
Congress' action would be for naught.
    Accordingly, if there is to be legislation, which FCA does 
not support, Congress should implement a system, such as an ITQ 
or the rockfish pilot program that fully allocates the fishery. 
Further, it should use allocation criteria that are consistent 
with the MSA precedent in the North Pacific and a desire not to 
reward speculative entry. A qualification period using 1995 to 
2005 would be more equitable and legally consistent.
    Finally, FCA would like to briefly address the vessel 
replacement issue. It was on Easter morning that FCA's non-AFA 
catcher/processor, the Alaska Ranger, was tragically lost with 
five crew. As explained in greater detail in our written 
testimony, legal and regulatory barriers of the sort being 
addressed on the AFA sector's behalf in the House Coast Guard 
bill prevent the replacement of this and many other vessels. If 
Congress does not comprehensively address these barriers for 
all catcher/processor vessels, vessels will continue to age and 
become increasingly less reliable. The likelihood of future 
similar tragedies will increase.
    We would be glad to work with the subcommittee on 
comprehensive vessel replacement reform.
    Thank you.
    [The prepared statement of Mr. Frulla follows:]

 Prepared Statement of David E. Frulla, Partner, Kelley Drye & Warren, 
            LLP, on Behalf of the Fishing Company of Alaska
    My name is David E. Frulla. I am a Partner in Kelley Drye & Warren, 
LLP, in Washington, D.C. Since 2006, we have served as counsel to The 
Fishing Company of Alaska, Inc. (``FCA'') with respect to certain 
matters pending before the U.S. Department of Commerce, the North 
Pacific Fishery Management Council, and the Congress. I would like to 
thank Chairwoman Cantwell on behalf of FCA for extending this 
opportunity to provide testimony on rationalization in the North 
Pacific freezer longline fishery for Pacific cod. FCA was a pioneer in 
developing the Pacific cod freezer longline fishery in the 1980s. This 
testimony will touch first upon concerns that FCA has with the private 
cooperative proposal put forth by some members of the Freezer Longline 
Conservation Cooperative (``FLCC''). Next, I will set forth in general 
terms an alternative that better fits the legal requirements under the 
Magnuson-Stevens Fishery Conservation and Management Act (``MSA'') and 
is consistent with recent rationalization programs authorized by 
Congress and the North Pacific Fishery Management Council. Finally, 
this testimony will touch on issues related to vessel replacement and 
vessel safety.
I. FCA's Position on the Legislative Proposal for a Pacific Cod Freezer 
        Longline Cooperative
    Some FLCC members are seeking Congressional authorization for the 
formation of a freezer longline cooperative to harvest Bering Sea/
Aleutian Island (``BSAI'') Pacific cod. The proposal would allow for 
formation of this cooperative upon agreement by eighty percent of the 
sector participants. Any vessels not choosing to participate in the 
cooperative would be allocated the percentage of the total cod quota 
landed by those vessels, on average, for the years 2003 to 2005. 
However, such allocation is not exclusive to the non-participating 
vessels, but would be placed in a common pool subject to a ``race-for-
fish.'' The FLCC proposal does not purport to allocate Pacific cod 
beyond this split between the cooperative and ``open access'' 
components of the sector, such as on an individual vessel basis, and 
does not allow for the formation of other cooperatives. Accordingly, it 
is an incomplete solution to the safety issues about which this hearing 
is concerned.
    The terms of the legislative proposal (as we understand it) are, of 
course, a bit of a formality as more than eighty percent of the sector 
participants have negotiated an agreement that could be implemented 
upon passage. FCA has participated in these discussions, but has 
objected to the terms offered, particularly the awarding of significant 
amounts of the cooperative share to new and recent entrants. FCA also 
objects to the proposal's use of 2003 to 2005 as the baseline for 
determining the split between the cooperative and ``open access'' 
components of the sector. In sum, while rationalization of a sector may 
have a salutary impact on vessel safety, the imperative to increase 
safety should not be used as an excuse to drive an unfair allocation.
A. The Truncated Allocation Period is Inconsistent with Law and Recent 
        Allocation Programs
    First, the legislative proposal's use of such a brief and recent 
qualification period, 2003-05, is inconsistent with allocative 
decisions by both Congress and the North Pacific Fishery Management 
Council. For instance, when allocating cod among sectors in Amendment 
85 to the BSAI groundfish plan, that Council considered a range of 
years from 1995 to 2003, ultimately choosing allocations falling within 
this range. Currently, the Council is considering 1995 to 2005 (best 5 
or 7 years) as the basis for allocating Gulf of Alaska cod. Likewise, 
when Congress established the Rockfish Pilot Program in 2004, it chose 
1996 to 2002, best 5 years, as the qualifying period. Similar ranges 
were utilized in Amendment 80 to the BSAI groundfish plan and the 
Bering Sea crab rationalization plan. In fact, FLCC itself used a 5-
year period to justify the amount of capacity purchased for the $35 
million freezer-longline Capacity Reduction Program authorized by 
Congress in section 219 of the Consolidated Appropriations Act of 2005.
    More inclusive timeframes are consistent with the MSA, which 
requires a council to take into consideration ``historical fishing 
practices in, and dependence on, the fishery'' when developing a 
limited access system. 16 U.S.C.  1853(b)(6)(B). Likewise, the new 
standards contained in the MSA Reauthorization Act governing limited 
access privilege programs require consideration of both ``current and 
historic harvests.'' Id.  1853a(c)(5). By comparison, the qualifying 
period recommended by FLCC is not only an outlier with respect to other 
Council plans and recent statutory allocations, it entirely omits 
consideration of historical participation.
    Congress correctly instituted a policy of honoring historical 
catches to avoid rewarding speculative entry into fully utilized 
fisheries, like that for Pacific cod. Indeed, there have been five new 
entrants into this sector this decade (although two of these new 
vessels were just bought out in the buyback program), even as cod TACs 
have been steady or declining relative to 1990 levels. This recent 
capitalization, which FCA understands is continuing, runs counter to 
efforts by the Council and Congress to reduce capacity in this sector 
and others in the North Pacific.
B. The FLCC Proposal Undermines Capacity Reduction Efforts
    The pre-existing Pacific cod freezer longliner capacity control 
policy is reflected in the North Pacific Council's 1995 vessel 
moratorium, and its institution of the license limitation program 
(``LLP''), which became effective in 2000. Further, in 2002, Amendment 
67 to the BSAI groundfish plan was adopted to stabilize the Pacific cod 
fisheries by creating gear endorsements designed to define the universe 
of eligible vessels. 67 Fed. Reg. 18129 (Apr. 15, 2002). To qualify for 
the freezer longline sector, a vessel must have had a catcher-processor 
endorsed LLP groundfish license and harvested at least 270 tons of 
Pacific cod in at least 1 year between 1996-1999, inclusive, on the 
vessel that gave rise to the LLP.
    Yet, as explained above, despite the moratorium and LLP program, a 
total of 5 new vessels entered the fleet as full-time participants 
between 2000 and 2006, including the new-built Bering Leader. Although 
it is not clear how these vessels became qualified, it is likely that 
they are using LLPs that arose from one of the ten vessels that fished 
only one year during the qualification period (five of which only 
fished in 1996).
    During this post-LLP timeframe, Congress also became concerned with 
the amount of capacity in this (and other) BSAI groundfish sectors, and 
so authorized a publicly subsidized buyback program in 2005 (Section 
219 of the Consolidated Appropriations Act of 2005). To date, the 
freezer longline sector is the only sector to have proposed and 
consummated a buyback under the capacity reduction program.
    This history is relevant to FCA's main concerns with the FLCC 
proposal. For one, all problems relating to excess capacity in this 
sector, which cooperative legislation is supposed to address, are 
entirely of the sector's own making. Although the Council at least 
attempted a good first few steps in moderating capacity, what happened 
in fact was that part-time and sporadically used LLPs (which only had 
to land 270 metric tons in 1 year for a cod endorsement) were placed on 
new, full-time vessels, most now catching between 2,000 and 3,000 
metric tons per year. Nor has the buyback been particularly effective 
in reducing capacity. The buyback, as privately administered by the 
proponents of this legislative cooperative, only purchased three 
vessels and an unaffiliated permit for $35 million; however, two of the 
vessels purchased were new vessels that began fishing in 2000 and 2001. 
All this new capitalization has had the effect of eroding FCA's recent 
overall share of the Pacific cod catch.
    The result has been far from the salutary effect Congress and the 
Council sought through the license limitation program and the vessel 
buyback. Indeed, the desire to add capacity to the freezer longline 
sector continues. In fact, we understand that one of the participants 
in the buyback has attempted to use buyback funds to purchase an 
otherwise non-qualified vessel and a currently unused freezer longline-
endorsed LLP to put new capacity back into the fishery. If this attempt 
were successful, then this buyback will have repeated the failures of 
the original New England groundfish buyback program, which the 
Government Accountability Office found has led to an increase in 
capacity, rather than the intended decrease.
    This history is relevant to the qualification period being 
advocated by FLCC because it underscores that the proposed legislation 
is more designed to garner new entrants' support and solidify existing, 
private arrangements among the members of FLCC, than it is to ensure 
equitable treatment of historical participants like FCA. Basing 
allocations on fishing patterns in 2003-2005 locks in the aberrations 
that arose from the well-intentioned, but flawed LLP qualification 
program and rewards those who added capacity at a time when the Council 
and Congress were trying to stabilize this fishery by protecting 
``long-time participants.'' 67 Fed. Reg. at 18129.
    FLCC's proposal is thus not only ill-advised as a matter of policy, 
but it is legally doubtful as well. It in no way comports with existing 
law, which is geared toward both protecting historical participants and 
discouraging speculative entrants in fully-utilized fisheries.
C. The Proposal Fails to Fully Allocate the Pacific Cod Fishery
    Aside from the skewed allocation proposal, the FLCC legislative 
proposal is flawed in that it does not fully allocate Pacific cod among 
all sector participants, as do all recent rationalization programs. 
Rather, the proposed legislation merely seeks to establish an 
allocation as between the cooperative that it authorizes and those 
vessels which do not choose to join the cooperative. This means that if 
the parties in this typically fractious sector were to dissolve the 
cooperative, the sector would revert to the status quo and the 
legislation would have accomplished nothing.
    Under a typical rationalization program involving cooperatives, 
such as Amendment 80 to the BSAI groundfish plan, allocations are made 
to individual vessels, which can then either bring their allocation 
into a cooperative or into an open access pool. As the FLCC proposal 
does not purport to allocate fishing privileges on an individual basis, 
if the cooperative were to fail, the sector would revert to a race-for-
fish. The former, more common, approach of fully allocating a fishery 
and allowing formation of cooperatives is a more rational and durable 
approach.
II. FCA's Recommended Alternative
    Since this issue was initially raised before Congress, FCA has 
consistently maintained that the Council is the appropriate body to 
develop fishery management measures such as the one FLCC proposes. It 
has become apparent, however, that given FLCC's persistence and the 
Council's increasingly heavy workload, it would be constructive to 
offer an alternative that would meet the desire of the proponents of 
rationalization for cooperative-style management, while respecting 
established legal standards for such a limited access privilege 
program.
    Therefore, FCA could agree to program structured either as an 
individual fishery quota (``IFQ''), with authorization to form a 
cooperative, or a program structured along the lines of the Rockfish 
Pilot Program. Each program would allocate the sector's Pacific cod 
quota to individual vessels based on their historical catch. The latter 
differs from an IFQ only in that it allows any two or more vessels to 
form a cooperative or to join their allocation with others in a common 
pool where a vessel is not guaranteed its individual allocation of 
fish.
    In order to be consistent with other programs, however, the 
qualification years should range from 1995 to 2005. This would both 
respect historical participation, as well as respect the Council's and 
Congress's intent in limiting access and instituting the vessel buyback 
program. To use just recent history, as FLCC proposes, sends a counter-
productive message that building up capacity in a speculative manner 
can be rewarded. FCA would be pleased to work with staff to develop the 
details of such a program.
III. FCA's Perspective On the Need for Vessel Replacement
    Finally, given the focus of this hearing on safety and, in 
particular, the details of the American Fisheries Act (``AFA'') 
sector's vessel rebuild language adopted by the House in the Coast 
Guard Reauthorization Act, FCA would like to speak briefly about the 
need for more generalized relief. As you may be aware, its groundfish 
trawl catcher-processor, the Alaska Ranger, tragically sank in the 
Bering Sea on Easter morning this year. Under the regulations then 
governing the non-AFA trawl catcher-processor sector (also known 
colloquially as the ``head-and-gut'' fleet), no vessel not originally 
qualified for the sector could ever be used to harvest the head-and-gut 
sector's allocation of groundfish. In other words, the fleet was 
consigned to fish in increasingly aging and unsafe steel.
    Fortunately, that element of the regulations was sensibly vacated 
by a Federal district court. Presumably, pending implementation of the 
court's order by the National Marine Fisheries Service, replacement 
vessels will be allowed to be used. That, however, is only a partial 
solution. The Alaska Ranger was 203 feet length overall, and many 
vessels in this fleet exceed 165-feet. Under current law, no new vessel 
over 165 feet can be given a fisheries endorsement unless:

        the owner of the vessel demonstrates to the Secretary that the 
        regional fishery management council of jurisdiction established 
        under section 302(a)(1) of the Magnuson-Stevens Fishery 
        Conservation and Management Act (16 U.S.C. 1852(a)(1)) has 
        recommended after October 21, 1998, and the Secretary of 
        Commerce has approved, conservation and management measures in 
        accordance with the American Fisheries Act (Public Law 105-277, 
        div. C, title II) (16 U.S.C. 1851 note) to allow the vessel to 
        be used in fisheries under the council's authority.

    46 U.S.C.  12113(d)(2)(B). Astonishingly, neither the National 
Marine Fisheries Service, the Department of Transportation, nor the 
U.S. Coast Guard has ever implemented a regulatory process an owner can 
follow in order to make such a demonstration.
    In essence, it appears that in order to replace the Alaska Ranger, 
or any other vessel greater than 165-feet, an owner would have to 
petition a regional fishery management council for a special rulemaking 
to authorize the replacement. Given the councils' already stressed 
workload and their lack of any practical experience or guidance for 
undertaking such a rulemaking, this is an unreasonable proposition. Of 
course, this would not be an issue with AFA vessel replacement, at 
least as proposed in the Coast Guard bill, because that is structured 
as a new special exemption to the limitation on fishery endorsements 
under section 12113(d)(2).
    Vessel replacement is not a matter confined to one sector, but is a 
general safety imperative. Without the ability to replace aging 
vessels, the likelihood of more tragedies like the Alaska Ranger 
continues to increase. Moreover, without the ability to replace 
vessels, it will be increasingly difficult to meet heightened safety 
standards, such as those called for in the House version of the Coast 
Guard bill. Finally, modernization and the ability to upgrade are 
important to helping vessels become both more fuel efficient and better 
able to meet the increasingly stringent retention standards the Council 
has set for the head-and-gut sector by allowing for upgraded vessels 
that can create more product forms and more fully utilize their catch.
    All companies in the head-and-gut sector agree on the need for 
vessel replacement, although there are differences of opinions on the 
specific details. It may not be prudent to wait for perfect unanimity, 
which, in any event, is unlikely to ever emerge. As a first step, it 
would seem only right to allow replacement up to the size of the vessel 
being replaced, with proper assurances that vessel being replaced 
cannot be used in other fisheries.
IV. Conclusion
    FCA looks forward to continuing to work with this Subcommittee on 
these important issues. We would also be pleased to provide any 
additional information. Thank you again for this opportunity to testify 
on FCA's behalf.

    Senator Cantwell. Thank you very much.
    Mr. Frulla, I think I am going to start with you. So the 
Fishing Company of Alaska supports the public policy benefits 
of co-ops in general?
    Mr. Frulla. The Fishing Company of Alaska would support an 
IFQ process that fully allocates the fishery. What is happening 
here is the legislative proposal would----
    Senator Cantwell. We are going to get into that----
    Mr. Frulla. OK.
    Senator Cantwell.--unless we get called to a vote.
    Mr. Frulla. In short, an IFQ that fully allocates the 
fishery FCA would support.
    Senator Cantwell. And then as it relates to Magnuson-
Stevens, the formation of co-ops you think are consistent with 
Magnuson-Stevens.
    Mr. Frulla. In general, yes, assuming the allocations are 
fair, and there is a whole set of new criteria for allocation 
that were updated in the reauthorization act.
    Senator Cantwell. Mr. Bundy, can the North Pacific Fishery 
Management Council deal with this issue?
    Mr. Bundy. Senator, I have spent too much time in the 
engine room and my hearing is not 100 percent.
    Senator Cantwell. I am sorry. Could the North Pacific 
Fishery Management Council deal with this issue?
    Mr. Bundy. Oh, could they?
    Senator Cantwell. Yes, could they.
    Mr. Bundy. Yes. They could if the Council put it on their 
agenda. And that is a big ``if,'' by the way, because there is 
a lot of competition to get on that agenda, and more proposals 
do not make it than do make it. And if it got on the agenda, 
then it would be some years in the future that it would get 
resolved.
    In the meantime, the work of 95 percent of the fleet that 
has put together a voluntary co-op that they would like to 
implement would fall apart because time would go by, and so we 
would be back to ground zero.
    Senator Cantwell. Well, why should Congress deal with this 
if this is something the Fishery Management Council can deal 
with?
    Mr. Bundy. Madam Chair, I guess we point primarily to the 
AFA model. Here we have a fishery that is fully subscribed. All 
of the participants in that fishery have basically been here 
since the year 2000. They have been competing all under the 
same rule. We have approximately 95 percent of the catch that 
wants to pursue a co-op; 5 percent does not.
    Now, the Council has done the important work. The Council 
has allocated the resource to this group of fishermen, and the 
Council has just recently addressed all the issues that would 
be addressed all over again if we went back to the Council, 
including communities because the communities out of the 
allocation of cod got 10.7 percent off the top.
    We are asking not that Congress allocate the resource to 
individual companies. We are only asking Congress to provide a 
very simple pool by taking the existing allocation, dividing it 
up into two pools that reflect current harvest: one pool for 
those who want to join a co-op; one pool for those who do not. 
But it would reflect current harvest practices.
    Now, if Mr. Frulla wanted to pursue an IFQ program, I 
encourage him to do that, and he might even get a lot of 
support. He can ask Congress for that or the Council for that.
    But in the meantime, we need, for all the reasons that 
previous panel members testified to, to try to stop this race 
for fish. We are not taking any powers away from the Council. 
We are not prejudging anything. If he wants to pursue or the 
Fishing Company of Alaska wants to pursue what he calls a fully 
allocated, that is fine.
    Senator Cantwell. Mr. Frulla, what about this issue of 95 
percent of the Freezer Longline Coalition working together? 
Have you been part of that discussion?
    Mr. Frulla. The Fishing Company of Alaska has been part of 
that discussion when it has been permitted to be part of that 
discussion.
    The issue has come down to two, one a fundamental issue 
with Congress legislating fisheries. The second is this 
allocation issue. This issue of this common pool versus the co-
op, as it is at this point, is basically the 95 percent versus 
FCA's vessels and the allocation. And what the common pool 
would be getting is an allocation based on--and that is just 
the FCA vessels--the 1993 to 1995 catch levels. That is the 
time when everybody was piling into that fishery that really 
should not have been piling into that fishery if the Council 
and Congress's goals had been met.
    And so what the FCA is saying is no matter what you do, if 
you are going to do something, pull back and look at a more 
fair allocation period that is consistent with how the North 
Pacific Council has done it in other fisheries, including cod 
fisheries, and how Congress has done it when it has gotten 
involved.
    Senator Cantwell. Was there a discussion about additional 
fish to meet some of the issues that the Fishing Company of 
Alaska is bringing up?
    Mr. Bundy. Madam Chair, I will just be very brief and try 
to be directly responsive to Mr. Frulla's comment. In the 
negotiations for the co-op, everybody was included and 
participated.
    The outcome of the negotiation, partly because of Mr. 
Frulla's client's recalcitrance, they got extra fish. They 
would get the number 2 and number 4 highest allocations of all 
the 36 vessels. They would get 7.1 percent under the co-op. 
They are currently fishing at about 5 percent or less. Even 
under the years 2003-2005, they would get 6.6 percent of the 
fishery, which is more than they have been catching the last 2 
years.
    It is just really difficult to swallow the allegation that 
somehow they have been treated unfairly, and we all did 
consider all those years back to 1995. It is always the same 
thing when we approach these types of issues. You have the 
``pioneers lament'' about how they established the fishery and 
so forth. And by the way, there were companies there before 
theirs. And then you have the ``newcomers lament.'' And so you 
have to balance those things, and that is what the negotiations 
did. It took all that into account and gave them some extra 
fish partly because of a sunk vessel that they had, partly 
because they just held out and are still holding out.
    Senator Cantwell. Well, I never thought I would long to 
have more discussions about vessel replacement, but this debate 
back and forth is challenging as well and makes one want to 
figure out how to get to the bottom line here.
    So are you saying that there is a fair percentage, or are 
we saying that a time-frame is a more accurate assessment of 
what the measurement should be? Mr. Bundy or Mr. Frulla, 
whoever wants to go first.
    Mr. Frulla. Thank you, Madam Chair. First, in response to 
Mr. Bundy, the legislative proposal is not 7 percent.
    Second of all, what the FCA looks to is a longer period to 
assess the allocation so that you take a broader range of 
history in determining percentages of the fishery back before 
all this effort came piling in.
    Respectfully, of course, FCA's share declined. There are 
more vessels out there racing for fish in these recent years.
    Senator Cantwell. So you are saying that a longer time 
period is just a more historical number. And so is there a fair 
allocation that you think that represents?
    Mr. Frulla. We have been looking at a time period that is 
between 1995 and 2005 that takes a best number of years, which 
is how other fisheries have been allocated.
    Senator Cantwell. You are saying other fisheries took a 10-
year time period.
    Mr. Frulla. I am sorry. I did not understand your question.
    Senator Cantwell. You are saying other fisheries looked at 
a 10-year time period for historical data?
    Mr. Frulla. Up to about a 10-year time period. That is all 
set forth in the written testimony in terms of the periods. 
Some of the fisheries that have been allocated in the North 
Pacific that everybody has been talking about have looked at 
qualification periods that go back to 1995. Again, we have that 
laid out in our written testimony.
    Senator Cantwell. But that is what I am trying to get out, 
is the measurement stick. And so are you saying 10 years, or 
you are saying----
    Mr. Frulla. We are saying 10 years is a lot fairer than 3. 
We are saying something in between could be possible too.
    Senator Cantwell. And you think other fisheries management 
did 10-year----
    Mr. Frulla. I know it did. It is in the record for these 
other fisheries.
    Senator Cantwell. Mr. Bundy?
    Mr. Bundy. Senator, again, we are following the AFA 
precedent which was 3 years. I mean, it is true that these 
programs have all kinds of sets of years, the shortest 2 and 
the longest 7, although I am not aware of any with 10. Under 
Mr. Frulla's proposal, you would have to go from 1995 to 2007 
because the law requires us to consider recent participation. 
So that is 13 years. That is way, way off anything that I am 
aware of.
    We did consider the early years as a group, and when you 
consider all this, it ultimately does come down to a 
percentage.
    With regard to piling on and speculators that they are 
complaining about, again, in the year 2000, the Council 
established the rules for who was in and who was out. The 
speculation argument was relevant then in 2000, not now. We 
have all been in since 2000. We have all had the same number of 
licenses that people have dealt with. The Fishing Company of 
Alaska has competed in a way so that they have continued to 
catch less fish vis-a-vis the rest of the fleet. Some have done 
better; some have done worse. The negotiation balanced all that 
out.
    Senator Cantwell. Could the two of you comment on the House 
language on vessel replacement and your thoughts?
    Ms. Parker. Madam Chair, there are three components here. 
Any replaced vessel is prohibited from participating in any 
fishery outside the North Pacific and the West Coast hake 
fishery. Any rebuilt or replaced vessel that increases its 
length would be prohibited from fishing in the Gulf of Alaska. 
And any retired AFA vessel must surrender its fishery 
endorsement and so cannot participate in other U.S. fisheries.
    Senator Cantwell. Mr. Hyde?
    Mr. Hyde. American Seafoods supports all of the proposals 
to allow vessels to be replaced. I think that as long as you 
have a race for fish, there is a real issue of what that does 
when you allow new vessels to continue entering a fishery, but 
once you have rationalized fisheries, then I think it is time 
to remove all of those restrictions.
    As I commented in my testimony, though, with respect to the 
catcher/processor sector of the AFA fleet, it is not a safety 
issue. Nearly all of the vessels are classed and all the 
vessels are load-lined. It is purely an efficiency measure with 
respect to that sector.
    The other problem is that that Coast Guard language really 
does not affect any of the vessels that seem to be the focus of 
a lot of the discussion today, the H&G trawl fleet and the H&G 
longline fleet. If this legislation is going to do what it 
really probably ought to do, it needs to be much broader than 
it is right now.
    The last issue is that that language, while it focuses on 
vessel replacement, it actually has another very important 
component which is what we call an inshore permit stacking or 
quota stacking proposal. Again, this proposal makes a lot of 
sense. You have more catcher vessels inshore than you need. 
This would allow vessel owners to take their quota off one 
vessel and put it on another vessel, giving you the opportunity 
to make sure you have the most efficient vessels on the ground. 
It all makes great sense and we ought to do it, but we ought to 
do it as a package.
    Senator Cantwell. Mr. Bundy or Mr. Frulla, do you have any 
comments about the House language in the Coast Guard bill?
    Mr. Frulla. If I may, Madam Chair, the Fishing Company of 
Alaska strongly supports what Mr. Hyde is saying, extension of 
the vessel replacement language to Amendment 80, head and gut 
groundfish trawl fleet, as well as the freezer longliner fleet. 
It strongly supports that.
    Senator Cantwell. Mr. Bundy?
    Mr. Bundy. Senator, we are supportive of that. I am going 
to point out that we do not have any specifics from that fleet. 
It has been 2 years, I think, since we asked that fleet if they 
wanted to be included, please provide some language, and we 
have just never seen it. And so I hesitate to just say I 
support whatever they want, but conceptually we support them.
    Senator Cantwell. Well, thank you.
    We have a vote in progress, well under progress now. So I 
am going to submit some additional questions to several of the 
panelists here, and if you could get us a timely response in 
that.
    Again, I appreciate everyone's attention to today's 
hearing. These are important economic and safety issues for the 
Northwest, for Alaska, for Washington, and for Oregon. So we 
appreciate the fact that people have traveled and followed 
these safety and fishing issues so closely.
    So we appreciate you getting back to us and the rest of the 
information that we are requesting.
    So this hearing is adjourned.
    [Whereupon, at 4:17 p.m., the hearing was adjourned.]
                            A P P E N D I X

   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                            James Sanchirico
    Question 1. A 2005 United Nations Food and Agriculture Organization 
report estimates that the market value of the world's fisheries in 1990 
was $70 billion, but that the operating cost of those fisheries was $92 
billion. An unprofitable fishing industry does not create an 
environment where safety or sustainability of the resource is a top 
priority. How does the choice of one fishery management regime over 
another contribute to this problem?
    Answer. The institutional framework within which fishermen operate 
can and has generated perverse incentives and perverse outcomes that 
are attributable to institutions rather than inherent human character. 
That is, fisheries are overexploited not because of greed or corruption 
or other character flaws of users and regulators but rather because of 
management regimes that have failed to address insecure access rights.
    A back of the envelope calculation to emphasize the potential 
economic gains that are currently being ``left in the water'' by not 
addressing the rule of capture incentives is as follows:

        1. Start by taking the 1990 estimate of world revenues of $70 
        billion per year

        2. Take the data from individual fishing quota fisheries from 
        around the world with profit rates ranging from 20 percent to 
        60 percent

        3. Multiplying $70 billion by this range of profit rates yields 
        sustainable profits ranging from $14 billion to $42 billion per 
        year.

    Therefore, by not rationalizing our fisheries, we are squandering 
the original loss of $22 billion plus the potential profits ranging 
from $14 to $42 billion. In other words, we potentially could turn the 
$92 billion spent on operating costs into $94 billion in profit via 
rationalization.

    Question 1a. Is there an alternate fishery management plan that 
would make fishing more profitable?
    Answer. Any management institution that that treats the fundamental 
cause of economically and ecologically depressed fisheries--the 
insecure rights to the resource (or ``rule of capture'' incentives)--
will create the necessary conditions for the fishery to become 
profitable.

    Question 1b. What fisheries that have implemented rights-based 
fishing are success stories?
    Answer. While I do not have the exact number of fisheries, I would 
argue that all of the major commercial fisheries throughout the world 
that have implemented rights-based fishing systems can be considered 
successes in terms of improving economic efficiency. With regard to 
ecological criteria, there are two potential measures of success. 
Rights-based fisheries have for the most part been designed under the 
auspices of single-species management. In that regard, the fisheries in 
which the total allowable catches have been set using the best 
available natural and social science are a success in that their stocks 
are stable with respect to fishing mortality factors. Another potential 
metric is the ever-elusive health of the marine ecosystem in which 
rights-based fishery management systems are just one of the factors 
contributing to the health of the system. In this case, it is difficult 
to discern cause and effect in such complex coupled natural-human 
systems. We can say, however, that rights-based systems are consistent 
with lower ecological impacts, more so than are race to fish 
conditions. For example, slowing the pace of fishing and focusing on 
maximizing the quality of the yield will result in improvements in 
targeting capabilities that will translate into habitat damage and 
lower bycatch and discard rates.
    Finally, rights-based systems foster a stewardship ethic that 
manifests itself into a long-term view of the resource productivity. 
Expectations of future conservation-minded management are capitalized 
immediately in the individual fishing quota prices, and it then becomes 
in the interests of rights holders to preserve those capitalized values 
by promoting actions that ensure future biological and economic 
sustainability. In the same manner that shareholders have an interest 
in ensuring that managers maintain the asset value of firms, so do 
shareholders of rights-based fisheries have an interest in ensuring 
that their quota values are protected by wise and forward-looking 
policies.

    Question 2. Do ``race for fish'' management regimes promote 
economic stability within the fishing industry? What impact does such a 
regime have on employment within the fishing industry? How does the 
economic situation change when rights-based fishing systems, such as 
individual fishing quotas, individual transferable quotas, 
cooperatively managed fisheries, and community development quotas, are 
implemented?
    Answer. Of course, defining economic stability for an industry that 
is heavily regulated can be tricky. That said, I would argue that 
economic stability characterized by little or no economic return is not 
a desirable ends. Yes, the transition to a rights-based system can 
introduce short-term changes to an industry that according to some 
might be destabilizing, but these changes promote the type of economic 
stability for harvesters, processors, and fishing-dependent communities 
that is desirable from society's point of view.
    To reiterate what I said in my testimony, the creation of wealth 
from addressing insecure access rights will lead to improved 
stewardship, sustainability, and further innovation to increase value.

    Question 3. What are the environmental impacts of fishery 
cooperative formation?
    Answer. Cooperatives and individual fishing quota systems will slow 
down the pace of fishing. We have observed, for example, the season 
length went from 75 days to 149 days after the creation of the 
cooperatives in the North Pacific Pollock fishery, and a similar result 
occurred in the Pacific Whiting Cooperative. As I mentioned above, 
slowing the pace of fishing and focusing on maximizing the quality of 
the yield will result in improvements in targeting capabilities that 
will translate into habitat damage and lower bycatch and discard rates.

    Question 4. Many fish species are subject to natural booms and 
busts in stock size as ocean conditions vary from year to year. How 
does this variation in stock size and, therefore, total harvest impact 
the profitability of a given fishing sector? Would the implementation 
of a rights-based fishing system mitigate the economic impacts?
    Answer. Regardless of the management structure in place, the 
economic returns from fishing are a function of both economic and 
ecological characteristics, including prices, labor costs, fuel costs, 
growth rates of species, trophic interactions, habitat conditions, and 
so on. The greater the variability in these factors from year to year, 
the greater the fluctuations in the economic returns.
    Yes, a fishing industry operating under management systems that 
result in little or no economic return on average, such as ``race for 
fish'' systems, are more economically vulnerable to short-term 
fluctuations than one operating under a rights-based system. Reasons 
for the additional vulnerability include: (1) investments solely 
focused on improving catching efficiency as a means to better compete 
for a limited catch; and (2) with little or no economic return in 
``race to fish'' fisheries, the ability of the harvesters to handle 
unexpected variations in fishing costs or stock size, for example, is 
diminished (for example., there may be a lack of capital to use as 
collateral to offset downturns).
    See also my written testimony and the citations therein for a 
discussion of the changes under rights-based management systems that 
have been observed throughout the world.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                             Leslie Hughes
    Question 1. Does a race for fish pose a significant safety risk?
    Answer. Yes. Open access fisheries inadvertently promote more risk 
taking, in the form of greater crew fatigue from working longer hours, 
fishing in hazardous weather in order to maximize catch and economic 
gain, and vessel overloading.

    Question 2. Does current law, such as the Commercial Fishing 
Industry Vessel Safety Act of 1988, address any of the safety concerns 
posed by a race for fish?
    Answer. Only in that crews are better prepared and equipped to 
respond to an emergency situation which is more likely to occur in an 
open access fishery.

    Question 2a. How would fishery management practices have to change 
in order to improve fishing safety?
    Answer. National Standard 10 of the Magnuson Fisheries Conservation 
and Management Act of 1976 was amended by the Sustainable Fisheries Act 
of 1996 and recommended that NMFS ``implement management measures that 
reduce the race for fish and the resulting incentives for fishermen to 
take additional risks with respect to vessel safety.'' To improve 
fishing safety, more fisheries should adopt ``rationalized'' management 
plans.
    The fishery management plans in effect in the North Pacific that 
are ``rationalized'' are safer. Rationalized fishery management 
programs off Alaska now exist for halibut, sablefish, Bering Sea/
Aleutian Pollock, Bering Sea/Aleutian king, Tanner and snow crab and 
for the Amendment 80 ground fish trawl fleet. These fisheries are 
managed by either cooperatives or by individual fishing quotas (IFQs). 
These management programs are similar in many ways and they share 
common advantages to vessel operations and fishing vessel safety. 
Harvest quotas are allocated to cooperative members or to individual 
vessel owners for their exclusive usage during an extended season, 
which results in the following benefits: In practice, this means that 
vessels can plan for their season, and they can conduct their fishing, 
of their quota, during reasonable weather at a reasonable pace to be 
safe and maximize economic returns.

    Question 2b. Is there evidence from other fisheries to support 
this?
    Answer. Yes. One example is the notoriously dangerous Bering Sea/
Aleutian king, Tanner and snow crab fisheries. In the decade of the 
1990s, prior to rationalization, these crab fisheries sustained an 
average of eight fatalities per year. In the past 3 years under new 
Individualized Fishing Quotas fisheries management, there have been 
zero fatalities and no Coast Guard Search and Rescue missions on 
vessels participating in rationalized crab fisheries.

    Question 2c. Do the fishermen in these fisheries feel that safety 
has been improved?
    Answer. Absolutely.

    Question 3. What grade would you give to the overall state of 
commercial fishing safety in the United States?
    Answer. I do not believe it is possible to generalize a ``grade'' 
for the entire country. Fishing vessel safety is best considered by 
gear types, regional areas of operation, seasons, crew training and 
vessel condition.

    Question 4. During the hearing, you testified that more 
preventative safety measures are needed in order to improve fishing 
safety. In your opinion, why have we failed to implement more stringent 
laws and regulations?
    Answer. The Fishing Vessel Safety Act of 1988 that resulted in 46 
CFR Part 28 regulations for the commercial fishing industry applied 
generally to a very diverse fleet nationally. The Coast Guard's 
enforcement of full compliance with those regulations since they were 
published in 1991 has ranged from being very successful (Districts 13 
and 17) to inconsistent from region to region, and, consequently, it 
has been difficult to determine just how effective they have been at 
improving fishing vessel safety. More stringent laws and regulations, 
in my opinion, need to be based on actual, identified risks through 
casualty data. It is extremely difficult to track casualty rates over 
time and measure success without reliable and complete casualty 
information, which is critical for determining where additional 
enforcement action is needed.

    Question 4a. In your experience with the fishing community, do you 
believe that the fishing community would support more stringent safety 
regulations?
    Answer. Yes, as long as they addressed an identified risk and were 
perceived to improve safety. The Seattle-based fishing community, which 
accounts for 85 percent of the catch in Alaska, is very proactive about 
safety, and would most likely be the region of the country that would 
be least resistant to additional safety regulations. Our North Pacific 
region also has strong Coast Guard oversight from the two Districts (13 
and 17) that our vessels home port and fish in. Coast Guard personnel 
in those Districts have implemented several initiatives that addressed 
identified high-risk fisheries and directly resulted in improving the 
safety record of those fleets. Specifically, to reconcile regulatory 
definitions and material requirements for a group of processing vessels 
in the H&G fleet, an Alternate Compliance Safety Agreement was 
developed. This program has resulted in substantial vessel improvements 
and increased training for the crews. In spite of significant monetary 
impacts, the program received strong industry support and active 
participation with the affected segments of the industry.
    There will always be segments of the fishing industry that would 
find additional regulations an undue economic hardship that could 
threaten their livelihood.

    Question 4b. In what areas do you believe regulation is most 
needed?
    Answer. The existing regulations focus on requirements for carriage 
of survival equipment designed to improve survival rates in the event 
of an incident, along with some minimal training requirements. This was 
an extremely important first step, but has not generated a program of 
accident prevention. Prevention is the area where future regulations 
need to concentrate, particularly vessel losses.
    Some other areas where preventative measures should focus would 
include safety training and certification based on safety training. 
NPFVOA also supports making Voluntary Dockside Exams mandatory for all 
fishing vessels. Our organization fully supports improving the Coast 
Guard's enforcement of existing regulations. Stability standards for 
vessels less than 79 feet have not been published by the Coast Guard 
and are long overdue. The Coast Guard has published an Advanced Notice 
of Proposed Rulemaking (Docket No. USCG-2003-16158) that, if adopted, 
would improve stability standards. It is presently in a comment period 
that was recently extended until December 15, 2008.

    Question 5. From your interactions with the fishing community, what 
is the fishing industry's position on the proposed fishing vessel 
safety language in the House Coast Guard bill that would require safety 
inspections twice every 5 years, require safety training, and implement 
vessel construction standards?
    Answer. Although I cannot speak for the entire fishing community, I 
believe that a large segment would support vessel safety examinations 
and additional safety training. Requiring all new fishing vessels to be 
classed or inspected by the Coast Guard would improve safety overall, 
but requiring a load line for new construction or a similar review 
would provide nearly the same level of safety at a significantly lower 
cost.
    Entering an existing vessel into ABS or similar class would be 
difficult or impossible for much of the fleet, because the 
classification societies have restrictions on the types and ages of 
vessels they will accept into class. If the Alternate Compliance Safety 
Agreement (ACSA) program were expanded to cover more vessels 
nationally, the U.S. Coast Guard would need a substantial number of 
additional billets to be fully funded for the significant additional 
work that would be added to the local inspection offices.

    Question 5a. Do you believe that the measures included in the House 
Coast Guard bill will improve fishing vessel safety?
    Answer. I believe most of the recommendations in H.R. 2830 would 
improve safety, particularly the additional safety training and vessel 
safety examinations. The proposed language for some of the new 
construction requirements is very complicated and may have unintended 
impacts if passed without a thorough regional analysis.

    Question 6. Attendance in the North Pacific Fishing Vessel Owners' 
Association (NPFVOA) Vessel Safety Program's safety courses has 
exceeded 34,000 from fishing industry as well as mariners from other 
industries. Why do you think your program has been so successful in 
engaging the North Pacific fishing community?
    Answer. The fact that the NPFVOA Vessel Safety Program was 
developed in cooperation with the U.S. Coast Guard is a key reason, but 
equally as important is the fact that recognized fishing industry 
leaders supported development of the program specifically based on 
identified regional needs. The program focus has always been directed 
specifically at safety problems and risks that these fishermen face in 
the North Pacific. The program has continued to be highly valued as a 
safety program ``by fishermen, for fishermen''. The safety courses 
offered by NPFVOA exceed those required by the U.S. Coast Guard and, 
because they address the safety concerns faced by fishermen, 70 percent 
of attendance in our courses has been voluntary. Over the past 23 years 
since the program was implemented in 1985, NPFVOA's membership has 
grown to more than 200 vessels, representing a broad range of gear 
types, and approximately 150 support businesses and individuals. Having 
a vessel membership is extremely important because it further builds 
community involvement and helps to create a ``safety culture''.

    Question 6a. What has been the largest challenge to implementing 
your program's goals?
    Answer. NPFVOA's biggest challenges have been how to best address a 
multitude of safety issues for such a diverse and dynamic fleet, and 
having adequate funding to accomplish all of our goals. Initially the 
program was funded by Saltonstall-Kennedy Funds, but it has been 
private since the program was developed more than 20 years ago.

    Question 7. Do you support allowing vessel replacement in the 
Pollock catcher processor fleet and the head and gut fleet?
    Answer. Yes. The American Fisheries Act (AFA) has by most measures 
been an extremely good piece of legislation, as in part it has 
established a well reasoned ``rationalized fisheries management 
program'' for our Nation's largest fishery--Bering Sea Pollock. The 
shortcoming of this act is that it precludes vessel owners the ability 
to replace AFA qualified vessels, both Pollock catcher processors and 
catcher vessels, that could become worn out and increasingly unsafe 
over time. Under current law, to be replaced, a vessel must be a total 
constructive loss. This is an unreasonable predicament that badly needs 
to have the language amended so that vessel owners can replace aging 
vessels that become unsafe with new and modern vessels. Most of the 
Bering Sea Pollock trawlers and H&G fleet were built in the 1970s--
1980s with hull life expectancy of 25-30 years. Corrective actions are 
now extremely timely.

    Question 8. How urgent is the need for vessel replacement 
legislation for the AFA and non-AFA fleets? Is safety an immediate 
concern for these fleets?
    Answer. The AFA and non-AFA fleets are definitely aging, with many 
vessels being at least 30 years old and some World War II-vintage 
vessels still in service. The fleets differ substantially and not all 
are of the same age and material condition. There is no good reason to 
not have the ability to replace these vessels so those that need to be 
replaced can be replaced in a reasonable manner. To preclude this 
timely replacement ability is completely counterproductive.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                     Commander Christopher Woodley
    Question 1. A number of reports from the Coast Guard and the 
National Research Council identify issues with fishing vessel integrity 
and human behavior as the primary causes of fishing accidents and 
fatalities. Do you believe that these two issues are the primary causes 
of fishing casualties or is the problem larger in scope? Where should 
we be directing our attention and efforts while trying to improve 
fishing safety? Who bears the primary responsibility for improving 
fishing safety? Is this an area where many share responsibility, but 
few actually take initiative? Does a race for fish pose a significant 
safety risk?
    Answer. The National Research Council's report Fishing Vessel 
Safety--Blueprint for a National Program, 1991, determined fishing 
vessel safety should be considered a ``total concept.'' The report 
delineates three major factors which influence commercial fishing 
safety: vessel, fishermen, and external forces (NRC 1991). The Coast 
Guard concurs with the report and believes these factors should be the 
focus of attention and efforts while trying to improve fishing safety.
Vessel Factors
    Mandatory standards for construction, outfitting, and maintenance 
are necessary to reduce vessel losses. These standards must be enforced 
through mandatory examinations by experienced marine surveyors or Coast 
Guard personnel. The Coast Guard currently lacks authority to impose 
such standards.
Fishermen Factors
    Professional competency (e.g., training and skills) and behavior 
(e.g., risk taking attitude and a sense of responsibility for safety) 
define fisherman factors. As required by the Commercial Fishing 
Industry Vessel Safety Act of 1988 (P.L. 100-424), the Coast Guard 
recommended establishing a commercial fishing licensing program to 
improve the competency of those operating vessels within the industry. 
Since passage of the Act, vessel safety equipment and the ability of 
crews to properly use that equipment has improved. The Coast Guard has 
no legal authority for licensing, the education, training, and 
competency demonstration.
    A number of safety improvement alternatives could address risk 
tolerance within the commercial fishing industry (see Table 8-1 of the 
NRC report, Safety Improvement Alternatives). They include:

   Mandatory training and demonstration of competency in safety 
        equipment and emergency procedures such as firefighting, man 
        overboard recovery, and damage control.

   Training and competency demonstration in vessel operations.

   Adoption of safe operating practices, such as limiting work 
        hours, providing mandatory rest periods, navigational watch 
        procedures, and wearing personal flotation devices on deck.
External Factors
    Management, economics, weather and sea conditions are external 
factors that affect fishing vessel safety. Management systems reduce 
participation and encourage the exit of older and less safe vessels 
from the fleet improving safety records. Under the reauthorized 
Magnuson-Stevens Fisheries Management and Conservation Act, the 
National Marine Fisheries Service (NMFS) and the fisheries management 
councils are obliged to address safety under section 301 (national 
standard 10) and in section 303(a)(9)(C), which includes safety 
assessments in fishery impact statements.
Future Efforts to Promote Fishing Safety
    The Coast Guard believes that the focus of future commercial 
fishing industry safety improvements must be focused on preventing 
casualties. Existing authority is focused on equipment to be used in 
surviving a casualty. While safety equipment carriage is part of any 
safety regime, ensuring vessels are suitable for the intended service 
and that their crews are adequately trained and experienced is of vital 
importance. This approach addresses both vessel integrity issues and 
risk management practices. All top fishing nations, except the U.S., 
have adopted standards to address these issues. For instance, in 
Canada, commercial fishing vessels must undergo mandatory examinations 
and operators must be licensed.
Responsibility for Improving Safety
    Primary responsibility for improving safety within the commercial 
fishing industry rests with the industry itself including owners, 
operators, and vessel personnel. Unfortunately, the history of safety 
within the industry has shown without Federal intervention, most vessel 
operators do not take the initiative to improve.
    The Coast Guard is a nationally and internationally recognized 
expert in maritime safety (standards development, enforcement, and 
search and rescue) and designated by the Commercial Fishing Industry 
Vessel Safety Act of 1988 as the national lead for fishing vessel 
safety. While the Coast Guard is the lead agency, many other agencies 
share responsibilities. Federal and state fisheries managers have a 
significant influence on safety but their primary responsibilities 
focus on sustainable resource management, distribution of natural 
resources, and economics of the industry. Other enforcement agencies 
(OSHA) and research agencies (NIOSH) also have responsibility for 
contributing to safety improvements.
Risk associated with ``Race for Fish'' Fisheries
    There is general agreement that fisheries managed as open access or 
regulated open access, which create a ``race for fish'' and derby style 
operations, encounter more safety problems than fisheries under 
alternative management schemes. The limited opportunity created by such 
restrictions tends to tip the balance toward economic viability at the 
expense of safety. The ``race for fish'' style fisheries lead to 
excessive work hours, risk taking such as overloading, operating in 
undesirable weather conditions and other safety problems. Research has 
shown that there are significantly safer methods of managing fisheries 
than the derby style and many fisheries management councils have 
recognized this and taken actions to implement limited access privilege 
programs to reduce the race for fish. Additionally, other management 
practices used to ensure sustainable fisheries may also resolve safety 
issues (e.g., closed areas and seasons and gear restrictions).

    Question 2. Does current law, such as the Commercial Fishing 
Industry Vessel Safety Act of 1988, address any of the safety concerns 
posed by a race for fish? How would fishery management practices have 
to change to improve fishing safety? Is there evidence from other 
fisheries to support this? Do the fishermen in these fisheries feel 
that safety has been improved?
    Answer. No. The Commercial Fishing Industry Vessel Safety Act of 
1988 addresses carriage of safety equipment but not fisheries 
management practices.
    Recent changes to the Magnuson-Stevens Fisheries Conservation and 
Management Reauthorization Act require additional consideration of 
safety in the development of fisheries management plans. Consequently, 
the Coast Guard is working with National Marine Fisheries Service 
(NMFS) to improve how fisheries management plans address safety.
    As a general rule, fisheries that have adopted effective 
constraints on participation and effort, such as limited access 
privilege programs, show safety improvements. Examples include the 
halibut and sablefish Individual Fishing Quota (IFQ) program, the 
Bering Sea pollock cooperatives, and the Alaska crab rationalization 
programs. Under the reauthorized Magnuson-Stevens Act, section 303A 
addresses such limited access privilege programs and provides 
requirements for implementing future programs. One of those 
requirements is that the limited access privilege program shall promote 
fishing safety. NMFS anticipates increasing the number of such programs 
in the next several years in virtually all the regions of the U.S. 
Exclusive Economic Zone.
    Fishermen in the above mentioned management systems have seen an 
improvement in safety.

    Question 3. Is safety a concern for the Pacific cod freezer 
longline fleet? What would be the safety implications of allowing the 
Pacific cod freezer longline fishery to form a co-op? To what extent is 
safety a reason for Congress to move forward with the proposed co-op 
legislation?
    Answer. The Coast Guard has safety concerns for the Pacific Cod 
freezer longliner fleet for several reasons:

        1. A significant number of personnel involved in vessel 
        operations, most of whom have not had formal safety training.

        2. The area of operation is harsh and remote from established 
        rescue assets and the most productive fishing is during winter 
        months.

        3. The age of the fleet is relatively old. Older vessels are a 
        higher risk for vessel loss and more difficult and costly to 
        maintain.

        4. Many older vessels in this fleet were ``grandfathered'' and 
        not required to meet the latest standards for commercial 
        fishing industry vessels for equipment, design, or damage 
        stability.

        5. There have been a number of significant vessel losses in 
        this or associated fisheries where each resulted in a large 
        number of fatalities.

    The Coast Guard is not aware of any adverse safety implications 
resulting from formation of fishing cooperatives. In fact, fishing 
cooperatives can promote improvements in safety if structured in ways 
that encourage participants to consolidate efforts and remove less 
efficient and less safe vessels. In this context, section 303A of the 
Magnuson-Stevens Fisheries Conservation and Management Reauthorization 
Act includes safety as one objective of limited access privilege 
programs.
    Safety of life should be a major consideration in developing all 
fisheries management plans including cooperatives.

    Question 4. Is there an immediate need for legislation to allow 
vessel replacement? What is the safety record of the AFA pollock and 
head & gut fleets? Is safety an immediate concern for this fleet? From 
your professional experience, can you please share your thoughts on 
vessel replacement in this fleet?
    Answer. The Coast Guard supports replacement vessels because higher 
safety standards would be required. Safety is enhanced even more with 
new construction rather than a major modification of an existing 
vessel.
Safety Record of the AFA Pollock and Head and Gut Fleets
    The Bering Sea Aleutian Island (BSAI) Pollock fishery is the 
largest fishery by volume in the U.S. During the 1990s the fleet became 
more competitive and season lengths decreased creating a derby style 
fishery. The America Fisheries Act (AFA) changed this fishery to a 
quota-based system which resulted in a 45 percent decline in the number 
of factory trawlers and a 15 percent decline in catcher vessels in the 
fishery. The change from the open-access system to a quota-based system 
was not implemented until 1999.
    The Pollock fishery had relatively low rates of fatal injuries and 
search and rescue cases prior to the AFA, so safety has to be measured 
by non-fatal injuries as well. Injury rates were evaluated by the 
National Institute for Occupational Safety and Health (NIOSH) based on 
100 vessel-weeks in the fishery.
    The Pollock factory trawlers showed a 76 percent decrease in injury 
rate from the four-year time period before the AFA implementation to 
the six-year period after implementation. The Head and Gut trawl 
catcher processor vessels, not managed by the quota system, had a non-
fatal injury rate of 0.5 per 100 vessel-weeks for the same time 
periods. This was a fairly steady rate for vessels that operated 
similarly to the factory trawlers, before and after AFA.
    Other factors could have influenced the reduction in injury rates 
besides the AFA and the elimination of racing to fish, including 
vessels dropping out of the fishery, corporate safety improvements, 
increased compliance with safety and equipment requirements on the 
vessels, and new North Pacific Fishing Vessel Owners Association 
(NPFVOA) safety training programs.
Fleet Safety Concerns
    There is immediate safety concern for the AFA Pollock and Head and 
Gut Fleet for the following reasons:

        1. There are a significant number of personnel that operate and 
        work on board each of these vessels, many of whom have not had 
        formal safety training.

        2. The areas in which these vessels operate experience harsh 
        conditions and are remote from established rescue assets.

        3. The relatively old average age of the vessels poses a higher 
        risk for vessel loss. Older vessels are more difficult and 
        costly to maintain.

        4. Older vessels, such as in this fleet, were ``grandfathered'' 
        and not required to meet the latest standards for commercial 
        fishing industry vessels for equipment, design, or damage 
        stability.
Vessel Replacement
    There are significant safety benefits from vessel replacement 
including higher standards for design, outfitting, construction, 
maintenance, watertight integrity and stability, and vessel 
survivability after a casualty where damage is incurred. Additionally, 
new vessels can be more effectively and efficiently maintained.

    Question 5. Commercial fishing vessels are not subject to 
inspection and are only required to carry basic safety equipment. Do we 
need more stringent laws and regulations? In your opinion, why have we 
failed to implement more stringent regulations? In your experience with 
the fishing community, do you believe that the fishing community would 
support more stringent safety regulations? In what safety areas do you 
believe regulation and Congressional action is most needed?
    Answer. Yes. More stringent laws and regulations are needed to 
improve safety within the commercial fishing industry, and the Coast 
Guard addressed this issue in the Advance Notice of Proposed 
Rulemaking, published March 31, 2008. When the rule is final, the Coast 
Guard will have fully implemented the safety regulations supported by 
the existing authority.
    The progression of safety within the commercial fishing industry 
from voluntary standards to the existing requirements for safety 
equipment has convinced most within the industry that regulations are 
beneficial. The Commercial Fishing Industry Vessel Safety Advisory 
Committee, made up of fishermen and other industry stakeholders, have 
continually supported additional safety requirements with the caveat 
that economic impact must be carefully balanced with expected benefits.
    Safety improvements from existing authority and educational 
outreach programs have resulted in a plateau in casualties over the 
last 7 to 8 years. The Coast Guard supports the intermediate steps to 
address prevention and operator competency reflected in H.R. 2830. Such 
measures address vessel integrity issues through additional design, 
construction, and maintenance combined with periodic mandatory 
examinations of the vessel and requirements for operator training and 
demonstration of competency. Such an approach is consistent with 
recommendations of the National Research Council in Fishing Vessel 
Safety--A Blueprint for a National Program, 1991. Additional issues of 
concern include drug and alcohol use within the industry and lack of 
appropriate standards to address fatigue caused by excessive work 
hours.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                               John Bundy
    Question 1. From your experience, if the freezer longline co-op 
proposal was submitted to the North Pacific Council, what process would 
it go through and how long would it take?
    Answer. First, the matter would need to be put ``in the pipe-line'' 
during ``staff tasking'' which normally occurs at the end of each 
meeting. That action takes a majority vote by Council members and is 
not automatic because there is much competition for the Council's 
attention. Second, also during staff tasking, a majority of Council 
members must agree to actually devote staff time to the matter and to 
place the issue on the agenda. Assuming those steps are taken, based on 
past Council actions in the context of rationalizing fisheries, the 
process until implementation would take years, possibly up to five or 
more. Attachment #1 hereto provides the timeline taken in similar past 
Council actions.

    Question 1a. What are some of the major competing priorities facing 
the Council's agenda?
    Answer. The Council is indeed very busy and has a heavy work load 
at each and every meeting. Over the recently completed 5-meeting cycle, 
the Council failed to complete its agenda in the majority of cases. 
Attachment #2 hereto displays the items tentatively on the agenda for 
the next three meetings. Prioritizing these issues is a complicated and 
on-going process. Generally, I think the Council view would be that 
everything currently on the agenda has priority over something new. 
Some of the ``major competing priorities'' would include Bering Sea 
crab rationalization program review, Bering Sea salmon bycatch in the 
pollock fishery, Arctic Fishery Management Plan, halibut charter (a 
troublesome issue that the Council has been dealing with now for 
approximately 14 years), annual quota-setting for 18 specie categories 
in the Bering Sea/Aleutian Islands (BSAI) and 20 in the Gulf of Alaska, 
restrictions of commercial fishing due to declined Stellar Sea Lion 
populations, and habitat protection.

    Question 1b. What is the Council's position on this co-op issue? 
Would the Council object if Congress wanted to move forward outside of 
the Council process?
    Answer. I cannot speak for the Council or any of its individual 
members. However, I can say that I do not know of any opposition from 
any Council member to the Freezer Longline Coalition efforts. One 
Council member, the representative for the State of Washington, is on 
record stating: ``The Department of Fish & Wildlife is strongly in 
support of cooperative fishing efforts . . . [and] supported the recent 
actions of the . . . Council in restructuring the . . . Cod fishery . . 
. and expected that the Freezer Longline sector would be able to form a 
voluntary cooperative as a result of the Council's action.'' I believe 
this is indicative of the attitude of most if not all Council members 
and I am confident the Council would not ``object''.

    Question 2. If the argument for doing this through Congressional 
action is that Congress would act faster than doing it through the 
Council, what does that say about the Council system?
    Answer. It is not my intent to be critical of the Council or to 
propose that the system is broken and needs to be fixed. On the 
contrary, in my 9 years on the Council I witnessed many important 
achievements, including a regulatory regime that cut bird bycatch by 69 
percent, closure of 277,100 square nm to bottom trawling, and special 
protection for discreet areas of sponge and coral habitat and all 
seamounts. The Council's conservative science-based approach to quota 
setting came to be recognized as ``the Alaska Model'' and was 
incorporated in the latest reauthorization of the Magnuson-Stevens Act 
and applied to all Councils. But, the Council is also extremely busy 
and not able to address every legitimate issue. And it is also true 
that the Council and Congress often work together or in tandem 
particularly on rationalization issues. The American Fisheries Act, 
which provided the basis for rationalization of the world's largest 
whitefish fishery, was enacted by Congress and implemented by the 
Council. Both the Bering Sea crab rationalization program and Gulf 
rockfish pilot program were done by the Council at the direction of 
Congress.

    Question 2a. As a 9-year veteran of the North Pacific Council, in 
your opinion, what would it take for the Council to act faster on these 
and other issues before us?
    Answer. The Council itself is in the process of addressing this 
issue. Given the public process involved and the importance of the 
issues to the participants involved, and the requirements of the 
National Environmental Policy Act, I think the Council will continue at 
about the same pace it has. Of course, there are ways in which the 
Council can better discipline itself and its members to be more time 
efficient, but I don't see that any big time savings are possible. I do 
think it is up to the Council to make any changes necessary to at least 
stay within its agenda because members of the public often travel great 
distances to participate.

    Question 3. Is safety really a concern for the Pacific cod freezer 
longline fleet?
    Answer. Indeed, it is. There is almost universal agreement, as 
testified to by many of the witnesses at our hearing, that vessels 
engaging in a race for fish will find themselves in unsafe operating 
conditions inherently caused, or encouraged by, the ``catching as much 
as you can--as fast as you can'' mentality of a derby style fishery. We 
would like to eliminate this from our fishery entirely. In addition, a 
coop will provide the stability that will encourage upgrading or 
replacing vessels in our fleet, some of which have hulls dating from 
WWII. We believe that we have a safe fleet, and that we are meeting all 
safety requirements imposed on us, but vessels are machinery and they 
ultimately wear out. Safety standards evolve over time and, when a 
replacement occurs, a new vessel is required to meet all modern safety 
requirements.

    Question 3a. To what extent is safety a reason for Congress to move 
forward with the proposed co-op legislation?
    Answer. Based on the testimony of Leslie Hughes, Executive 
Director, North Pacific Vessel Owners' Association, and Commander 
Christopher Woodley, United States Coast Guard, safety alone is ample 
incentive for Congress to move forward on this issue in a timely 
manner.

    Question 4. As you know, the Magnuson-Stevens Act is the gold-
standard for fisheries management. If the North Pacific Fisheries 
Management Council were to consider the co-op proposal, one of the 
first questions the Council would ask is whether a co-op is consistent 
with the Magnuson-Stevens Act's ten national standards. Do you believe 
that the formation of a co-op in this fishery is consistent with the 
Magnuson-Stevens Act's ten national standards for fishery management, 
in particular Standard 9 on bycatch and Standard 10 on safety?
    Answer. For Congress to provide the tools for formation of a 
voluntary harvest cooperative in the freezer longline cod fishery very 
clearly falls within at least 8 of the 10 National Standards and is not 
inconsistent with any of them. To demonstrate this point, it is 
convenient to cite letters in the record from two independent sources: 
Environmental Defense Fund (EDF) and State of Washington Department of 
Fish and Wildlife (DFW).

        No. 1: Optimum yield and prevent overfishing. ``[I]ncreased 
        product quality and supply to consumers.'' DFW. ``[Coops] like 
        these have succeeded in . . . ending overfishing.'' EDF.

        No. 2: Best scientific information available. ``[F]isheries 
        with catch share systems are seven times more likely than 
        conventional systems to be rated `well managed' by the Marine 
        Stewardship Council.'' EDF. See, also Testimony of Dr. James 
        Sanchirico.

        No. 4: Allocations fair and equitable; promote conservation. 
        ``The formation of coops allow*stronger support for sustainable 
        fishery management.'' DFW.

        No. 5: Efficiency in using fishery resources. ``When 
        participants have a secure portion of the catch, they gain the 
        flexibility to make business decisions that improve safety, 
        enhance the value of their asset, and promote healthy fishing 
        stocks.'' EDF.

        No. 7: Minimize costs. ``The [EDF] report shows that . . . 
        catch share fisheries deployed 20 percent less gear to catch 
        the same amount of fish.'' EDF.

        No. 8: Fishing communities. 10.7 percent of the total Bering 
        Sea Aleutian Island Pacific cod quota is set aside for the 65 
        Alaska Native CDQ coastal communities representing 25,000 
        residents. CDQ groups are owners in 13 of the vessels that 
        would make up the voluntary harvest coop in the freezer 
        longline sector.

        No. 9: Minimize bycatch. ``The formation of coops [will] . . . 
        reduce impacts to the ecosystem.'' DFW. ``The [EDF] report 
        shows that, with catch share programs, bycatch . . . was 
        reduced by more than 40 percent.'' EDF.

        No. 10: Safety at sea. ``The formation of coops [will] . . . 
        improve safety at sea.'' DFW. ``The [EDF] report also finds 
        that safety among fishermen more than doubled.'' EDF. 
        ``Researchers found that quota-based and cooperative fishery 
        management regimes [in the North Pacific] have a strong 
        potential to improve safety over open access fisheries. . . . 
        In the king and Tanner crab fishery . . . there have been no 
        fatalities, no vessel losses, and no search and rescue cases 
        conducted by the Coast Guard since implementation of the crab 
        rationalization program. . . . Based upon [our research] 
        formation of the Freezer Longline Cooperative could potentially 
        lead to slower fishing and processing pace, increased fishing 
        days, flexibility to allow operators to avoid severe weather, 
        reduced fatigue among crew members, a more experienced 
        professional crew, and finally reduced pressure to fish when 
        the vessel and crew are not ready.'' Testimony of Commander 
        Woodley, United States Coast Guard.

    Question 4a. Do you believe a co-op would be inconsistent with any 
of those national standards?
    Answer. No. See above.

    Question 4b. Do you believe that the co-op proposal is consistent 
with the Magnuson-Stevens Act?
    Answer. Yes. See above.

    Question 5. The Freezer Longline Coalition has been negotiating a 
fishing cooperative agreement for over 2 years, and is now asking 
Congress for help in passing legislation on the matter. Could you 
please describe the process the Freezer Longline Coalition has gone 
through over the past 2 years, and what kind of support there is for 
establishing a co-op?
    Answer. Negotiation Process.
    The Freezer Longline Coalition members have indeed been working 
closely since early 2006 to form a fisheries cooperative. Earlier 
efforts to begin gathering data with the intent of forming a fisheries 
cooperative go back to early 2004. Many members have worked closely 
with the Council going back to pre-1995 when the Council passed the 
first step in moving to cooperative fisheries in the North Pacific by 
implementing a moratorium on new vessels entering the fishery.
    Several Council actions took place during the period 1995-2008 and 
are detailed in our documents package, chapter fourteen. All of these 
steps were part of the ground work for the formation of a voluntary 
cooperative. To date all of the other major fisheries controlled by the 
Council have formed fisheries cooperatives. Because of one company's 
intransigence ours remains the only major fishery still involved in the 
``race for fish.''
    After numerous meetings in which FCA participated, and days of in 
person negotiations in which FCA participated, and now years of follow-
up, that one company remains the lone holdout. Although there are other 
companies in the group similarly situated in terms of fishing history 
and ``pioneer'' status, and even though FCA received the same fair and 
equitable treatment that every other company was afforded, FCA chooses 
not to participate in the voluntary harvest cooperative. Indeed, FCA 
has received preferential treatment because of its intransigence. 
Simply by signing the agreement, FCA's two vessels would have more fish 
than thirty of the thirty six other vessels.
    At each and every turn in the negotiations FCA has thrown out more 
objections and taken a new stance of some aspect of our agreement. 
FCA's IFQ proposal, first raised at the recent hearing, is 
diametrically opposed to the position taken at the ``stakeholders' 
meeting'' with Congressional staff in December of 2007 where their 
representatives stated FCA is morally apposed to voluntary cooperatives 
of any kind. Kenny Down, executive director of the Freezer Longline 
Coalition continues to engage FCA's CEO in discussions and reports they 
are as far away as ever. Our group has concluded that for reasons we 
don't fully understand FCA cannot or will not sign our membership 
agreement even though it would benefit as much, and likely more, than 
most of the other members.
    Support.
    The record includes many letters of support for our position from a 
very broad range if interests, including the Governor of the State of 
Washington, the Environmental Defense Fund, numerous industry groups, 
financial institutions, and all six Alaska Community Development Quota 
(CDQ) groups. All-in-all, a total of 15 letters of support in addition 
to the strong support in the form of testimony at this hearing from 
independent witnesses Dr. James Sanchirico, Leslie Hughes, and 
Commander Woodley. Compare to this the dearth of support for the FCA 
position.

    Question 6. What would be the implications of doing an IFQ system 
for the Pacific Cod freezer longline fishery as Fishing Company of 
Alaska suggests?
    Answer. The fundamental difference between an IFQ system and a 
voluntary harvest coop system is that a governmental entity must create 
and administer the former, including initial allocations and transfers, 
whereas private cooperation and agreement creates and administers the 
latter, including initial allocations and transfers on an on-going 
basis. An IFQ system involves allocation to individuals by the 
government, whether by the Council or Congress. Thus, the aspect of a 
``give-away'' of public resource to private parties is much stronger 
compared to a private, cooperative arrangement without the force of 
government and with the Council retaining full discretion and authority 
over the management regime. Since a voluntary cooperative takes care of 
its own allocations and transfers among members, it is substantially 
less expensive for the U.S. taxpayer compared to an IFQ system that 
needs to be administered on a vessel-by-vessel basis by a governmental 
agency. Because an IFQ system involves allocations on an individual 
basis, they tend to be very contentious and time-consuming for a 
Council to create and NMFS to implement. For example, the best known 
IFQ system in the North Pacific, halibut and sablefish, took 10 years 
of Council process and an additional 2+ years before it was 
implemented. By comparison, once the tools were in place, the catcher/
processor (CP) sectors in the Pacific whiting fishery and pollock 
fishery formed voluntary harvest cooperatives in a matter of weeks. 
While our group is not opposed to the IFQ system of fisheries 
management, we view it as inferior to a voluntary harvest coop system. 
Finally, for FCA to propose it at this point appears to us as another 
excuse for doing nothing.

    Question 6a. What would be some of the pros and cons of pursuing an 
IFQ system?
    Answer. Please see above.

    Question 7. If a co-op were formed in the Pacific cod freezer 
longline fishery, who do you believe would be the winners and losers?
    Answer. Owners of 34 of the 36 vessels in our group agree that all 
would be winners even though not a single party would get his or her 
optimum ``share'' of fishing history. The reason for this attitude is 
that all agree the benefits of a voluntary harvest coop out-weigh this 
detriment. The Fishing Company of Alaska would receive a particularly 
generous advantage because whether it joins the coop or chooses not to, 
it will receive a greater share than it fishes currently or would be 
reasonably expected to catch in the future in an open access system. 
Other winners include crew (better, safer jobs), consumers (increased 
recovery and quality), the environment (less bycatch, greater 
commitment to sustainability), and Alaska Native coastal communities 
(greater royalties and returns from ownership).

    Question 7a. What would be the implications on the value of the 
fishing companies involved?
    Answer. As explained above, there will be a safety gain, an 
ecosystem gain, a consumer gain, and there should be a financial gain 
in the value of the companies. The basic reason for the financial gain, 
as explained in the Environmental Defense Fund letter, is that economic 
resources previously invested to improve success in a wasteful race for 
fish will be diverted to protecting the resources and improving the 
value of each fish harvested. Some specific ways to create value will 
include improved retention and utilization (recovery), timing harvest 
activity to market conditions, lowering bycatch, reducing human risks 
and injury, creating new products and improving quality.

    Question 7b. What is the financial benefit, both immediate and 
long-term, to these companies?
    Answer. Whether a vessel is owned by individuals in a family, 
partnership or corporation, I believe the EDF letter summary is correct 
and has been borne out by all the rationalized fisheries in the North 
Pacific. ``When participants have a secure portion of the catch, they 
gain flexibility to make business decisions that improve safety, 
enhance the value of their asset, and promote healthy fishing stocks.'' 
As a result, fishing seasons will be extended, which ``will stabilize 
fishing and processing jobs'', bycatch will be reduced, safety will 
increase, environmental damage will decrease, ``and economic 
performance increases substantially.''

    Question 7c. Would the formation of a co-op help the fishing 
companies involved in obtaining financing and loans to recapitalize 
their vessels?
    Answer. Yes, we hope so. As indicated by support from financial 
institutions, catch shares, whether created by government in the form 
of IFQ or by private arrangement in the form of a voluntary cooperative 
agreement, have become recognized as value for collateralization of 
loans. This has allowed vessel upgrades that improve safety and new 
equipment that achieves better utilization of fishery resources. It 
will ultimately lead to vessel replacement which will bring the fleet 
into full compliance with modern safety and fuel efficiency standards.

    Question 8. If the Pacific cod freezer longline fishery were to 
form a co-op, what would be the implications in terms of jobs?
    Answer. Based on my experience with other catcher/process (CP) 
voluntary harvest coops (Pacific Whiting Conservation Cooperative and 
Pollock Conservation Cooperative), I believe the implications for jobs 
in the freezer longline sector managed under a similar coop system are 
very positive.

    Question 8a. Would there be fewer jobs in the fishery?
    Answer. Employment patterns in dynamic industries are constantly 
shifting, but the important point to be made is that good workers on 
freezer longliners are in short supply and in demand. As we increase 
sustainability through better recovery, quality, safety and new product 
forms, jobs on our vessels will be more steady, ``professional'' and 
lucrative. This has been the experience with the CP fleets in Pacific 
whiting and Alaska pollock fisheries and I believe will be the result 
in the freezer longline CP fleet. The dramatic consolidation and job 
loss experienced in the first years after implementation of Bering Sea 
crab rationalization may seem contrary to this prediction, but that 
situation was very different and, frankly, due to faulty fisheries 
management by the Council and State of Alaska. Most of the Bering Sea 
crab fisheries had been allowed to become extremely over-capitalized to 
the point where there were approximately 230 active vessels when only 
about 80 were needed to harvest the available resources. As a result, 
there was tremendous waste that needed to be wrung out of the system 
and much of that waste was exhibited in dangerous and very short 
fishing seasons and spectacles made popular by the ``Deadliest Catch'' 
television series. When rationalization finally came, the consolidation 
was dramatic. The freezer longline fleet is not anywhere near the 
extreme situation that prevailed in the crab fleet pre-rationalization. 
Instead, it is very much like the CP whiting and pollock fleets where, 
post-coop, there has been no noticeable loss in the number of jobs and 
where the jobs have in fact become more stable, professional and 
lucrative.

    Question 8b. What would the quality and predictability of those 
jobs look like?
    Answer. At this time, a freezer longline vessel in the open access 
cod fishery will fish an estimated 3 months in calendar year 2008. The 
``A'' season was the shortest on record, as it was in 2007 and the year 
before that. The current situation is not good for anyone trying to 
earn enough to support a family. With a co-op system, the employment 
opportunities will be more stable as fishing trips are lengthened by 
slowing the pace and producing more volume and value from the same 
resource. Without a co-op, under current circumstances, the race will 
continue, the jobs will become less desirable and it will be even more 
difficult for these vessels to find good crew.
    Regarding employment issues, the recent report which we have made 
part of the record, published by Environmental Defense Fund in 
collaboration with noted economists, is particularly relevant. In 
general, it found that in every case studied economics improved after 
cooperative programs were initiated.

    Question 9. Do you support allowing vessel replacement in the 
pollock catcher processor fleet and the head & gut fleet?
    Answer. As I testified, I strongly support the vessel rebuild and 
replacement legislation for the AFA pollock fleet as has been passed 
twice by the House. I have not seen any proposed legislation or 
legislative language that would expand coverage to the H&G fleet, but I 
support it conceptually for vessels that will be in a harvest 
cooperative.

    Question 10. How urgent is the need for vessel replacement 
legislation for the AFA and non-AFA fleets? Is safety an immediate 
concern for these fleets? What is the safety record of these fleets?
    Answer. I believe on balance the AFA pollock fleet is the safest 
fleet of all vessels in the North Pacific commercial fisheries. All the 
catcher processors and motherships are loadlined and almost all are 
classed. They are well maintained and operated by trained professional 
personnel. The fleet's safety record is excellent. In that sense, 
safety is not the fundamental argument for this amendment. Having said 
that, these vessels have a ``useful life''. All pollock catcher 
processors and motherships are 18 years or older. Many of them are 
rebuilt on hulls that are more than 30 years old. And when they are 
replaced, the new vessels will be required to comply with evolved 
safety and fuel efficiency standards.
    This proposed legislation has been passed twice by the House as 
part of Coast Guard authorization bills. There is no known opposition 
to its provisions. As I testified, it will allow the owners of these 
vessels to adopt efficient energy technologies, preserve family-wage 
value added processing jobs in the U.S. and allow the fleet to maintain 
its competitiveness in world markets by optimizing fishing operations.

    Question 11. How would vessel replacement impact different 
companies in different ways in the AFA catcher processor fleet? 
Financially and competitively, how would vessel replacement benefit 
these fishing companies? Is it through higher or more efficient fish 
catches, or through additional fish processing that adds value to the 
product? Would vessel replacement benefit some companies more than 
others? How? How much would American Seafoods benefit compared to its 
competitors?
    Answer. In the long view, the AFA vessel replacement amendment is 
relatively neutral regarding impact on the various owners of catcher 
vessels, catcher processors and motherships because, at some point, 
each vessel has a useful life and will need to be rebuilt or changed 
out. The amendment removes the unwarranted restriction in current law 
on vessel replacement only in the event of ``total loss or constructive 
total loss'' and provides flexibility to the vessel owner to replace 
the vessel in a manner that optimizes fishing and fish processing 
practices.

    Question 12. Do you believe it is necessary from a public policy 
perspective to address the harvest cap at the same time as vessel 
replacement? How would it impact the competitive dynamics of the fleet? 
Are there any public policy benefits to raising the harvest cap? Are 
there any potential disadvantages?
    Answer. Neither Glacier Fish Company nor I have taken a position 
with regard to this issue, i.e., raising the harvest cap. It is my 
opinion there is no legitimate public policy rationale to link the 
issue with vessel rebuild.
                                 ______
                                 
                             Attachment #1
                         Past Council Actions.
Bering Sea and Aleutian Island/Gulf of Alaska Halibut and Sablefish IFQ 

        system
    Was in Council process for ten years and faced legal challenges for 
another 10 years after that.
Bering Sea Crab
    Was in Council process for eight years. Is currently under review 
in council process again.
Gulf of Alaska Rockfish
    Was in Council process for four years. Currently in pilot program 
that will need additional council work.
Bering Sea Groundfish, Trawl H&G fleet
    Was in Council process for six years and currently faces legal 
challenges by Fishing Company of Alaska.
Pacific Coast Groundfish
    Is in Pacific region Council process now and has been for the last 
six years. Still in process at present date.
Gulf of Alaska Groundfish
    Is in process at North Pacific region Council. Has been in process 
for six years. Little to no progress to date. Moving toward sector 
splits, is currently on council agenda for sector splits but now for 
rationalization.
                                 ______
                                 
                             Attachment #2
                     Council Three Meeting Outlook
    September 29, 2008 December 8, 2008 February 2, 2009
    Anchorage, AK Sheraton Hotel Anchorage, AK Hilton Hotel Seattle, WA
    Council/BOF Joint Protocol Committee Report (T)
    SSL draft status quo BiOp: Report on Schedule
    Comprehensive Data Collection: Committee Report Comprehensive Data 
Collection: Action as necessary
    BSAI Fixed Gear Parallel Fisheries: Discussion Paper GOA fixed gear 
LLP recency: Initial Review
    GOA P cod sector split: Initial Review
    GOA sideboards for BSAI crab vessels: Final Action Am 80 
Cooperative Formation: Initial Review Am 80 Cooperative Formation: 
Final Action
    GOA sideboards re Am 80 PSC: Initial Review GOA sideboards re Am 80 
PSC: Final Action
    GOA sideboards re GOA rockfish: Final Action GOA Rockfish Program 
Changes: Discussion Paper
    GOA sideboards for AFA CVs: Discussion paper GOA sideboards for AFA 
CVs: Initial Review (T) GOA sideboards for AFA CVs: Final Action (T)
    AI Cod Processor Sideboards: Discussion Paper (T) AI Processor 
Sideboards: Initial Review (T) AI Processor Sideboards: Final Action 
(T)
    AI POP/Mackerel Processing Sideboards: Discussion Paper (T)
    BSAI Crab Regional Delivery Emergency Relief: Discussion Paper
    BSAI Crab Committee/Crew Proposals: Report/Action as necessary
    BSAI Crab 3-year Review: Receive report
    BSAI Crab 90/10 Amendment: Prelim. Review BSAI Crab 90/10 
Amendment: Initial Review BSAI Crab 90/10 Amendment: Final Action
    BSAI Crab St. George Protection Measures: Final Action
    BSAI Crab EDR: Metadata & PNCIAC Report Observer Program 
Restructuring: Discussion Paper
    Halibut Sablefish 12-mo vessel ownership: Initial Rev/Final Action 
(T)
    Charter Halibut Catch Sharing Plan: Final Action
    Halibut 3A GHL: ADF&G Report and Final Action if necessary (T)
    CDQ Program: Update on Oversight Regulations CDQ Program: Action as 
necessary
    BSAI Chum Salmon Bycatch: Discussion Paper (T) BSAI Chum Salmon 
Bycatch: Initial Review (T)
    BSAI Chinook Salmon Bycatch: Review ICA Report
    Ecosystem Committee Report: Action as necessary
    Arctic FMP: Initial Review Arctic FMP: Final Action
    BS Bottom Trawl Sweeps: Discussion Paper BS Bottom Trawl Sweeps: 
Initial Review BS Bottom Trawl Sweeps: Final Action
    P.cod area split (BS/AI): Update and Action as necessary
    BSAI Crab SAFE Report: Review and Approve GOA Tanner & Chinook 
Bycatch: Discussion Paper
    BSAI Skates Complex: Initial Review (T) BSAI Skates Complex: Final 
Action
    5 Year Research Priorities: Review and Approve HAPC Review 
Criteria: SSC Recommendations
    Groundfish Specifications: Initial Action Groundfish 
Specifications: Final Action
    AK Native/Community Outreach: Report & Action as nec (T)
    AI--Aleutian Islands TAC--Total Allowable Catch Future Meeting 
Dates and Locations
    GOA--Gulf of Alaska BSAI--Bering Sea and Aleutian Islands September 
29-, 2008 in Anchorage
    SSL--Steller Sea Lion IFQ--Individual Fishing Quota December 8-, 
2008 in Anchorage
    BOF--Board of Fisheries GHL--Guideline Harvest Level February 2-, 
2009 in Seattle
    FEP--Fishery Ecosystem Plan EIS--Environmental Impact Statement 
March 30-, 2009 in Anchorage
    CDQ--Community Development Quota LLP--License Limitation Program 
June 1-, 2009 in Dutch Harbor
    VMS--Vessel Monitoring System SAFE--Stock Assessment and Fishery 
Evaluation October 1-, 2009 in Anchorage (AP, SSC start on THURSDAY)
    NOI--Notice of Intent PSC--Prohibited Species Catch (Council on 
Saturday)
    (T) Tentatively scheduled HAPC--Habitat Areas of Particular Concern
North Pacific Fishery Management Council
    Eric A. Olson, Chairman 605 W. 4th Avenue, Suite 306
    Chris Oliver, Executive Director Anchorage, AK 99501-2252
    Telephone (907) 271-2809 Fax (907) 271-2817
    Visit our website: http://www.fakr.noaa.gov/npfmc
    May 30, 2008
    Draft Agenda
    188th Plenary Session
    North Pacific Fishery Management Council
    June 4-10, 2008
    Best Western Kodiak Inn
    Kodiak, AK
    Draft Agenda
    188th Plenary Session
    North Pacific Fishery Management Council
    June 4-10, 2008
    Estimated Time
    A. Call Meeting to Order
    (a) Approval of Agenda
    (b) Approval of Minutes
    B. Reports
    B-1 Executive Director's Report (3 hrs)
    B-2 NMFS Management Report (including permit fee discussion paper,
    NEPA proposed rule and ACL proposed rule).
    B-3 ADF&G Report
    B-4 USCG Report
    B-5 USFWS Report
    B-6 NMFS Enforcement Report
    B-7 Protected Species Report (including update on the BiOp 
schedule)
    C. Major Issues/final Action Items
    C-1 Subsistence Halibut (1 hr)
    Initial Review/Final Action on subsistence halibut rural 
definition.
    C-2 Salmon Bycatch (8 hrs)
    Initial review of BSAI Salmon Bycatch EIS.
    C-3 BSAI Crab Issues (8 hrs)
    (a) Initial Review/Final Action on fees for crab loan program.
    (b) Receive Crab Committee Report (relative to the Western AI GKC 
underutilization, community ROFR, crew participation, and emergency 
relief); action as necessary. [Note: Council and AP discussion/action 
will be limited to the four issues listed above].
    C-4 GOA Groundfish Issues (8 hrs)
    (a) Initial review of fixed gear recency.
    (b) Initial review of Pacific cod sector split.
    C-5 VMS exemption for Dinglebar (2 hrs)
    Final action on VMS exemption for dinglebar gear.
    C-6 Research Priorities (1 hr)
    Review and adopt 5 year research priorities.
    C-7 4E Seabirds (2 hrs)
    Final action on 4E seabird avoidance measures.
    NOTE: Council may take action as necessary on all matters listed on 
the Agenda
D. Other Issues
    D-1 Ecosystem Based Management (2 hrs)
    (a) Receive report from Ecosystem Committee.
    (b) Preliminary review of Arctic FMP. (Council only)
    D-2 GOA Sideboards (8 hrs)
    (a) Initial review of GOA sideboards for BSAI crab vessels.
    (b) Initial review of GOA sideboards regarding GOA rockfish 
fishery.
    (c) Initial review of GOA sideboards for AFA CVs.
    D-3 Miscellaneous Groundfish Management (6 hrs)
    (a) Committee report on other species management.
    (b) Discussion paper on GOA crab and salmon bycatch. (Council only)
    (c) Receive report on gear modification research.
    (d) Review Discussion paper on Am 80 sector cooperative criteria.
    (e) Report on halibut excluder EFP.
    D-4 GOA Rockfish Pilot Program (3 hrs)
    (a) Receive report which reviews the Rockfish Pilot Program.
    (b) Receive report on CGOA Rockfish EFP, phase 1.
    D-5 BSAI Crab OFL (SSC only) (0 hr)
    (a) Receive Plan Team report on BSAI crab OFLs.
    (b) Review Preliminary Crab SAFE report.
    D-6 Staff Tasking (4 hrs)
    (a) Review Committees and tasking.
    (b) Review PSEIS priorities workplan.
    (c) Receive report on native/community/stakeholder participation.
    D-7 Other Business
    Total Hours: (56 hrs)
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                              Michael Hyde
    Question 1. Do you support allowing vessel replacement in the 
pollock catcher processor fleet and the head & gut fleet?
    Answer. These two fleets face very different issues. We support 
allowing vessel replacement in the pollock catcher processor fleet as 
long as it is part of a package that includes an increase in the 
pollock harvest cap. We support allowing vessel replacement in the head 
and gut fleet as long as the language includes sideboard restrictions 
that limit the impact of replacement vessels on other fisheries 
(similar to the sideboard provisions of the American Fisheries Act).

    Question 2. For the record, why is legislation and Congressional 
action (rather than Council action) needed to allow the pollock catcher 
processor fleet to replace their vessels?
    Answer. The American Fisheries Act includes a number of statutory 
limitations that can not be modified by Council action. The pollock 
harvest cap and the replacement vessel restrictions are included in 
this category and require Congressional action to change.

    Question 2a. Under what circumstances can the AFA fishery companies 
currently replace old, dangerous, or inefficient vessels?
    Answer. First of all, this is mostly a hypothetical question 
because there simply are no ``old'' or ``dangerous'' vessels in the AFA 
fleet. With respect to ``inefficient'' vessels, all of the current 
fleet is relatively efficient in the big picture but some, such as the 
American Seafoods fleet, are far more efficient than others. The 
current law does not allow for the ``replacement'' of existing vessels 
except in the event of an actual or constructive total loss but it does 
allow for the ``rebuilding'' of existing vessels. This means that the 
only practical limitations on increasing the efficiency of existing 
vessels is that the vessel would need to be taken out of service while 
it is being ``rebuilt'' and, because of the North Pacific Council's 
License Limitation Program, the length of the rebuilt vessel could not 
be increased.

    Question 3. How urgent is the need for vessel replacement 
legislation?
    Answer. From a safety perspective, there is no urgency whatsoever 
for vessel replacement legislation with respect to the AFA fleet. With 
respect to the head and gut trawl fleet and the head and gut longline 
fleet, vessel replacement is a valid issue from a safety perspective 
and some vessels should probably be retired soon. However, because 
there is considerable surplus capacity in the head and gut fleet, once 
those fisheries are rationalized, the least efficient/most unsafe 
vessels can be retired immediately without an immediate need for a 
replacement vessel. In the AFA fleet, vessel replacement is purely a 
matter of operating efficiencies. New vessels will use far less fuel 
and will be equipped to make a greater variety of higher value products 
but they will not be safer than the existing vessels.

    Question 3a. Is safety an immediate concern for this fleet?
    Answer. With respect to the vessel replacement issue, safety is 
absolutely NOT a concern for the AFA fleet. Even the most ardent 
supporters of this legislation have acknowledged that this legislation 
is designed to allow companies to acquire more efficient vessels and is 
not a safety measure. Every AFA catcher processor is loadlined and 
already meets the highest safety standards in the world. There is 
nothing that would be done to improve safety in a replacement vessel 
that cannot or has not been done to the existing fleet.

    Question 3b. What is the safety record of this fleet?
    Answer. The safety record of the AFA catcher processor fleet is 
excellent. The only major vessel casualty that has ever occurred in the 
fleet was the 2007 fire aboard the Pacific Glacier. Although there was 
significant damage to the vessel, there were no serious injuries or 
loss of life in that incident and the cause was unrelated to the age of 
the vessel.

    Question 4. Does American Seafoods agree that vessel replacement is 
a safety issue?
    Answer. American Seafoods agrees that vessel replacement is a 
safety issue with respect to certain vessels in the head and gut trawl 
and longline fleets. Almost none of the vessels in those fleets are 
classed or loadlined and because of their physical age and 
characteristics they most likely could not be brought up to modern day 
safety standards. Unfortunately, the vessel replacement language that 
is in the House bill does not afford any relief for the fleet that 
actually needs it from a safety perspective. The current language 
applies only to AFA pollock vessels where vessel safety is NOT an 
issue. We believe that the House bill language should be broadened to 
include the head and gut fleets. Otherwise, the bill is only a vessel 
efficiency measure for AFA vessels, not a safety measure for all 
vessels.

    Question 5. In your view, what kind of size, length and capacity 
requirements are reasonable for vessel replacement?
    Answer. We believe that measures to restrict the economic or 
operating efficiency of fishing vessels should not be enacted unless 
they provide clear benefits that outweigh their cost and the benefits 
can not be achieved through less restrictive measures. Until there is 
some demonstrated benefit, we do not support limitations on length, 
tonnage and horsepower. Any concerns about the impact that larger 
vessels might have on other fisheries can be addressed through 
restrictions on the use of the vessel. For example, under the AFA, the 
catcher processor fleet is already tightly restricted on entering into 
any other fisheries and is limited to its historical share of the 
fisheries in which it was participating at the time of enactment.

    Question 6. I understand that American Seafoods would like to see 
the harvest cap increased along with vessel replacement, but is 
opposing vessel replacement on its own. Why does American Seafoods 
believe the harvest cap is necessary to address at the same time as 
vessel replacement? How are the two connected?
    Answer. All three of the proposed AFA amendments (vessel 
replacement, inshore permit stacking and harvest cap increase) address 
operating and economic efficiencies. None of them is a safety measure. 
As is common in fish legislation, industry participants promote 
legislation that benefits them and oppose legislation that benefits 
competitors. The benefits of each of the three proposed AFA amendments 
vary among industry participants. The vessel replacement language would 
be of greatest benefit to those companies with the least efficient 
vessels. Because American Seafoods has by far the most efficient 
vessels today, American stands to gain little or no benefit from the 
replacement vessel language. The inshore permit stacking provision 
would give the owners of AFA inshore catcher vessels the right to take 
the AFA catch history from one vessel and to permanently assign it to a 
second vessel. This is a huge benefit to the inshore catcher vessel 
owners because it allows them to permanently retire their least 
efficient vessels--but it provides no benefit to the seven catcher 
vessels in the catcher processor sector or to any of the catcher 
vessels in the mothership sector. The harvest cap increase is likely to 
benefit companies such as American Seafoods and Trident Seafoods that 
are currently harvesting at or near the cap and will benefit companies 
that would like to lease or sell harvest rights to American or Trident, 
but will be of little benefit to companies that are well below the cap 
and who do not intend to sell or lease quota.
    When the AFA was originally adopted, it was a negotiated package 
that balanced the interests of all the participants. Any amendments to 
the AFA must preserve that balance. We believe that an AFA package that 
includes all three provisions protects that balance.

    Question 7. From a public policy perspective, what are the reasons 
to raise the harvest cap and allow your company to catch a larger 
percentage of the total catch?
    Answer. From a public policy perspective, restrictions on economic 
and operating efficiency should only be adopted if they serve a 
compelling objective and there are no less intrusive means to 
accomplish that objective. With respect to the harvest cap, we do not 
believe that either of these criteria is satisfied. At the time the AFA 
was adopted, there was a legitimate interest in ``Americanizing'' the 
fisheries in U.S. waters. Because American Seafoods was 100 percent 
foreign owned, there was a compelling interest in preventing further 
growth of a foreign owned company. Now American Seafoods is 100 percent 
American owned and has the greatest diversity of American owners of any 
participant in the Alaska fisheries. As mentioned in our written 
testimony, American Seafoods is now majority owned by two Alaskan CDQ 
groups whose owners are 21 communities along the Bering Sea coast and 
their more than 9,000 residents. These communities are among the 
poorest in the United States with little or no cash economy and 
extremely high poverty rates. An increase in the harvest cap has the 
potential to distribute the benefits of a public resource to far more 
individuals than occurs under the status quo.
    With respect to the National Standards in the Magnuson-Stevens Act, 
an increase in the harvest cap will promote compliance with national 
standards 5 and 7 which require:

        (5) Conservation and management measures shall, where 
        practicable, consider efficiency in the utilization of fishery 
        resources

        (7) Conservation and management measures shall, where 
        practicable, minimize costs and avoid unnecessary duplication.

    The harvest cap at its current level forces operators to harvest 
fish on the less efficient platforms and prevents operators from 
tailoring their operations to reflect the best use of vessels at 
varying quota levels. It precludes the additional use of those vessels 
that can obtain the highest value and produce the most finished product 
from the harvested fish, thereby promoting waste and inefficiency.
    An increase in the harvest cap would be expected to lead to better 
utilization of our fishery resources. As noted in Ms. Parker's 
testimony, several of the existing AFA catcher processors are not 
equipped with fish meal plants or boilers for making fish oil from the 
waste products. Any fish processed aboard such boats represents a waste 
of potential fish products and a loss in revenue to the owners and 
crew. Both the replacement vessel language and the increase in the 
harvest cap would increase the capacity and efficiency of the fleet.

    Question 7a. Would there be any environmental consequences?
    Answer. We believe that an increase in the harvest cap will result 
in positive environmental consequences. If the harvest cap is raised 
and more of the annual quota is harvested aboard American Seafoods' 
vessels, fish waste discharges will decrease. In addition, because of 
the larger freezer hold capacity on the American Seafoods vessels, fuel 
usage will decrease because fewer trips between port and the fishing 
grounds will be required.

    Question 8. How would raising the harvest cap impact American 
Seafoods' business?
    Answer. Because the Bering Sea pollock quota is already divided and 
assigned to individual operators under the provisions of the AFA, 
American Seafoods will not receive any additional harvest rights upon 
passage of the increase in the harvest cap. Only upon reaching an 
agreement with another AFA catcher processor to lease or purchase its 
quota will American Seafoods benefit from the increase. Because 
American Seafoods' vessels are far more efficient than certain of its 
competitors, we are hopeful that we will be able to arrange short or 
long term leases. If that occurs, we expect it will have a positive 
impact on several aspects of our business. If American Seafoods is able 
to purchase or lease additional harvest rights in years of lower quota, 
it will stabilize our marketing relationships and our crew employment. 
If the leases are at favorable rates, we expect that both American 
Seafoods and the quota holders will have higher earnings. If there are 
additional sources of quota for lease, the increase in the harvest cap 
may lessen American Seafoods' dependence on CDQ quota. Finally, as 
stated above, an increase in the harvest cap would potentially spread 
the benefit of harvesting a public resource to the more than 9,000 
owners of American Seafoods.

    Question 8a. How would it impact others in the industry?
    Answer. We believe that the only impacts of an increase in the 
harvest cap on others in the industry will be either positive or 
neutral. As mentioned above, an increase in the harvest cap by itself 
has no impact on any other companies. It only gives American Seafoods 
an opportunity to lease or purchase quota above the current 17.5 
percent cap. Either of these transactions requires a willing seller or 
lessor on the other side of the transaction. Obviously, in such a 
transaction, both sides have concluded they are benefiting from the 
agreement. Another potential benefit is that in the event of a 
mechanical failure that forces a vessel out of the fishery mid-season, 
American Seafoods vessels would be able to harvest and process the 
quota assigned to the disabled vessel. The only companies that could 
argue they are harmed by an increase in the cap are those that hope to 
purchase or lease quota below full value in a market that currently 
excludes the most efficient purchasers and lessees. Legislation should 
not be designed to protect inefficient competitors.

    Question 9. How would vessel replacement impact different companies 
in different ways?
    Answer. As with an increase in the harvest cap, the vessel 
replacement legislation would have no immediate impact. The benefits of 
the legislation would only be enjoyed by those companies that choose to 
build a replacement vessel.

    Question 9a. Financially and competitively, how would vessel 
replacement benefit these fishing companies? Is it through higher or 
more efficient fish catches, or through additional fish processing that 
adds value to the product?
    Answer. Replacement vessels are likely to be far more efficient 
than existing vessels in several respects. Hull design, propulsion 
equipment and factory equipment have all been designed to use much less 
energy and to have higher capacities. A replacement vessel could be 
expected to have a much larger fish hold which would allow it to make 
fewer trips between port and the fishing grounds. This saves on fuel, 
labor expense and maintenance. The main engines will be diesel electric 
which will generate far greater horsepower on much less fuel. The 
processing factory would be sufficiently large to accommodate the 
latest processing technology and would use fuel-efficient electric 
motors instead of diesel. The factory would be far more automated than 
current factories which would result in significant savings in labor 
costs. A new vessel would be expected to have a higher horsepower main 
engine which would give the flexibility to fish at greater depths and 
in more areas. Although the amount of fish allocated to each company 
would not change, a replacement vessel could be expected to more 
successfully target schools of pollock with the highest processing 
value. In short, a replacement vessel would gain huge operating 
efficiencies over the majority of the exiting fleet through a 
combination of: (1) decreased fuel, labor and maintenance costs and (2) 
increased revenues from production of higher value finished products 
and the full utilization of all fish wastes.

    Question 9b. Would vessel replacement benefit some companies more 
than others? How?
    Answer. It will be extremely expensive to build a replacement 
vessel so only those companies with the least efficient vessels are 
expected to build such vessels in the near future. To illustrate the 
concept, consider the fuel efficiency of modern cars. Assume that the 
most efficient new car can achieve 50 miles per gallon. If there is no 
trade-in value on a used car, who is most likely to buy the new car: 
The car owner who is currently getting 10 mpg or the car owner who is 
getting 40 mpg. Obviously, the owner of the least efficient car should 
be the first to buy. It is predictable that this is what will happen in 
the AFA CP fleet. American Seafoods owns the vessels that are already 
getting 40 mpg. It is very unlikely that the increased efficiency of a 
new vessel will justify the cost. However, for the owner of the least 
efficient vessels, a replacement vessel makes immediate economic sense.

    Question 9c. How much would American Seafoods benefit compared to 
its competitors?
    Answer. American Seafoods is unlikely to enjoy any benefit from the 
vessel replacement language and in fact, is likely to suffer 
significant adverse impacts. As mentioned in Ms. Parker's testimony, 
because of the relative efficiency of its vessels, American Seafoods 
has been able to increase its share of the CDQ allocation from 5 
percent pre-AFA to over 50 percent today. This CDQ quota is critical to 
the financial success of American Seafoods and access to this quota is 
highly dependent on the Company's ability to pay higher royalties. 
Because any replacement vessel will be more efficient that any existing 
vessels, it is predictable that the owners of replacement vessels will 
be able to out compete American Seafoods for CDQ quota and American 
Seafoods will be financially damaged. While an increase in the harvest 
cap will not remove this risk, it will enlarge the potential pool of 
available quota beyond just CDQ quota and will increase the opportunity 
for American Seafoods to remain competitive.
    We believe that a fair and equitable package of fishery amendments 
must achieve the following:

        1. Broaden the proposed AFA replacement vessel language to also 
        apply to the head and gut trawl and longline fleets. Include 
        with the broader language appropriate sideboards to prevent 
        adverse impact from the replacement vessels on other fishery 
        participants.

        2. Broaden the proposed AFA inshore permit stacking provision 
        to also apply to catcher vessels in the AFA mothership and 
        catcher processor sectors. This is a much needed efficiency 
        measure that should apply to all AFA catcher vessels, not to 
        just a selected subset.

        3. Increase the AFA harvest cap to match the AFA processing 
        cap. Based on the North Pacific Fishery Management Council 
        conclusion that 30 percent is an appropriate processing cap, 
        the same standards should be applied to AFA catcher processors 
        and the harvesting cap should also be set at 30 percent.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                              Donna Parker
    Question 1. Do you support allowing vessel replacement in the 
pollock catcher processor fleet and the head & gut fleet?
    Answer. Arctic Storm Management Group is strongly supportive of the 
proposal to allow owners of AFA catcher/processors, catcher-only 
vessels and motherships to replace such vessels at their discretion and 
without limitations on length, tonnage or horsepower. The AFA vessel 
replacement provision is viable because all AFA-qualified vessels 
engaged in the Alaska pollock fishery participate in fish harvesting 
cooperatives. These cooperatives have a ten-year track record for 
ending the ``race for fish,'' which has successfully resolved concerns 
of overcapacity in the fishery and provided quantifiable conservation 
benefits. Allowing flexibility in replacing or rebuilding AFA-qualified 
vessels will enable the fleet to further maximize yields from the 
harvested resource and increase the value of the Nation's largest 
fishery, while also helping the fleet to reduce costs, including 
reducing its use of diesel fuel.
    Conceptually, Arctic Storm supports providing similar flexibility 
to the H&G fleet for the same reasons articulated above for the AFA 
fleet of vessels. However, there are at least two policy issues to be 
considered, and because the H&G fleet has not circulated its proposal 
publicly, it is difficult to say whether those issues are being 
addressed. The first issue pertains to fish harvesting cooperatives. 
While AFA vessels have a ten-year track record of full participation in 
fish cooperatives, 2008 was the first year that participants in the H&G 
fleet were in a regulatory regime that facilitated the formation of co-
ops. Given this brief experience and the lack of 100 percent co-op 
participation by H&G vessels, the policy issue to be addressed is 
whether removing restrictions on vessel size for that fleet will 
incentivize a race for fish and undermine cooperative fishing.
    A second consideration is the potential impact on other fisheries, 
regionally and/or nationally, of removing vessel size restrictions on 
the H&G fleet. Both the AFA and the proposed AFA vessel replacement 
amendment include significant restrictions on AFA-qualified vessels 
operating outside the Bering Sea/Aleutian Islands pollock fishery. 
There are no similar restrictions in the law for the H&G fleet. What 
are the ramifications of permitting this fleet of approximately two 
dozen vessels from being replaced with much larger vessels eligible to 
fish and process anywhere in the U.S.? Has the H&G fleet considered 
this issue? We do not know.

    Question 2. For the record, why is legislation and Congressional 
action (rather than Council action) needed to allow the pollock catcher 
processor fleet to replace their vessels? Under what circumstances can 
the AFA fishery companies currently replace old, dangerous, or 
inefficient vessels? Could you please explain why vessel replacement 
was not allowed under the American Fisheries Act when that bill was 
negotiated and passed?
    Answer. Congressional action, rather than Council action, is 
required because the American Fisheries Act cannot be superseded with 
action by a regional fishery management council. While the AFA did 
provide some discretion to the North Pacific Fishery Management Council 
in the development of implementing regulations, it provided no 
discretion on the issue of vessel replacement. Additionally, the 
proposed vessel replacement revisions include provisions to protect 
other fisheries outside the jurisdiction of the North Pacific Fishery 
Management Council.
    Under current law, a vessel greater than 165 feet in registered 
length, or more than 750 gross registered tons, or that has an engine 
capable of producing a total of more than 3,000 shaft horsepower is not 
eligible for a fishery endorsement unless a certificate of 
documentation was issued for the vessel and endorsed with a fishery 
endorsement that was effective before September 25, 1997.
    The AFA does provide for replacement vessels for AFA-qualified 
vessels--all of the catcher/processors and motherships and some of the 
catcher-only vessels exceed the thresholds cited above--under very 
limited circumstance. Section 208(g) of the AFA allows for the 
replacement of an AFA-qualified vessel only in the ``event of the 
actual total loss or constructive total loss . . .'' For AFA-qualified 
vessels over 165 feet in length, or more than 750 gross registered 
tons, or with engines capable of producing more than 3,000 shaft 
horsepower, the replacement vessel must be of the same or lesser 
registered length, tonnage and horsepower. Replacement vessels for the 
original vessels below those thresholds can increase length, tonnage 
and horsepower by 10 percent.
    Because the restrictions outlined above are statutory limitations, 
fleet-wide relief for AFA vessels can only be provided through a change 
in the law.
    The Committee poses a good question as to why such limits were 
adopted in 1998. With respect to the vessel replacement restrictions in 
Section 208(g), one possible explanation is that Congress was unsure 
whether the fish harvesting cooperatives contemplated in the AFA would 
work effectively, and in 1998, a core concern in pollock fishery 
management was overcapitalization. As noted above, fish harvesting 
cooperatives have been exceedingly successful, and a return to a ``race 
for fish'' and attendance excess harvesting and processing capacity is 
not a valid concern. As for the overall fishing vessel size limits in 
law, there is no apparent public policy rationale. Limited Access 
Privilege Programs and fish harvesting cooperatives are much more 
effective conservation and management tools than arbitrary vessel size 
limits.

    Question 3. How urgent is the need for this legislation? Is safety 
an immediate concern for this fleet? What is the safety record of this 
fleet?
    Answer. The AFA vessel replacement provision has been fully vetted. 
The language has twice passed the House as a provision in Coast Guard 
authorization bills. There is no known opposition to the measure. 
Adoption of the provision would help vessel owners in the largest U.S. 
fishery to more effectively combat rising diesel fuel prices, preserve 
family-wage, value-added processing jobs in the U.S., and allow the 
fleet to maintain international market competitiveness by optimizing 
fishing operations, including employing state-of-the-art technology. 
These are compelling arguments for Congress to enact the AFA vessel 
replacement provision as soon as possible.
    While safety is always a high priority for the AFA fleet, as well 
as other fishing fleets, it is not the issue driving this amendment. 
While it is true that few AFA-qualified vessels entered the fishery 
since 1990, vessels are well-maintained. The overall safety record of 
the fleet is excellent.

    Question 4. From a public policy perspective, what are the reasons 
(if any) to raise the harvest cap and allow a company to catch a larger 
percentage of the total catch than what is currently allowed under the 
American Fisheries Act? Would there be any environmental consequences?
    Answer. There are no legitimate reasons to raise the harvest cap 
and allow a company to catch a larger percentage of the total catch 
than what is currently allowed under the American Fisheries Act. A 
single company, American Seafoods, seeks to expand its harvesting 
rights beyond the established cap. To most other participants in the 
fishery, such an increase would not represent good public policy for 
several reasons.
    Harvesting caps continue to be important management tools. The 17.5 
percent AFA harvesting cap imposed on the Nation's largest fishery is 
generous when compared to the 1 percent and 2 percent harvesting caps 
in the Bering Sea crab fisheries and the North Pacific halibut and 
sablefish IFQ programs. A comparison to the AFA harvesting cap with the 
processing cap of 30 percent is flawed. There are approximately 130 AFA 
vessels qualified to harvest Bering Sea pollock and only a half dozen 
shore-based processors. While a 30 percent processor cap may be 
appropriate for a much smaller class of processors, it is entirely 
inappropriate for the much larger class of eligible harvesting vessels. 
Increasing the harvesting cap will promote increased consolidation in 
general, including processor-owned catcher vessel fleets, by 
undermining the ability of smaller, independent entities to 
successfully compete for the purchase of vessels and harvesting rights 
with larger corporations. Such domination by processors could impact 
the ability of independent catcher vessels to negotiate ex-vessel 
prices. Such a scenario could destabilize the balance struck in the 
development of the AFA.
    The AFA ended a highly contentious allocation battle between 
sectors and brought balance, stability and prosperity to the pollock 
fishery. AFA represented a carefully crafted compromise that has led 
the pollock fishery to be acknowledged as one of the best managed 
fisheries in the world. A key component to that compromise was a $90 
million payment to American Seafoods to permanently remove nine of the 
16 vessels from the fishery reducing its historical harvest share to 
17.5 percent. American taxpayers paid American Seafoods $20 million and 
the remaining $70 million is a federally guaranteed loan still being 
repaid by catcher vessels participating in the inshore fishery. This 
action accomplished two goals; it reallocated an additional 10 percent 
of the pollock fishery to the inshore sector and it reduced the 
dominance of a single company, American Seafoods, in the Nation's 
largest fishery. It also allowed American to divest itself of its most 
inefficient vessels, leaving it with the most state-of-the-art fleet in 
the fishery.
    It should also be noted that in harvesting 17.5 percent and owning 
19.36 percent of the pollock fishery, American controls about 50 
percent of the offshore sectors' allocation. Additionally, American is 
unconstrained from harvesting an additional 10 percent of the Bering 
Sea catch limit by leasing Community Development Quota. American 
Seafoods currently controls one-half the CDQ pollock quota, or an 
additional 5 percent of Bering Sea quota above the harvest cap. Because 
harvest of CDQ fish is not constrained by the AFA harvest cap, American 
Seafoods could increase its harvest share another 5 percent of the 
Bering Sea pollock quota without having to increase the current 
excessive harvest share cap. American currently owns 19.36 percent of 
the Bering Sea pollock quota through ASC LLC and its wholly owned 
subsidiary, HLTA LLC. And nothing prohibits American from increasing 
its processing capacity, including the purchase of shore plants, to 30 
percent.
    In sum, American Seafoods currently owns 19.36 percent of the 
harvesting and processing rights of the Nation's largest fishery. 
Additionally it harvests and processes about half of the CDQ 
allocation, or another 5 percent of the pollock fishery. It is 
unconstrained from increasing its CDQ harvesting share, its processing 
share or it ownership share. There still remains significant growth 
opportunity for American Seafoods without increasing the excessive 
harvesting cap.
    For our company and others, this issue is simply one of putting too 
much control in the hands of too few. At some point, a much larger 
company puts smaller companies at a significant disadvantage and 
destabilizes the fishery. For the Bering Sea pollock fishery, that 
point has been established at 17.5 percent of the harvesting capacity. 
The majority of Bering Sea participants have not been persuaded that a 
compelling reason exists to change that excessive share limit. We 
continue to believe that a cap set at 17.5 percent is a critical part 
of the AFA package and its continuance at this level, good public 
policy.

    Question 5. How would raising the harvest cap impact your company's 
business? Do you oppose American Seafoods' efforts to raise the harvest 
cap?
    Answer. Arctic Storm, as do most other participants in the pollock 
fishery, continue to oppose American Seafoods' efforts to raise the 
harvest cap for the reasons described above. Raising the cap could 
impact our company in several ways. Among those are the following:

        1. A much larger company has a disproportionate impact on the 
        marketplace in which we all compete.

        2. A much larger company has a disproportionate advantage in 
        increasing its share of fish by either winning CDQ allocations 
        or purchasing other companies. Such dominance, if 
        unconstrained, could marginalize smaller companies causing 
        further consolidation by a few large players. Consolidation by 
        American has already occurred. Since AFA was passed American 
        has purchased three additional AFA vessels increasing its 
        ownership of the harvesting and processing rights to 19.36 
        percent of the Bering Sea pollock quota. It has also increased 
        its CDQ share from 5 percent to 50 percent.

    Question 6. How would vessel replacement impact different companies 
in different ways? Financially and competitively, how would vessel 
replacement benefit these fishing companies? Is it through higher or 
more efficient fish catches, or through additional fish processing that 
adds value to the product? Would vessel replacement benefit some 
companies more than others? How? How much would American Seafoods 
benefit compared to its competitors?
    Answer. Most AFA vessels were built in the 1980s including some 
that were rebuilt from much older vessels. Confining their operations 
to business plans and technology available thirty years ago does not 
make sense in a global economy. In any modern business, in order to 
remain competitive you have to operate efficiently. Under the current 
restrictions of the AFA, vessel owners are often constrained by space 
limitations that force them to operate less efficiently. For instance, 
smaller boats are constrained in their ability to operate both surimi 
and fillet lines to meet the needs of the market and the appetites of 
the U.S. consumer. Space limitations also constrain the ability to 
install fish meal plants that allow full utilization of the fishery 
byproducts, fish oil plants that convert fish waste into a substitute 
for diesel fuel, and increased cargo hold capacity which reduces the 
amount of trips required to unload the vessel.
    For instance, one of our catcher-processors, the Arctic Fjord packs 
920 tons of finished product while the larger, Arctic Storm, packs 1540 
tons. That difference in capacity forces the Fjord to make five 
additional trips a year to and from the fishing grounds to unload 
product using approximately 220,000 gallons of fuel. At current costs 
of $4.20/gallon, these trips increase operating costs substantially. It 
also contributes to unnecessarily extending our carbon footprint at a 
time when reduction of carbon usage has been identified as a high 
priority. Related to that issue is needed space to construct a fish oil 
conversion plant. Use of fish oil to fuel a catcher-processor is 
expected to offset diesel fuel consumption by 1,200 to 2,500 gallons a 
day. Like several other AFA catcher-processors, the Arctic Fjord is not 
large enough to accommodate construction of a fish meal plant without 
rebuilding the hull. Fish meal plants turn fish waste into fish food 
for aquaculture operations in Asia. It also increases our recovery 
rates by approximately 2.5 to 5 percent of round weight.
    For a catcher vessel, increasing vessel size allows for greater 
hold capacity and so reduces the number of trips needed to harvest its 
catch quota. The proposed amendment also contains a provision that 
allows for retirement of less efficient and aging vessels. Currently, 
AFA requires that the owner of a catcher vessel delivering to a 
shoreside cooperative maintain that vessel and permit in order to 
receive its annual allocation of pollock. The AFA vessel amendment 
allows AFA-qualified catcher vessels to be retired and for the owners 
of such vessels to assign the quota to another vessel or vessels. To 
avoid negative impacts to other fisheries, any retired AFA-qualified 
vessel must surrender its fishery endorsement and so cannot participate 
in other U.S. fisheries.
    Because current regulations prevent us from replacing our existing 
vessels, we must replace parts of the vessels piece by piece as they 
wear out. We are forced to figure out how to make these hulls last 
forever without the opportunity to take advantage of more efficient 
technology available to our industry. While the AFA fleet is operated 
and maintained to ensure maximum safety conditions, it seems counter to 
the promotion of the safety of human life at sea, as called for in 
National Standard 10 of the Magnuson-Stevens Act, to prohibit AFA-
eligible vessels from being replaced or efficiently rebuilt using 
state-of-the-art technology and architectural designs that can 
simultaneously accomplish premium safety and efficiency.
    The arbitrary limits on length, tonnage and engine horsepower of 
replacement vessels stipulated in the AFA are unnecessary. To help 
foster safety, product quality, innovation and efficiency--all of which 
contribute to Alaska pollock producers remaining competitive in the 
international whitefish market--it is critically important to remove 
limitations in current law on replacement of AFA-qualified vessels.
    As described above, vessels will be affected in similar and 
different ways but, nonetheless, will require significant investments 
to rebuild or replace vessels. As part of AFA, American Seafoods' most 
inefficient vessels were bought-out by American taxpayers and other 
participants in the fishery. For that reason, American's remaining 
fleet under AFA has been and remains the most state-of-the-art fleet. 
If the vessel replacement legislation is passed it will, in part, 
retain that advantage because it will not have to make vessel 
replacement investments as soon as other participants. And, because the 
pollock fishery is rationalized, no participant will gain advantage 
over another in a race for fish initiated by the construction of more 
efficient vessels.

    Question 7. Do you believe it is necessary to address the harvest 
cap at the same time as vessel replacement? How would it impact the 
competitive dynamics of the fleet? Are there any public policy benefits 
to raising the harvest cap? Are there any potential disadvantages?
    Answer. There is no reason to address the harvest cap issue at the 
same time as the vessel replacement issue. The harvest cap and the 
vessel replacement provisions are two separate and unrelated issues.
    The argument linking the two provisions is that American Seafoods 
Corporation will lose a competitive advantage because it currently owns 
the most state-of-the-art vessels. American Seafoods argues that if 
this competitive advantage is taken away by allowing other vessels to 
modernize, it should be given relief by raising the AFA excessive 
harvesting cap and allowing American Seafoods to regain advantage 
through company expansion. This rationale seems based on the assumption 
that American Seafoods has been granted a permanent competitive 
advantage and that other vessels must be constrained in their ability 
to compete in the marketplace. Even if such a rationale could be 
supported, the AFA vessel replacement amendment is relatively neutral 
regarding the impacts among companies that own and operate AFA-
qualified catcher-only, catcher/processor or mothership vessels.
    At some point, every vessel in the fishery will reach the end of 
its useful life. The amendment proposed by AFA participants removes the 
unwarranted restriction in current law on vessel replacement only in 
the event of ``total loss or constructive total loss'' and provides 
flexibility to the vessel owner to replace the vessel in a manner that 
optimizes fishing and fish processing practices. Taking the long view 
that every AFA-qualified vessel will need to be substantially rebuilt 
or replaced at some point, the vessel replacement provision should 
provide the same flexibility and opportunities among companies in the 
catcher/processor sector and not confer benefits on one company or one 
sector.
    Looking just at the catcher/processor sector, here is why allowing 
the replacement of vessels at the owner's discretion and without 
arbitrary size restrictions should not significantly impact 
competitiveness among the five companies operating catcher/processors. 
One would expect that companies with older and/or smaller vessels would 
be the first to take advantage of the vessel replacement amendment, if 
enacted. There are several obvious benefits to replacing older vessels 
with newer ones, including reduced maintenance costs and introduction 
of more fuel efficient propulsion systems. Replacing smaller vessels 
with larger ones will allow for new or substantially rebuilt vessels to 
accommodate both surimi and fillet production, add fishmeal plants, 
enhance fish oil production to reduce diesel fuel use, and increase 
hold capacity to reduce the number of trips for offloading. Surimi and 
whitefish fillets are commodity products, however, so vessel 
replacement is not expected to result in supply changes that will move 
world market prices. Instead, any company making the investment to 
increase vessel size to be able to make either of the two main primary 
processed forms of pollock or more ancillary products should increase 
profitability, but not at the expense of another company with similar 
or even greater capabilities.
    For the reasons outlined above, the AFA replacement provisions are 
supported by all participants in the affected Bering Sea pollock 
fishery. The proposed language has been well vetted and includes 
detailed language which protects participants in other fisheries by 
limiting the access of new vessels in other fisheries. Increasing the 
AFA excessive harvesting cap, on the other hand, provides advantage to 
a single company and is opposed by most participants in the Bering Sea 
pollock fishery who perceive any link as artificial.
    American Seafoods argues that in allowing modernization of its AFA 
competitors, it will be put at a competitive disadvantage by allowing 
others to compete on a level playing field for CDQ quota, leasing 
rights and expanded ownership. In this regard, American may be right; 
vessel replacement may level that playing field.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                            David E. Frulla
    Question 1. The Freezer Longline Coalition has been negotiating a 
fishing cooperative agreement for over 2 years, and is now asking 
Congress for help in passing legislation on the matter. Could you 
please describe, from your perspective, the process the Freezer 
Longline Coalition has gone through over the past 2 years, and Fishing 
Company of Alaska's participation in this process?
    Answer. I know only that discussions have been ongoing for quite 
awhile, and The Fishing Company of Alaska has participated in these 
discussions. FCA has raised objections in these discussions, including 
certain of those that my written and oral testimony explained. FCA 
believes it has participated in good faith in these discussions with 
others in the sector. Ultimately, FCA has a different view of the 
merits of the situation.

    Question 2. What are the public policy implications of the creation 
of a co-op in the Pacific cod freezer longline industry? If there are 
public policy benefits, then why does the company believe policy-makers 
such as myself should not allow or promote the formation of a co-op? 
Does the company disagree with claims that there are safety and 
environmental benefits to the formation of a co-op?
    Answer. I am not an expert in the public policy benefits of 
cooperatives, or their potential safety and environmental benefits, and 
was not asked to testify in such an expert capacity. I have represented 
a number of fishery organizations and businesses over the years, each 
with different views of this issue. In general, however, the position 
that FCA has advocated is that Congress established and reauthorized 
the Magnuson-Stevens Act to create an open and public framework for 
deciding these issues with full input by expert resource managers, 
scientists, economists, environmentalists, the broader public, and 
impacted fishermen. This process was refined by Congress in 2006, 
specifically to deal with this type of proposal.
    By contrast, in this specific instance, the details of the 
cooperative were worked out in private discussions and would lock FCA 
into an allocation set by its competitors using a flawed methodology 
that completely derogates historical participation. This is not good 
public policy.

    Question 3. If a co-op were formed in the Pacific cod freezer 
longline fishery, who do you believe would be the winners and losers? 
What would be the implications on the value of the fishing companies 
involved? What is the financial benefit, both immediate and long-term, 
to the companies involved? Would the formation of a co-op help the 
fishing companies involved in obtaining financing and loans to 
recapitalize their vessels? Do you believe that the Fishing Company of 
Alaska would benefit in any way under a cooperative system?
    Answer. Others on your panel have made a study of these issues. In 
my written and oral testimony, I explained the legislative proposal 
would make permanent the impact of recent entry into this fishery 
sector and that such a result is contrary to North Pacific Fishery 
Management Council and NMFS regulatory actions and goals.
    As to the final question, while there are cooperative programs 
under which FCA could benefit, the flawed approach crafted by the FLC 
is not one of them.

    Question 4. If the Pacific cod freezer longline fishery were to 
form a co-op, what would be the implications in terms of jobs? Would 
there be fewer jobs in the fishery? What would the quality and 
predictability of those jobs look like?
    Answer. In general, consolidation would likely lead to fewer jobs. 
The purpose of rationalizing a fishery is to reduce capacity and inputs 
to production, including labor. I understand that such losses of jobs 
and opportunities appear to be behind the on-going reaction by some 
fishermen and communities in Alaska against crab rationalization and 
other such programs.

    Question 5. In your written testimony, you stated that ``the FLCC 
proposal does not purport to allocate Pacific cod beyond this split 
between the cooperative and `open access' components of the sector, 
such as on an individual vessel basis, and does not allow for the 
formation of other cooperatives. Accordingly, it is an incomplete 
solution to the safety issues about which this hearing is concerned.'' 
This statement seems to imply that the FLCC proposal would be an 
``incomplete solution'' because a race for fish would still exist in 
the ``open access'' component of the sector. Yet, the Fishing Company 
of Alaska is the only company that has not signed the cooperative 
agreement. If Congress takes up the FLCC proposal and that proposal 
becomes law, would Fishing Company of Alaska still refuse to enter the 
cooperative and remain fishing in the ``open access'' portion of the 
fishery? This being the case, wouldn't Fishing Company of Alaska merely 
be ``racing'' itself if the FLCC proposal became law? Do you have any 
evidence or reason to believe that anyone other than Fishing Company of 
Alaska would not take part in the fishing cooperative under the FLCC 
proposal? Since Fishing Company of Alaska's boats would essentially not 
be competing with anyone else, wouldn't the ``race'' be effectively 
ended and represent a complete solution to the race-for-fish safety 
issues?
    Answer. Respectfully, the questions misapprehend the point I was 
making: the legislative proposal, as we understand it, differs from how 
such rationalization programs are typically structured. Such programs 
usually make allocations on an individual vessel basis, according to a 
common qualification period. Under a cooperative approach, such as 
Amendment 80 to the Bering Sea/Aleutian Island groundfish plan, vessels 
may either bring that allocation into a cooperative or join it with 
others in a common pool. FLC's proposal lacks the initial allocation. 
Accordingly, if the cooperative were to fail, or if certain of its 
members were to drop out of the cooperative in this historically 
fractious sector, the fishery would revert to a race for fish in the 
common pool.
    Obviously, because, to our knowledge, the legislative proposal on 
which this hearing was held has not been drafted into legislation, my 
testimony must be somewhat hypothetical on this point. However, as far 
as FCA can tell, no one appears to have asked important questions about 
this proposal, such as: will (or could) the legislation require all 
vessels originally in the cooperative to remain within the cooperative, 
or would it be possible for a vessel with a low allocation of fish to 
leave the cooperative and fish in the open access sector, as is 
occurring in the Amendment 80 fishery? What are the public policy 
issues involved in irrevocably binding a vessel or owner to a 
cooperative, if that is what is intended? Would the legislation provide 
that all vessels owned by a single entity either remain in the 
cooperative or fish in the common pool (that is, an ``all in'' 
provision)? Will the legislation specify vessel use caps, excessive 
share limits, and sideboards? What, if any, monitoring and enforcement 
requirements will be established? Many of these questions are not 
relevant, however, if the Congress opts to develop a far more flexible 
individual quota system, as FCA has recommended, based on fair and 
equitable allocation criteria.

    Question 6. From what I understand, the FLCC membership agreement 
offered an allocation level to Fishing Company of Alaska that would 
give the company's boats the fourth-highest and sixth-highest 
allocations and would give the company overall 7.1 percent. Does 
Fishing Company of Alaska believe that membership agreement allocation 
was not a fair one? Wasn't this offer of 7.1 percent an offer of 
additional fish from other members of the sector to help appease 
Fishing Company of Alaska's problems with the allocation share and as 
an incentive to join the co-op? Doesn't this demonstrate that the rest 
of the sector made a good-faith effort to address FCA's concerns and 
try to find a compromise? Why was this offer rejected by Fishing 
Company of Alaska? What allocation level for Fishing Company of 
Alaska's two vessels would have been a fair allocation? Specifically, 
what percentage, why, and based on what rationale? How does the 
membership agreement offer of 7.1 percent compare with what Fishing 
Company of Alaska's vessels are catching now, on a percentage basis?
    Answer. As I explained in my testimony, the 7.1 percent share 
appears to have been an ad hoc adjustment to an allocation based on a 
qualifying period that FCA does not accept as fair, equitable, or 
consistent with the law or recent allocations. FCA has not asked for 
anything more or less than what it considers appropriate based on its 
history as a pioneering participant of this sector. My testimony points 
out a range of baseline periods that could have been more appropriate. 
This is FCA's principled, consistently-expressed position, 
notwithstanding FLC's derogatory characterizations and insinuations.

    Question 7. Based on your testimony, Fishing Company of Alaska 
believes the co-op percentage allocations should have been based on a 
much longer time-period, or ``qualifying time,'' than the final 
agreement was based upon. Why does the company believe that the time-
span that was used is unfair? What time-span would the company believe 
is a fair one and why? What kind of allocation do you believe such a 
time-span would result in for Fishing Company of Alaska?
    Answer. As I stated in my written and oral testimony, and has been 
conveyed to Committee staff through written and oral communications 
over the past nearly 2 years, the use of a 3-year time span, as 
proposed by FLC, is inconsistent with legal standards and recent 
precedent. This precedent includes not only the range of 
rationalization programs mentioned, but also the (then) FLCC's use of a 
five-year time-frame to used to calculate (and bolster) the amount of 
capacity ostensibly bought with the federally-funded vessel buyback 
program for the freezer-longline sector.
    However, since the Subcommittee has inquired, FCA believes the very 
most equitable qualification period would include all history going 
back to the time-frame used for the vessel moratorium program; that is, 
January 1, 1988. This would provide full representation of the 
historical participants, while also considering recency, as the MSA 
provides. Such a period would not over-weight the new capacity that 
entered the fishery in a significant way after the LLP program. Nor 
would such a longer time period conflict so patently with other North 
Pacific Council and NMFS attempts to limit capacity in this sector (see 
my response to question 11, as well), while balancing historical 
participation and investment with recent use.
    Any individual vessel allocation under such a time-frame would 
depend on a variety of considerations, such as whether all years were 
included or whether the low years were dropped, what dataset was used, 
and other factors that are customarily considered in these 
rationalization processes.

    Question 8. It is my understanding that under FLCC's proposal, 
using the years 2003-2005 for those in the ``open access'' fishery 
would probably give Fishing Company of Alaska approximately 6.6 percent 
of the catch. How does that figure compare with what the Company is 
catching now? If Fishing Company of Alaska believes that 6.6 percent is 
unfair from using the years 2003-2005 as you state in your testimony, 
then why doesn't the company accept the FLCC membership agreement 
allocation offer of 7.1 percent?
    Answer. Please see my responses to questions 5 and 6, as well as 16 
U.S.C.  1881a(b).

    Question 9. You state in your written testimony that the allocation 
period contained in FLCC's proposal is ``inconsistent with law and 
recent allocation programs.'' Wasn't a three-year period (1995-1997) 
used in the American Fisheries Act? You reference the Amendment 85 Gulf 
of Alaska cod allocations, but weren't those both sector allocations 
and not cooperatives or vessel allocations? Why should Congress use 
sector allocations as a guide for the allocation of a cooperative-based 
system? Isn't this comparing apples to oranges?
    Answer. The AFA is not a recent rationalization program. In fact, 
it is poor model on which to base any such new program. While the AFA 
worked out well for those included, it created a great deal of acrimony 
in the fishing industry and years of work for the Council. Just like 
the legislative proposal currently before the Committee, the AFA 
omitted many of important management and implementation details. In 
fact, the congressionally authorized rationalization programs, 
including the AFA, the ``Three Pie'' crab rationalization measure, and 
the Rockfish Pilot Program, appear to be more controversial than 
council developed programs. Perhaps this is because they closed debate 
and informed deliberation of issues of public importance that the 
fishery management council system is intended to provide.
    Programs developed subsequently to the AFA, that is, the ``recent'' 
rationalization programs which I detailed in my written testimony, have 
benefited from the experience gained from the problems relating to the 
AFA and its implementation.
    As to Amendment 85, this measure did make allocations among sectors 
rather than individual vessels. But the legal framework for making 
allocations is, or at least was when Amendment 85 was passed, identical 
to that involving individual vessel allocations. To be more precise, 
the MSA establishes the legal framework for making allocations either 
to sectors or vessels. However, that legal framework has changed since 
Amendment 85 was adopted, with the Reauthorization Act creating a 
specific new criteria applying to limited access privilege programs 
(``LAPPs''). FLC's proposal would likely be governed by these LAPP 
provisions, 16 U.S.C.  1853a, whereas a sector allocation like 
Amendment 85 would likely be governed by the general criteria under 16 
U.S.C.  1853(b)(6). Both sections 1853a and 1853(b)(6), however, 
require the consideration of historical participation that is utterly 
lacking in the FLC proposal, as well as development through the kind of 
open and public process that's lacking in FLC's ad hoc allocation 
scheme.

    Question 10. Your written testimony references the Rockfish Pilot 
Program, which used a seven-year allocation period. That program, 
however, was designed to specifically weigh heavily toward historical 
catch and much less toward current and recent catch levels. Wasn't the 
historical catch emphasized for this program because of the specific 
nature of the fishery, and for reasons not really applicable to the 
Pacific cod freezer longline sector? How is the Rockfish Pilot Program 
applicable when it's only a temporary program for a very different 
fishery that has both catcher vessels and catcher-processor vessels 
that use multiple types of fishing gear? According to the North Pacific 
Fishery Management Council's May 19, 2008 review of the Rockfish Pilot 
Program, the program's first year had mixed success. Why should the 
North Pacific cod freezer longline fishery emulate a program with such 
mixed success?
    Answer. I do not know enough about the motivations behind the 
adoption of the Rockfish Pilot Program to answer these questions 
without speculating. However, none of the supposed distinguishing 
characteristics mentioned above appear to be relevant to the policy 
reasons for selecting the qualification period that was, in fact, 
chosen for the program. Also, from my brief review of the referenced 
report, it does not appear that any of issues or complications arising 
from the program are the result of the range of years used to determine 
allocations.

    Question 11. In your written statement, you discuss more recent 
entrants into the fishery and state that ``it is not clear how these 
vessels became qualified.'' Are you saying that some of these vessels 
were not qualified to enter the fishery? Do you have any information or 
knowledge that any of these vessels entered the fishery illegally? How 
are ``recent entrants'' relevant to this debate when the fishery now 
operates under a limited license program? If all of the entrants into 
the now-closed fishery entered the fishery legally and qualified based 
on the rules, why should Congress penalize more recent entrants in an 
allocation?
    Answer. The National Marine Fisheries Service administers the 
license limitation permit program, and it, along with the Coast Guard, 
enforces fisheries regulations and laws. I would assume that if any 
vessels were fishing illegally, these authorities would take 
appropriate action. The point I raised was more generally related to 
the fact that the sector contains new vessels, and that the LLPs used 
in the fishery are difficult to trace back to the beginning of the 
permit moratorium and the period in which vessels were qualified for 
the LLP program and the Pacific cod endorsements. This observation was 
raised in relation to the more salient point that there were ten 
permits that appear to have qualified for the freezer longline sector 
based on only 1 year's worth of landings. I understand these permits 
are currently placed on very efficient vessels that participate 
annually in the fishery on a full-time basis. This outcome completely 
undermines the efforts by NMFS and the North Pacific Council to reduce 
excessive capacity in this sector, via the moratorium, LLP program, and 
sector endorsements.
    The question FCA has legitimately and consistently asked, then, is 
whether Congress should reward businesses that made large, post-LLP 
investments by awarding shares based solely on recency. FCA maintains 
that Congress would be sending a poor signal by instituting a program 
that ignores and devalues historical investment and participation. In 
short, it would send a message to vessels in other fisheries that they 
can be rewarded by beefing up capitalization in a fishery, racing to 
build recent fishing history, and seeking an end-run around the MSA 
processes and standards by seeking legislation to enshrine the new 
regime. Meanwhile, participants like FCA that were involved in 
pioneering the fishery and providing a model that others followed, 
would be, in fact, the party that would penalized by having that 
history completely devalued.

    Question 12. In your arguments against overcapitalization and past 
initiatives for the vessel buyback and qualification levels for the 
LLP, you state that ``all this new capitalization has had the effect of 
eroding FCA's recent overall share of the Pacific cod catch.'' This 
seems to be more of an argument outlining Fishing Company of Alaska's 
dissatisfaction with past decisions on the LLP and buyback program, 
rather than an argument against how to proceed with managing the 
fishery as it currently exists. Why should Congress give weight to 
Fishing Company of Alaska's complaints about these past decisions in 
its policymaking to shape the fishery's future? If Fishing Company of 
Alaska was dissatisfied with the buyback program, then why didn't the 
company vote in the buyback or comment in the public comment period 
before the program was funded?
    Answer. The response to question 11 is likewise relevant here. The 
issue is not related to the policy decisions that were made, but 
whether it represents good public policy to reward recent increases in 
capacity. While the capacity reduction programs may not have had the 
intended effect, that is not a reason to freeze this advantage in place 
through legislation.
    As to the question related to the buyback, I know that FCA made its 
concerns known to others in the sector. It is extremely unlikely that 
additional public disagreement would have changed the substantive 
result of the process.

    Question 13. In your written testimony you stated that FLCC's 
proposal ``in no way comports with existing law'' and ``is legally 
doubtful,'' but you have also argued that the North Pacific Fishery 
Management Council should take up the issue rather than Congress. Do 
you believe that if the Council took up FLCC's proposal, it would be 
doing so contrary to current law? Would Fishing Company of Alaska take 
legal action to challenge such an action by the Council? Isn't this an 
argument that legislation from Congress would be the most clear-cut way 
to implement a cooperative?
    Answer. If the Council undertook the task of devising a cooperative 
program for the freezer longline sector, it would likely follow in the 
footsteps of prior such programs, like Amendment 80 for the head-and-
gut sector. If past is prologue (particularly in light of the new 
requirements contained in the Magnuson-Stevens Reauthorization Act), 
the Council would allocate fish on an individual vessel basis using a 
qualification period consistent with the new limited access privilege 
program requirements established by the Act as amended in authorizing 
the formation of cooperatives. Such an action would likely address 
sideboards, excessive use and excessive share issues, as well as 
monitoring and enforcement. What has been proposed does not nearly come 
close to addressing all the details that need to be addressed; nor does 
FCA believe the proposal in substance complies with the amended MSA's 
substantive requirements for LAPPs. Accordingly, Congress legislating 
FLC's proposal would only be a ``clear-cut way'' to avoid the new 
Reauthorization Act standards for co-operatives and to avoid subjecting 
the FLC's proposed allocations to debate, deliberation, and scrutiny in 
light of precedent at the North Pacific Council. However, if the AFA 
provides any experience, legislation such as the FLC seeks would still 
require the Council to develop the ancillary but important 
implementation details for the program.

    Question 14. The FLCC membership agreement signed by all 
participants except Fishing Company of Alaska has a threshold of 75 
percent required to dissolve the agreement. Yet, you stated that ``if 
the parties in this typically fractious sector were to dissolve the 
cooperative, the sector would revert to the status quo and the 
legislation would have accomplished nothing.'' Wouldn't it take a 
significant supermajority of parties wanting to dissolve the 
cooperative agreement for cooperative legislation to ``have 
accomplished nothing?'' Do you have any specific reasons to believe 
that the FLCC cooperative agreement will fail and be dissolved?
    Answer. This question raises an issue similar to that addressed 
above in response to question 5. In sum, because the proposal does not 
purport to fully allocate the fishery, if the cooperative were to 
dissolve or its membership base were to erode for any number of 
reasons, the result would be a return to a race for fish in the common 
pool. Neither we nor anyone else can predict the future, but this does 
not change the underlying point.

    Question 15. You stated a belief that the FLCC proposal is flawed 
because it does not fully allocate Pacific cod among all sector 
participants. Isn't the point of forming a fishery cooperative to allow 
the sector to allocate fish through collective agreement, rather than 
forcing the government to get involved and decide who gets what? Does 
this statement mean that Fishing Company of Alaska is fundamentally 
opposed to cooperatives no matter what the conditions, and would only 
accept individual fishing quotas? If so, why is FCA fundamentally 
opposed to cooperatives?
    Answer. The MSA lays out specific criteria for fishery allocations, 
including establishment of criteria to govern intra-cooperative 
allocations--vessel use limitations, for example--to achieve important 
public policy objectives such as protecting fishing communities and 
participants. At the end of the day, the government has a role in this 
process because this issue involves a public resource.
    FCA is not inalterably opposed to cooperatives. It has formed a 
cooperative under the Rockfish Pilot Program.

    Question 16. In your written testimony you stated that Fishing 
Company of Alaska could potentially support an individual fishing quota 
``with authorization to form a cooperative,'' and point to the BSAI 
groundfish fishery as an example of such a system. Doesn't the FLCC 
proposal mirror the BSAI groundfish plan by allowing a co-op (or in the 
case of that fishery, allowing up to 3 co-ops) but also allowing a race 
for fish for those who do not wish to participate in a cooperative? Has 
Fishing Company of Alaska engaged in legal challenges against Amendment 
80 and the BSAI groundfish plan? Isn't Fishing Company of Alaska still 
``racing'' for fish in the BSAI groundfish plan because it has refused 
to enter into that sector's cooperative?
    Answer. The FLC's proposal is fundamentally different from the 
Amendment 80 program alluded to in the question. Under Amendment 80, 
each vessel has an individual allocation that can be moved into or out 
of a cooperative structure, and the current rules provide for the 
formation of up to three cooperatives on an annual basis. However, all 
vessels and entities currently qualified for and participating in the 
sector, save for FCA and one other vessel, have formed a single 
cooperative.
    Under Amendment 80s implementing regulations as currently drafted, 
because all entities, save two, have formed a cooperative, FCA is 
precluded by the rules from forming a second cooperative. It takes nine 
permits and three legal entities to form a cooperative--FCA has five 
qualified vessels and a qualified permit, belonging to the Alaska 
Ranger, so there are only a total of seven permits and two entities 
remaining, a number insufficient to form a second cooperative.
    These limitations on cooperative formation form the central claim 
in FCA's challenge to Amendment 80. One has only 30 days to file a 
judicial challenge to any regulations promulgated under the MSA or 
forever forfeit the right to do so. 16 U.S.C.  1855(f)(1). However, 
although FCA filed suit to preserve that right, it has stayed the 
litigation--currently through December 2008--and is working with the 
North Pacific Council and NMFS to try to resolve the issues through 
regulatory channels. Currently, a rulemaking process is underway that 
has the potential to settle most if not all issues in dispute. FCA is 
hopeful that this process will result in a satisfactory resolution of 
all issues.

    Question 17. Is Fishing Company of Alaska currently challenging any 
other fishing cooperatives or fishery rationalizations? If so, please 
describe the company's legal challenges and how they relate to your 
assertions on the formation of a co-op in the freezer longline 
subsector.
    Answer. Other than the stayed litigation described above, no. There 
is no relationship between the Amendment 80 issues and the freezer 
longline issues.

    Question 18. What is Fishing Company of Alaska's reason for 
proposing an IFQ system but refusing to enter into a cooperative? Does 
the company believe it would be allocated more fish under an IFQ system 
than under the proposed cooperative agreement? Is part of the company's 
reason because it only wants to release catch information to the 
government and not to other private parties? What does Fishing Company 
of Alaska see as the differences that make an IFQ system acceptable and 
a cooperative unacceptable?
    Answer. To be clear, FCA's preference is not for a legislated 
fishery management scheme for this sector. However, it is willing to 
consider an IFQ program for this fishery, which would achieve the 
benefits being identified for cooperatives without forcing unwilling 
parties to necessarily enter into business relationships. As explained 
above, FCA's support for an IFQ program is conditioned upon application 
of a fair, equitable, and legally compliant allocation formula that 
does not work at cross-purposes with years of efforts by the North 
Pacific Council and NMFS to limit capitalization of this sector. And, 
which, of course, gives full credit to the historical participants.

    Question 19. Wouldn't an IFQ system place the burden on the 
government to make allocation decisions, regulate and monitor the 
fishery, and enforce quotas? Why should Congress choose to keep that 
burden on the government when we can allow the formation of a 
cooperative that will largely allocate, monitor, and enforce its own 
agreement?
    Answer. If Congress chooses to act on FLC's request, the Government 
would still be assuming the burdens of making allocative choices. It 
would just be the Congress making these choices--and not NMFS and the 
Council acting subject to the reauthorized Magnuson- Stevens Act 
standards. Moreover, NMFS already has the responsibility to monitor and 
enforce allocations, something that would not change with cooperative 
management. In the end, this is a public resource that is fully 
utilized by many different sectors of the North Pacific fishing 
community, and as such, the government retains ultimate responsibility 
for sustainably managing and monitoring the fishery.

    Question 20. Does Fishing Company of Alaska support allowing vessel 
replacement in the pollock catcher processor fleet and the head & gut 
fleet?
    Answer. Yes.
                                 ______
                                 

   Freezer Longline Coalition's Response to David Frulla's Testimony 
    [Freezer Longline Coalition submitted comments on Mr. Frulla's 
   testimony, herein. Mr. Frulla's testimony is reprinted here with 
           Freezer Longline Coalition's comments in italics.]

    My name is David E. Frulla. I am a partner in Kelley Drye & Warren, 
LLP, in Washington, D.C. Since 2006, we have served as counsel to The 
Fishing Company of Alaska, Inc. (``FCA'') with respect to certain 
matters pending before the U.S. Department of Commerce, the North 
Pacific Fishery Management Council, and the Congress. I would like to 
thank Chairwoman Cantwell on behalf of FCA for extending this 
opportunity to provide testimony on rationalization in the North 
Pacific freezer longline fishery for Pacific cod. FCA was a pioneer in 
developing the Pacific cod freezer longline fishery in the 1980s. This 
testimony will touch first upon concerns that FCA has with the private 
cooperative proposal put forth by some members of the Freezer Longline 
Conservation Cooperative (``FLCC''). Next, I will set forth in general 
terms an alternative that better fits the legal requirements under the 
Magnuson-Stevens Fishery Conservation and Management Act (``MSA'') and 
is consistent with recent rationalization programs authorized by 
Congress and the North Pacific Fishery Management Council. Finally, 
this testimony will touch on issues related to vessel replacement and 
vessel safety.
I. FCA's Position on the Legislative Proposal for a Pacific Cod Freezer 
        Longline Cooperative
    Some FLCC members arc seeking congressional authorization for the 
formation of a freezer longline cooperative to harvest Bering Sea/
Aleutian Island (``BSAI'') Pacific cod. The proposal would allow for 
formation of this cooperative upon agreement by eighty percent of the 
sector participants. Any vessels not choosing to participate in the 
cooperative would be allocated the percentage of the total cod quota 
landed by those vessels, on average, for the years 2003 to 2005. 
However, such allocation is not exclusive to the non-participating 
vessels, but would be placed in a common pool subject to a ``race-for-
fish.'' The FLCC proposal does not purport to allocate Pacific cod 
beyond this split between the cooperative and ``open access'' 
components of the sector, such as on an individual vessel basis, and 
does not allow for the formation of other cooperatives. Accordingly, it 
is an incomplete solution to the safety issues about which this hearing 
is concerned.

        1. All of the freezer longline fleet, with the exception of the 
        two FCA vessels (34 of 36 vessel owners) are the ``some'' Mr. 
        Frulla references.

        2. As all other members have signed the FLCC membership 
        agreement the ``common pool subject to a race for fish'' would 
        be a race for fish between FCA's two vessels. They alone have 
        the control to end this by signing our membership agreement.

    The terms of the legislative proposal (as we understand it) are, of 
course, a bit of a formality as more than eighty percent of the sector 
participants have negotiated an agreement that could be implemented 
upon passage. FCA has participated in these discussions, but has 
objected to the terms offered, particularly the awarding of significant 
amounts of the cooperative share to new and recent entrants. FCA also 
objects to the proposal's use of 2003 to 2005 as the baseline for 
determining the split between the cooperative and ``open access'' 
components of the sector. In sum, while rationalization of a sector may 
have a salutary impact on vessel safety, the imperative to increase 
safety should not be used as an excuse to drive an unfair allocation.

        1. On Mr. Frulla's comments that ``FCA participated in these 
        discussions, but has objected to the terms offered.'' The terms 
        offered in Our membership agreement has FCA's two vessels at # 
        4 and # 6 out of 36 vessels with #1 being the highest vessel in 
        percentage and #36 being the lowest. FCA has two of the top six 
        spots in the agreement and yet is using the process and the 
        position of being the lone holdout to push for more. FCA would 
        seemingly riot be happy unless their vessels were #1 and # 2, 
        and even then we feel they may have issues.

        2. On Mr. Frulla's comments that ``the imperative to increase 
        safety should not be used as an excuse to drive an unfair 
        allocation.'' The allocation in this legislative proposal is 
        more than fair, evidenced by the fact that the FCA vessels will 
        be allocated far more that they are now catching. Dr. Jack 
        Tagart with Tagart Consulting, in an independent assessment, 
        estimates FCA's two vessels are currently taking less than 5 
        percent. The legislation and the years 2003-2005 are estimated 
        to give FCA 6.6 percent, a substantial increase. While several 
        companies are catching more fish than they will receive in the 
        membership agreement, they (vessels currently catching more 
        fish) are willing to do this for the benefits a cooperative 
        fishery allows. Safety is a major concern for our fleet as are 
        all the major benefits of ending the race for fish in our 
        sector. Mr. Frulla's comments that we are using safety as an 
        excuse to drive an unfair allocation are both inaccurate and 
        offensive.
A. The Truncated Allocation Period is Inconsistent with Law and Recent 
        Allocation Programs
    First, the legislative proposal's use of such a brief and recent 
qualification period, 2003- 05, is inconsistent with allocative 
decisions by both Congress and the North Pacific Fishery Management 
Council. For instance, when allocating cod among sectors in Amendment 
85 to the BSAI groundfish plan, that Council considered a range of 
years from 1995 to 2003, ultimately choosing allocations falling within 
this range. Currently, the Council is considering 1995 to 2005 (best 5 
or 7 years) as the basis for allocating Gulf of Alaska cod. Likewise, 
when Congress established the Rockfish Pilot Program in 2004, it chose 
1996 to 2002, best 5 years, as the qualifying period. Similar ranges 
were utilized in Amendment 80 to the BSAI groundfish plan and the 
Bering Sea crab rationalization plan. In fact, FLCC itself used a 5-
year period to justify the amount of capacity purchased for the $35 
million freezer-longline Capacity Reduction Program authorized by 
Congress in section 219 of the Consolidated Appropriations Act of 2005.

        Throwing out all of these sets of years used in a wide variety 
        of fisheries programs is really just a lightly veiled attempt 
        by FCA and their attorney Mr. Frulla to strong-arm and 
        manipulate the process into a more advantageous circumstance 
        for FCA than the entire rest of the parties have already 
        settled on.

        1. In all of our negotiations we (including the FCA 
        representatives present at our meetings and negotiations) 
        considered a range of years including 1995-2005 and many 
        different sub-sets of years in that range. After much 
        negotiation, we settled on more recent years in that range. Our 
        primary purpose during these negotiations was to form a 100 
        percent cooperative. The fact that 34 of 36 vessel owners 
        agreed with using more recent years is evidence that we chose 
        the correct method for our group at that time.

        2. Congress used 3 years (1995-1997) in the American Fisheries 
        Act (AFA). Of all of the cooperatives in the North Pacific, 
        this most matches the size and make up of our fleet.

        3. Amendment 85 is a ``sector allocation'' not a fisheries 
        cooperative. Also the ``allocating of Gulf of Alaska cod'' 
        mentioned in Mr. Frulla's testimony is also a ``sector 
        allocation'' and not a fisheries cooperative. Adding these into 
        the argument is just simply more mud for the waters.

    More inclusive timeframes are consistent with the MSA, which 
requires a council to take into consideration ``historical fishing 
practices in, and dependence on, the fishery'' when developing a 
limited access system. 16 U.S.C.  1853(b)(6)(B). Likewise, the new 
standards contained in the MSA Reauthorization Act governing limited 
access privilege programs require consideration of both ``current and 
historic harvests.'' Id.  1853a(c)(5). By comparison, the qualifying 
period recommended by FLCC is not only an outlier with respect to other 
Council plans and recent statutory allocations, it entirely omits 
consideration of historical participation.

        On Mr. Frulla's claims that our recommended qualifying period 
        ``entirely omits consideration of historical participation", 
        this is far from the truth.

        1. The requirements of MSA and MSA reauthorization to 
        ``consider both current and historical harvests'' are exactly 
        what led our groups' negotiations. Ultimately after considering 
        the widest range of years that data was available (1995-2005), 
        we settled on recent years as the best years to use, as these 
        best reflected the recency and dependency requirements of MSA. 
        Current and historic harvest information was provided by an 
        outside fishery statistician at all of our negotiations and 
        this information was presented and considered by all 
        participants, including the FCA representatives present at the 
        meetings.

    Congress correctly instituted a policy of honoring historical 
catches to avoid rewarding speculative entry into fully utilized 
fisheries, like that for Pacific cod. Indeed, there have been five new 
entrants into this sector this decade (although two of these new 
vessels were just bought out in the buyback program), even as cod TACs 
have been steady or declining relative to 1990 levels. This recent 
capitalization, which FCA understands is continuing, runs counter to 
efforts by the Council and Congress to reduce capacity in this sector 
and others in the North Pacific.

        100 percent of the vessels in our fleet have entered into the 
        fleet legally and fairly.

        1. In 1995 the council passed a vessel moratorium and under A. 
        39 created LLP (Limited License Program) licenses, thus 
        limiting the number of vessels qualified to participated in the 
        groundfish fishery. In 2001, A. 67 issued Pacific cod 
        endorsements on each participants LLP, thus limiting the number 
        of Hook and Line vessels qualified to fish Pacific cod in the 
        Bering Sea and Aleutian Islands. The current size of the fleet 
        at 36 vessels is a direct result of these actions. Some vessels 
        have been retired and their LLP's and cod endorsements were 
        transferred to the new or replacement vessels.
B. The FLCC Proposal Undermines Capacity Reduction Efforts
    The pre-existing Pacific cod freezer longliner capacity control 
policy is reflected in the North Pacific Council's 1995 vessel 
moratorium, and its institution of the license limitation program 
(``LLP''), which became effective in 2000. Further, in 2002, Amendment 
67 to the BSAI groundfish plan was adopted to stabilize the Pacific cod 
fisheries by creating gear endorsements designed to define the universe 
of eligible vessels. 67 Fed. Reg. 18129 (Apr. 15, 2002). To qualify for 
the freezer longline sector, a vessel must have had a catcher-processor 
endorsed LLP groundfish license and harvested at least 270 tons of 
Pacific cod in at least 1 year between 1996-1999, inclusive, on the 
vessel that gave rise to the LLP.
    Yet, as explained above, despite the moratorium and LLP program, a 
total of 5 new vessels entered the fleet as full-time participants 
between 2000 and 2006, including the new-built Bering Leader. Although 
it is not clear how these vessels became qualified, it is likely that 
they are using LLPs that arose from one of the ten vessels that fished 
only 1 year during the qualification period (five of which only fished 
in 1996).

        The comment in paragraph two above ``Although it is not clear 
        how these vessels became qualified'' is again mud in the water.

        1. Mr. Frulla explains in the above paragraph exactly how these 
        vessels became qualified. They qualified like everyone else, 
        including FCA's two vessels--by having sufficient landings in 
        the control years to allow a qualified LLP and Pacific Cod 
        endorsement to be issued. The Council's decision to have a 
        small landing threshold, and a one-year qualifying period, was 
        by design to be inclusive, rather than exclusive, and include 
        nearly all who were participating in the fishery at the time. 
        The goal here was to prevent a massive overcapacity that would 
        have resulted if the Council had not taken action.

    During this post-LLP timeframe, Congress also became concerned with 
the amount of capacity in this (and other) BSA's groundfish sectors, 
and so authorized a publicly subsidized buyback program in 2005 
(Section 219 of the Consolidated Appropriations Act of 2005). To date, 
the freezer longline sector is the only sector to have proposed and 
consummated a buyback under the capacity reduction program.
    This history is relevant to FCA's main concerns with the FLCC 
proposal. For one, all problems relating to excess capacity in this 
sector, which cooperative legislation is supposed to address, are 
entirely of the sector's own making. Although the Council at least 
attempted a good first few steps in moderating capacity, what happened 
in fact was that part-time and sporadically used LLPs (which only had 
to land 270 metric tons in one year for a cod endorsement) were placed 
on new, full-time vessels, most now catching between 2,000 and 3,000 
metric tons per year. Nor has the buyback been particularly effective 
in reducing capacity. The buyback, as privately administered by the 
proponents of this legislative cooperative, only purchased three 
vessels and an unaffiliated permit for $35 million; however, two of the 
vessels purchased were new vessels that began fishing in 2000 and 2001. 
All this new capitalization has had the effect of eroding FCA's recent 
overall share of the Pacific cod catch.

        Excess Capacity is only a small element of the need for a 
        cooperative fishery.

        1. The members of the Freezer Longline Coalition are proud of 
        our involvement in the fleet buyback program. Overcapacity is 
        nearly always the result of non-cooperative fisheries that 
        result in a ``race for fish'' Our group took an active role in 
        bringing a solution to the overcapacity problem and in fact, is 
        paying back the buyback loan and currently is on pace to retire 
        the loan early.

        2. The buyback program needed a 75 percent threshold of 
        affirmative votes to move forward. All thirty four of the 
        existing vessels in the Freezer Longline Coalition voted in the 
        affirmative to move forward with the buyback. FCA did not vote 
        in the buyback, nor did they comment in the public comment 
        period allowed before the program was funded.

        3. The three vessels that were purchased in the buyback 
        represented nearly 8 percent of the recent catch. All of the 
        members felt that this capacity and one latent permit were a 
        fair purchase considering all factors. There were zero ``No'' 
        votes during the closing of the buyback. All members that voted 
        agreed this was fair market value.

        4. The Buyback program has been administered by National Marine 
        Fisheries Service, Financial Services Division. The entire 
        process was well documented and conducted according to a 
        strict, transparent process and FCA was included in all 
        negotiations.

    The result has been far from the salutary effect Congress and the 
Council sought through the license limitation program and the vessel 
buyback. Indeed, the desire to add capacity to the freezer longline 
sector continues. In fact, we understand that one of the participants 
in the buyback has attempted to use buyback funds to purchase an 
otherwise non-qualified vessel and a currently unused freezer longline-
endorsed LLP to put new capacity back into the fishery. If this attempt 
were successful, then this buyback will have repeated the failures of 
the original New England groundfish buyback program, which the 
Government Accountability Office found has led to an increase in 
capacity, rather than the intended decrease.

        The proposed legislation solves this problem of overcapacity. 
        The situation described above only exists because FCA itself 
        refused to sell a latent permit it owns. This situation (A 
        latent permit existing that could be used to add a vessel to 
        the fleet) continues to be a threat that only FCA controls. 
        However with this proposed legislation the motivation to add 
        capacity to the fleet is completely eliminated.

    This history is relevant to the qualification period being 
advocated by FLCC because it underscores that the proposed legislation 
is more designed to garner new entrants' support and solidify existing, 
private arrangements among the members of FLCC, than it is to ensure 
equitable treatment of historical participants like FCA. Basing 
allocations on fishing patterns in 2003-2005 locks in the aberrations 
that arose from the well-intentioned, but flawed LLP qualification 
program and rewards those who added capacity at a time when the Council 
and Congress were trying to stabilize this fishery by protecting 
``long-time participants.'' 67 Fed. Reg. at 18129.

        The above paragraph comes close to accusing our group of 
        impropriety; comments of ``private arrangements among members'' 
        are unfair, in poor taste, and offensive to our members.

        1. In prior testimony in this document (part B.) FCA claims 
        that five new vessels have entered the fleet between 2000-2006, 
        as pointed out earlier these vessels entered fairly and legally 
        as did all the vessels in the fleet including the two FCA 
        vessels. Here they are now claiming that our qualification 
        period is being advocated to garner support for these new 
        entrants. This line of thinking defies common thinking. 34 
        vessels owners are in favor of our membership agreement. We 
        chose recent years to reflect current participation and what a 
        vessel was likely to catch if a race for fish were to continue. 
        The accusation that a small number of new participants are in 
        control of the rest of the group is ridiculous.

        2. 67 Fed. Reg. At 18129, as stated above is the final action 
        for A. 67 by the Council and absolutely was successful in 
        protecting the long-term participants. Without A. 67 many more 
        vessels would have poured into the fishery. We have a fixed 
        fleet as a partial result of Council A. 67 and this allows us 
        to be where we are today, ready and able to form a voluntary 
        fishery cooperative.

    FLCC's proposal is thus not only ill-advised as a matter of policy, 
but it is legally doubtful as well. It in no way comports with existing 
law, which is geared toward both protecting historical participants and 
discouraging speculative entrants in fully-utilized fisheries.

        This comment is just one more reason why we are seeking a 
        legislative tool that will allow our group to form a voluntary 
        fishery cooperative.

        1. FCA has a long history of bringing legal action against any 
        Council action they do not agree with. They have filed and 
        currently have lawsuits on both Council A. 79 and Council A. 
        80. The Freezer Longline Coalition could easily spend the next 
        5 years in the Council process only to end up waiting on a 
        lawsuit to be settled if the outcome was not in FCA's favor.

        2. The Freezer Longline Coalition believes that all legal 
        hurdles have been well cleared and welcomes legal scrutiny as 
        this legislation goes forward.
C. The Proposal Fails to Fully Allocate the Pacific Cod Fishery
    Aside from the skewed allocation proposal, the FLCC legislative 
proposal is flawed in that it does not fully allocate Pacific cod among 
all sector participants, as do all recent rationalization programs. 
Rather, the proposed legislation merely seeks to establish an 
allocation as between the cooperative that it authorizes and those 
vessels which do not choose to join the cooperative. This means that if 
the parties in this typically fractious sector were to dissolve the 
cooperative, the sector would revert to the status quo and the 
legislation would have accomplished nothing.
    Under a typical rationalization program involving cooperatives, 
such as Amendment 80 to the BSAI groundfish plan, allocations are made 
to individual vessels, which can then either bring their allocation 
into a cooperative or into an open access pool. As the FLCC proposal 
does not purport to allocate fishing privileges on an individual basis, 
if the cooperative were to fail, the sector would revert to a race-for-
fish. The former, more common, approach of fully allocating a fishery 
and allowing formation of cooperatives is a more rational and durable 
approach.

        The Membership Agreement signed by all participants besides FCA 
        has a threshold of 75 percent required to break the agreement. 
        It is our firm belief that the benefits of a cooperative 
        fishery far outweigh any one desire, and certainly any possible 
        desire by 75 percent of the group to break the agreement.

        1. Within the membership agreement our vessels are allocated 
        catch on an individual basis.

        2. Historically in other voluntary fisheries cooperatives such 
        as the Pacific whiting co-op and the Bering Sea pollock 
        cooperative there has been no movement to ``break'' the co-op. 
        The realized benefits are just too great. The likelihood that 
        75 percent of the group will want to go back to the dangerous 
        and highly inefficient methods of a race for fish are remote, 
        at best.
II. FCA's Recommended Alternative
    Since this issue was initially raised before Congress, FCA has 
consistently maintained that the Council is the appropriate body to 
develop fishery management measures such as the one FLCC proposes. It 
has become apparent, however, that given FLCC's persistence and the 
Council's increasingly heavy workload, it would be constructive to 
offer an alternative that would meet the desire of the proponents of 
rationalization for cooperative-style management, while respecting 
established legal standards for such a limited access privilege 
program.
    Therefore, FCA could agree to program structured either as an 
individual fishery quota (``IFQ''), with authorization to form a 
cooperative, or a program structured along the lines of the Rockfish 
Pilot Program. Each program would allocate the sector's Pacific cod 
quota to individual vessels based on their historical catch. The latter 
differs from an IFQ only in that it allows any two or more vessels to 
form a cooperative or to join their allocation with others in a common 
pool where a vessel is not guaranteed its individual allocation of 
fish.
    In order to be consistent with other programs, however, the 
qualification years should range from 1995 to 2005. This would both 
respect historical participation, as well as respect the Council's and 
Congress's intent in limiting access and instituting the vessel buyback 
program. To use just recent history, as FLCC proposes, sends a counter-
productive message that building up capacity in a speculative manner 
can be rewarded. FCA would be pleased to work with staff to develop the 
details of such a program.

        This alternative is just another way to give FCA more quota 
        than they deserve and to give FCA a way to continue to operate 
        without cooperating in any meaningful way. FCA seems to give 
        some credence to our approach of gaining the tool we need 
        through Congressional legislation. They simply want a better 
        deal and feel they are in a position of power as the lone 
        holdout.

        1. The members of the Freezer Longline Cooperative are not 
        opposed to an IFQ type of fishery. The benefits of lFQ 
        fisheries are identical to our proposal. However this is 
        completely unnecessary in our situation. We already have a 
        membership agreement and are fully ready, with very little 
        additional management by government, to form a voluntary 
        cooperative. A voluntary cooperative is far less laborious for 
        the Federal fisheries managers than an IFQ system.

    In closing the Freezer Longline Coalition is asking that Congress 
move forward in introducing and passing legislation that will give us 
the tool we need to move forward with all the well documented benefits 
of a fisheries cooperative. No one company should be allowed to deter 
the remainder of the fleet from realizing a safer and much more 
efficient fleet. 

                                  
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