CHAIRMAN ROBIN TAYLOR called the Judiciary Committee meeting to order at 1:55 p.m., and brought SB 306 (ANTITRUST EXEMPTION FOR FISHERMEN) before the committee as the only order of business. SENATOR HALFORD moved that CSSB 306(JUD) (version 8-LS1305\K) be adopted. SENATOR LITTLE objected. Number 003 SENATOR JIM DUNCAN, prime sponsor of SB 306, urged that the committee hear from the interested parties before making a final decision on adopting a committee substitute. He said what was a piece of legislation that had unanimous support and could move forward in a first step has become a piece of legislation that has got opposition, high fiscal cost and is doomed to failure. Number 025 GEORGE UTERMOHLE, Legal Counsel, Legislative Affairs Agency, explained that the first two sections of the committee substitute contain the entire contents of the original SB 306. Changes to the committee substitute are contained in Section 3 of the bill. Mr. Utermohle stated that as a result of the last meeting, he was given instructions to create a mechanism by which the state could qualify certain agreements reached between fishermen and fish processors for the antitrust exemption under federal law. The intent was to qualify them for the exemption known as the "state action" exemption. In order to qualify for that exemption, a state has to articulate a clear and affirmative statement that the state intends to replace competition with regulation. The second aspect of that is that the state has to actively supervise the activities of the private sector. To satisfy the requirement for active supervision, the state must provide an adequate authority for some body or agency to conduct that supervision, and then that agency would have to go forward and actually perform the supervision. Mr. Utermohle directed attention to Section 3 of the committee substitute and explained that the first section is the policy statement, which is intended to be the clear and affirmative statement that the state intends to replace free competition with state regulation. This bill gives the authority for the state to regulate in only two narrow areas: contracts reached between fishermen and groups of processors. The second exemption is allowing fishermen and processors, either an individual processor or groups or processors, to get together and agree on the minimum price that the processors will accept for their manufactured product. He said the goal of the bill is to allow fishermen and processors to agree on two things: the price between themselves and the price which the processor would ask for his product from his market. Sec. 45.50.615 contained in Section 3, sets out the powers and duties of the commissioner in regard to fish price agreements. It allows him to review the agreement, actively supervise the conduct of the parties under the agreement, require fair prices, investigate the agreement if necessary, and conduct studies, perform analyses, and receive data and information on the price, market, and demand for Alaska fish and seafood products. Sec. 45.50.620 describes the fish price agreements that are subject to approval by the commissioner. The only fish price agreements that are subject to approval are (1) those collective agreements between fishermen and a group of fish processors regarding the price paid to fishermen for their fish; and (2) those collective agreements between fishermen and an individual or a group of fish processors regarding the minimum price that fish processors would accept for their fish products. Sec. 45.50.625 sets out the procedures and requirements for approval of fish price agreements. The core of the section is contained in subsection (c) which sets out the additions that the commissioner must find in order approve the agreement. Secs. 45.50.630 - 45.50.640 authorize the commissioner to hold hearings, establish hearing procedures, and adopt regulations. Sec. 45.50.645 sets out the misdemeanor penalty for violation of AS 45.50.610 - 45.50.650. or a regulation or an order adopted under AS 45.50.610 - 45.50.650. The penalty is the same as for violations of the state antitrust laws. Sec. 45.50.650 defines the terms: commissioner, fish fishermen, fish price agreement, and fish processor. Number 276 SENATOR TAYLOR asked if a group of fishermen organize a strike and hold themselves out for a specific price with a group of processors, are they in violation of antitrust laws. JIM FORBES of the Department of Law in Anchorage responded that those fishermen are exempt under federal law, but it is less clear that they are completely exempt under state law. Currently, the state law allows the fishermen to get together for the purpose of bargaining their product, but it doesn't necessarily give the absolute right to get together for the purpose of establishing a price. He added that that language has never been tested in court, and he does not know what a state court judge would say. He directed attention to Section 1 in the committee substitute and the original bill, and he said that change in state law would make it very clear that those fishermen are exempt under state law, bringing it in line with the federal exemption. Number 303 SENATOR TAYLOR asked if the processor is exempt from state law or federal law. JIM FORBES answered that as things stand today, as long as there is only one processor on the other side of the table, there is no problem. The problem arises when two or more processors get together in any way, shape, or form. Then there is a problem under both state and federal law. Senator Duncan's original bill gets rid of the problem under state law, but the processors would still have a problem under federal law. He said the bigger issue is how do the processors get a good price from the people that they sell to. SENATOR TAYLOR observed that the fishing community has always assumed that the processors had a great deal of power and influence over the price at which they sold. However, the processors are routinely dealing with people who are exempt from any of our laws because they are Japanese buyers or European buyers, and there is no law that prevents them from setting or fixing a price that they as a cartel or group, or even individually, will offer to American processors. JIM FORBES agreed that, in practice, that is exactly right. SENATOR TAYLOR voiced his concern that we should take both steps and provide some relief for processors too. MR. FORBES said it is a very long and difficult process coming up with an antitrust exemption under state law, but if the U.S. Congress were to address this issue, they could provide an antitrust exemption for the processors with language no more complicated than what is in Section 1 of the bill. Number 362 SENATOR LITTLE asked her understanding was correct that even the latest version of the bill doesn't help out with the federal issues. MR. FORBES responded that in his opinion, the current version of the bill doesn't go as far as it needs to go. The biggest problem in going to the state action group for providing federal antitrust immunities, is that you have got to accomplish the goal of at least establishing a minimum price that Alaska salmon or other seafood products would come in on the international market. Unless there is a mechanism in place, it enforces a minimum price across the board so that not even one processor can sell their products for less than that price, and it will defeat the purpose. Number 394 SENATOR DUNCAN asked Mr. Forbes if he felt it was worthwhile to go back to the original bill that grants the state antitrust exemption and then allows the opportunity to work with our Congressional delegation to see if federal language can be adopted, or the opportunity to work with the various interest groups and the Administration to put together a well thought-out agency. MR. FORBES answered that he was a little bit uncomfortable commenting on policy issues, but, from a antitrust enforcement point of view, it doesn't hurt anybody to pass the original bill even though it doesn't confer full federal antitrust immunity. He added that from a legal prospective, he can't see any reason not to take that first step. Number 442 SENATOR TAYLOR asked Mr. Forbes if was saying that the mechanism being provided in the committee substitute wouldn't work. MR. FORBES commended Mr. Utermohle's efforts in putting together the draft committee substitute, but he said he thinks it is just so far to go with this particular approach and he doesn't see how the Legislature could accomplish it in the time remaining. Number 488 RICK LAUBER, representing Pacific Seafood Processors Association, said he believes the original bill is a good first step and it should be pursued. There is some problem with the current restrictions placed on the processors and fishermen in negotiating. However, he does not support the committee substitute. Mr. Lauber said there are a number of things in the committee substitute that if they have do this in order to get the exemption, then the exemption is not worth it. He believes the system would be better if there were some relaxation of the antitrust laws to merely allow two or more processors to negotiate with fishermen in the same room at the same time. Mr. Lauber said there is a lot of talk about the control of the market by foreign buyers and of the investment and ownership by Japanese companies in the seafood business operating in Alaska. However, the largest company operating in Alaska is a company named Trident and it is 100 percent solely owned by Americans, and it is also the largest buyer and processor of salmon in Bristol Bay. Icecycle Seafoods is the second largest buyer and processor in Alaska and it is not only 100 percent owned by Americans, but it is largely owned by Alaskans. Nelbro Packing Company, which is large buyer in Bristol Bay, is a Canadian packing company. Ward Cove Packing Company, another large processor and buyer in Bristol Bay, is 100 percent owned by Americans. Ocean Beauty is another large salmon processor in Alaska and it, likewise, has no Japanese ownership in it. There are a couple of relatively large companies that are Japanese ownership, but the vast majority of salmon is purchased and processed by companies that are not owned or controlled by Japanese. Mr. Lauber stated that we don't have the market with the Japanese that we would like to have with them; they are very good businessmen and they are tough to deal with. However, the way it works in business, the buyer wants to buy low and we want to sell high, and we don't always get our way, he further stated. Mr. Lauber said times have changed, and Alaska no longer controls the salmon market; it happens to be dominated now by places like Norway and Chili. He said this is not the time to be coming around with some type of utopian concept, and he reiterated that the original bill is a good first step. TAPE 94-36, SIDE B Number 012 KATE TROLL, Executive Director of Southeast Alaska Seiners and a member of the executive committee for United Fishermen of Alaska, voiced her concerns with the committee substitute. She said the intent originally was to relax the atmosphere and to allow them to enter into long-term contract negotiations with their processors, but in looking over the committee substitute, she feels like they would be doing just the opposite. She said in looking at the original SB 306, she recognizes that to accomplish the objective it would still necessitate going to the federal government to get that type of exemption, but that seems to be the preferred approach as opposed to the concept in the committee substitute. Number 100 SENATOR TAYLOR said the original bill only addresses half of the problem because it relates to exempting only the fishermen, and he questioned if it shouldn't be requesting Congress to exempt the processors as well. MS. TROLL answered what they are trying to avoid is price fixing; they want to encourage price negotiations, and she thinks there would be concerns about trying to get into price fixing and monopoly if there was an exemption to allow processors to agree among themselves and set the price. Number 150 SENATOR DUNCAN said the second step is that if we can get the federal exemption as a result of this bill, then the processors can get together and talk with the fisherman. He stated passing SB 306 sends the message. Number 167 GEORGE UTERMOHLE clarified that there were two things that the committee substitute was trying to do. One was to allow groups of fishermen to talk to groups of processors about the prices that they'll exchange between themselves. The second was to increase the bargaining power of the producers and the manufacturers in the fishing industry in the state by allowing them to get together and put a combined front together to the people they market their product to in the national and international markets. RICK LAUBER said he believes processors can do that now on international markets, but not on domestic markets. JIM FORBES interjected that he was not aware of any specific exemption under U.S. federal law for that. Number 195 SENATOR HALFORD withdrew his motion to adopt the draft committee substitute and then moved to pass SB 306 out of committee with individual recommendations. Hearing no objection, it was so ordered. There being no further business to come before the committee, the meeting was adjourned at 3:00 p.m.