SENATE RESOURCES COMMITTEE January 28, 1998 3:35 P.M. MEMBERS PRESENT Senator Rick Halford, Chairman Senator Lyda Green, Vice Chairman Senator Loren Leman Senator Bert Sharp Senator Robin Taylor Senator John Torgerson Senator Georgianna Lincoln MEMBERS ABSENT Senator John Torgerson COMMITTEE CALENDAR SENATE JOINT RESOLUTION NO. 33 Supporting passage of S. 1221, the "American Fisheries Act," by the United States Congress. PREVIOUS SENATE COMMITTEE ACTION SJR 33 - No previous action to consider. WITNESS REGISTER Senator Jerry Mackie State Capitol Bldg. Juneau, AK 99811-1182 POSITION STATEMENT: Sponsor of SJR 33. Mr. Ron Dalby, Employment Manager American Seafood At-Sea Processors P.O. Box 1431 Palmer, AK 99645 POSITION STATEMENT: Opposed SJR 33. Ms. Michelle Ridgway 119 Seward St., #9 Juneau, AK 99801 POSITION STATEMENT: Supported SJR 33. Mr. Dave Benson, Director Government Affairs Tyson Seafoods P.O. Box 79021 Seattle, WA 98119 POSITION STATEMENT: Supported SJR 33. Mr. Joe Plesha Trident Seafoods 5303 Shilshole Ave. N.W. Seattle, WA 98107 POSITION STATEMENT: Supported SJR 33. Mr. Vince Curry Alaska Prime Resources Consultant P.O. Box 201429 Anchorage, AK POSITION STATEMENT: Opposed SJR 33. Mr. Henry Mitchell Mitchell, Inc./Tyson Seafoods 900 W. 5th Ave. Anchorage, AK 99502 POSITION STATEMENT: Supported SJR 33. Mr. Jim Ingram P.O. Box 851 Dillingham, AK 99576 POSITION STATEMENT: Opposed SJR 33. Mr. Al Burch Draggers Association P.O. Box 884 Kodiak, AK 99615 POSITION STATEMENT: Supported SJR 33. Mr. Eugene Asicksik, President Norton Sound Economic Development Council Kouskov St Kodiak, AK 99615 POSITION STATEMENT: Commented on SJR 33. Ms. Tammy Pound Unalaska, AK 99685 POSITION STATEMENT: Opposed SJR 33. Mr. Tiny Shasteen Unalaska, AK 99685 POSITION STATEMENT: Opposed SJR 33. Mr. Kenny Wilson P.O. Box 766 Dillingham, AK 99576 POSITION STATEMENT: Opposed SJR 33. Mr. Oliver Holm P.O. Box 3865 Kodiak, AK 99615 POSITION STATEMENT: Supported SJR 33. Mr. Jeff Stephan United Fisheremen's Marketing Association P.O. Box 2917 Kodiak, AK 99615 POSITION STATEMENT: Supported SJR 33. Mr. Chris Berns P.O. Box 26 Kodiak, AK 99615 POSITION STATEMENT: Supported SJR 33. Mr. Ron Selby, Mayor Kodiak, AK 99615 POSITION STATEMENT: Supported SJR 33. ACTION NARRATIVE TAPE 98-1, SIDE A Number 001 SJR 33 - SUPPORT AMERICAN FISHERIES ACT CHAIRMAN HALFORD called the Senate Resources Committee meeting to order at 3:35 p.m. and announced SJR 33 to be up for consideration. SENATOR MACKIE, sponsor of SJR 33, said he introduced this legislation to put Alaska on record in support of Congressional initiative S. 1221 or the "American Fisheries Act" which preserves American control of the commercial fisheries in our nation's 200 mile economic zone and improves the conservation of those resources. The act would increase the U.S. ownership standard for vessels fishing in U.S. waters and close a loophole in the commercial fishing reflagging prohibitions that allowed at least 14 additional large factory trawlers in waters off Alaska. The bill would also phase out all large factory ships whose size and harvesting power threaten conservation management goals and responsibilities. Alaskan fishermen and on shore processors have struggled to gain a foothold in these new and valuable fisheries off of our own shores. The State has directly assisted in this development through loans and tax incentives. It is estimated that at least $80 million was spent in bottomfish facilities alone in the 1986 to 1991 period of the State's tax incentive program. In addition to allowing expanded harvesting opportunities to Alaskan fishermen, this development has extended the processing season in many communities so that year-round jobs have replaced the seasonal, migrant worker prone jobs. The year-round operations of Alaska's seafood industry has further stabilized the economies of Alaska's major transshipment and commercial centers. The growth and presence of large, foreign controlled fishing fleets in U.S. waters contradicts the very purpose and intent of the original Magnuson-Stevens Act to control and Americanize the harvest of offshore fish resources and protect them from depletion. The current overcapitalization of the offshore harvesting capacity threatens both the resources and our Alaskan economic stake in its continued health. He believes that the success of Senator Stevens in the passage of S.1221 is of foremost importance to the economic interests of the State and its citizens. Moreover, it is critical to the long term vitality and sustainability of our offshore marine resources. SENATOR MACKIE said Senator Stevens was not able to attend this meeting via teleconference, but faxed a statement to be read into the record. It's dated January 28, 1998. "Dear Senator Mackie: Thank you for introducing SJR 33 in support of S. 1221, the American Fisheries Act, the bill Senator Murkowski and I introduced last September. Our bill has three primary purposes: (1) to implement a meaningful U.S.-ownership standard for U.S. fishing vessels; (2) to correct for misinterpretations of the 1987 Anti- reflagging Act; and (3) to impose a permanent moratorium on the entry of any more of the massive fishing vessels that have caused significant conservation and economic problems in our fisheries. As you move forward with the resolution, I thought it might be useful to explain a little of the history behind S. 1221. In 1976, Congress extended U.S. jurisdiction over fisheries to 200 miles through the Fishery Conservation and Management Act (what is now called the Magnuson-Stevens Act, or "MSA"). In addition to the goal of conserving the nation's fishery resources, the MSA gave U.S.-flag fishing vessels a priority over foreign vessels in the harvest of U.S. fishery resources. In 1986, Alaska fishing communities brought to the attention of Congress a loophole which allowed foreign investors to simply re-register their vessels to fly the U.S. flag and receive the priority to our fish. Congress acted quickly through the 1987 Commercial Fishing Industry Anti- Reflagging Act to try to close this. Under the Anti-Reflagging Act, a fishing vessel must meet a 51 percent ownership standard to qualify for the Coast Guard fishery endorsement that allows vessels to get the U.S. priority. Congress also attempted through the Anti-Reflagging Act to close a loophole which at the time allowed foreign-built vessels to qualify for U.S. fisheries using pieces of steel from former U.S. vessels and calling themselves "rebuilt." Unfortunately both the ownership and rebuild provisions of the Anti-Reflagging Act were significantly misinterpreted by the Coast Guard and the court system. These misinterpretations were among the reasons that I, Senator Murkowski, and Senators from New England, Southeast, and Gulf of Mexico states proposed S. 1221. Without a clear distinction between U.S.-controlled vessels and foreign-controlled vessels, there is no way to provide the U.S. priority required by federal law. In 1992, the D.C. Court of Appeals let stand an interpretation of the Anti-Reflagging Act that gave all vessels already in the U.S. fisheries by 1987 or "rebuilt" overseas by 1990, a permanent exemption to the U.S. ownership requirement. Congress had intended for a limited exemption in the Act to allow existing foreign owners to continue to operate vessels under U.S.-flag until they sold those vessels, but not for the vessels to be permanently exempted. S. 1221 would correct this by eliminating all exceptions to U.S. ownership and by requiring all U.S.-flag fishing vessels to comply within 18 months of enactment. The bill would also raise the ownership standard to 75 percent, the same standard used for other types of U.S.-flag vessels operated commercially in U.S. waters. This type of domestic harvest priority is embodied in Article 62 of the United Nations Conference on the Law of the Sea and is the recognized international law in the waters of every nation of the world. Both Japan and Norway, for instance have laws which provide a priority for their citizens in the fisheries off their shores. Consistent with the requirements of the Law of the Sea, our federal law requires that foreign vessels be allowed to harvest any portion of the allowable catch which U.S. vessels cannot harvest. In almost all U.S. fisheries, however, there are enough vessels above the 75 percent U.S.-ownership standard to harvest the entire catch. The limited exception to the foreign rebuild prohibition in the Anti-Reflagging Act was also badly misinterpreted. When the Act passed, Congress exempted from the prohibition any vessel for which a contract had already been signed, provided that the same person or entity who then held the contract also received delivery of the rebuilt vessel by 1990. Congress did not want to fuel speculative investment in U.S. hulls, or create transferable value in option contracts for U.S. hulls that could qualify to be "rebuilt" overseas into massive trawlers many times bigger than the original vessel. Congress intended for the exemption to apply only to about a half dozen vessels for which investments were known to already have been made. Under the Coast Guard's interpretation of the Act, however, an additional 18 vessels were allowed to be "rebuilt" into massive factory trawlers in foreign yards. All 18 of these vessels have been able to operate in the U.S. fisheries off Alaska - not subject to even the existing U.S. ownership requirement. S. 1221 would put the burden of solving the overcapitalization problems created by these 18 vessels on the foreign owners of these vessels. The bill specifies that any of the 18 vessels that were not U.S.-owned as of September 25, 1997 can only remain in the fisheries (as U.S. fishing vessels) if they become 75 percent U.S. owned, and if the fishery license for a vessel of equal or greater size is retired. This is less extreme than simply kicking them out of the fisheries - it gives them a chance to sell stock or otherwise cure their foreign ownership and remain in the fisheries if another vessel in the fisheries, which might include another of the 18 vessels, surrenders its fisheries license. Opponents have suggested that S. 1221 will kick all factory trawlers out of the U.S. fisheries. This is not true. The bill will allow any factory trawler that entered the fisheries other than through the foreign rebuild misinterpretation to remain in the fisheries if it complies with the 75 percent U.S. ownership standard within 18 months. The practical effect will be a reduction in the factory trawler fleet of between 5 and 10 vessels, with the remaining 50 or so factory trawlers allowed to stay in the fisheries for the useful life of the vessel. No new vessels above 165 feet, 3,000 shaft horsepower, or 750 tons would be allowed to enter the fisheries. Certain opponents of S. 1221 have tried to argue that factory trawlers and other fishing vessels above the size thresholds in S. 1221 are clean fishing operations. Factory trawler operators in the mid-water pollock fishery, for instance, point to their discard rate of 4.3 percent in 1996 (the most recent year for which National Marine Fisheries Service statistics are available). They correctly argue that this is a relatively low rate compared to other fisheries (due primarily to the fact that mid-water pollock do not tend to co-mingle with other species). However, their rate is still more than three times the rate of smaller vessels in that same fishery -- the catcher vessels in the mid-water pollock fishery (most of which are below the size thresholds of S. 1221) had a discard rate of only 1.4 percent in 1996! It's also important to note that: (1) even at a discard rate of 4.3 percent, mid-water pollock factory trawlers discarded 41.8 million pounds of usable fish in 1996; (2) that these same vessles operate in other fisheries where their inherently high discard rates have even greater negative effects; and (3) their recovery rate for human- consumption quality seafood is a third less than the recovery rate for the same pollock processed on shore. Even as factory trawlers begin making fish meal under the North Pacific "full retention" plan, less benefit is being derived by Alaska and the nation than if those pollock were processed on shore into seafood that could be eaten by people. It was an eye-opener for many Alaskans recently when some Seattle- based factory trawler operators finally changed tactics after they failed in 1996 to stop our federal amendments to protect fishing communities, reduce bycatch and waste, and create a permanent fishery allocation for western Alaska villages. The Seattle-based companies finally dropped their law suit against the State's landing taxes and began to try to expand shared benefits with Alaska. Thanks again for your efforts in the State Legislature to express support for this bill that is so important to Alaska. With best wishes, Cordially, Ted Stevens." Number 220 SENATOR LEMAN agreed with Senator Mackie that this subject is hard to understand. He also said that the on-shore processing has not been as good as he was led to believe it was going to be nor was the off-shore processing as bad as he was led to believe. He is fully supportive of the Alaska fleet, especially the Alaskan owners who want to trawl and have conflicts with fully utilizing their vessels. He is also concerned with ensuring that the on-shore processors and ownership of them be examined to determine if we are benefiting Alaska to the optimum extent possible. SENATOR LINCOLN asked if S. 1221 was in its final form or was it still being amended. SENATOR MACKIE replied that he didn't believe it was in final form. This is its introductory form. Mr. Trevor McCabe, Senator Stevens' Chief Staff Member, said that this issue is very high priority and they expect hearings to start in March. SENATOR TAYLOR hoped there was a way to modify SJR 33 to take care of problems with NMFS attempting to utilize exclusive fish habitat zones. They have expanded their definition based upon the changes Senator Stevens put in the Magnuson-Stevens Act. This might have some cumulative effect on particulate matter flowing down the river and into the Gulf. SENATOR MACKIE responded that he would pass that on to Senator Stevens who said he would be happy to talk to any Committee members on the phone personally on this issue. CHAIRMAN HALFORD said he didn't care to do anything that is going to help anybody, big boat or small boat, drag a net on the bottom. The next thing that is important to him is bycatch; then he's concerned with where the impact goes in terms of communities and the State of Alaska as a whole. He hoped that Senator Stevens was after the maximum benefit to Alaska with a minimum damage to the bottom. SENATOR LEMAN added that he wanted to minimize the interception of those stocks that have been so controversial in Alaska with other user groups, especially as it impacts our management schemes within State waters. SENATOR MACKIE appreciated those concerns, but said he is trying to stay narrowly focused on this legislation which deals with foreign ownership loopholes. Number 322 MR. RON DALBY, Employment Manager, American Seafood At-Sea Processors, said the job loss, especially in western Alaska would be immediate - 650 jobs this year and over 1,000 jobs next year. CHAIRMAN HALFORD asked how many of those jobs were held by Alaskans and western Alaskans. MR. DALBY answered about 225 of the 650 Alaskan jobs are at sea. Of the 225, 79 came from Alaskan villages west of Dillingham. The "Arctic Storm" hires are centered around Bristol Bay and probably have a much higher percentage of western Alaskans. Half the balance of the 650 jobs are from southeastern towns. CHAIRMAN HALFORD asked if he was telling him that an overwhelming majority of the 650 people are Alaskans. MR. DALBY said the 650 people are Alaskans. SENATOR LINCOLN asked how many people total are out on the vessel now. MR. DALBY answered about 4,000. SENATOR LINCOLN commented that meant 650 Alaskans out of 4,000. MR. DALBY agreed and reiterated that the 650 Alaskan jobs would go away. SENATOR HALFORD asked why all the Alaskan jobs go away and not the other jobs. MR. DALBY clarified that all 4,000 would be put out of business, but 650 of them are Alaskans. He explained that the number of Alaskan hires would go to 1,000 next year at the current rate. He had 700 applications for the 225 openings at his company this year. Other contributions the off-shore processors have made to Alaska besides the jobs are the steady stream of revenue paid to vendors throughout the State, which is about $35 million from his company alone. They spent it on fuel from the dock at Dutch Harbor and dry dock overhauls at Ketchikan. And they paid nearly $1.5 million in landing taxes for pollock in 1997. In the off-season they are able to station some of their boats to provide alternative markets for salmon fishermen in Bristol Bay for value-added processing, for example. He expects they will pay $6 - $8 million to Alaskans working at sea this year. They offer more than jobs; they offer careers promoting from within the company. These jobs also fit really well with a rural life style in Alaska allowing different seasons to be free for subsistence fishing, berry picking, etc. MR. DALBY said the at-sea processors have put more than $108 million worth of CDQ money into Alaska in the last six years. Most of these western Alaskan communities are partnered with off-shore interests. SENATOR LEMAN asked if a person could make about $40,000 in an abbreviated season. MR. DALBY said the numbers were fairly good and that the processing crews are paid in crew shares. Number 427 SENATOR LEMAN commented that some people wonder if people who make that kind of money should have a priority over people from another part of the State who don't earn that much. SENATOR MACKIE said some people assumed the entire factory trawl at sea processing fleet was being eliminated, which this bill clearly doesn't do; it affects about 5 - 10 vessels. MR. DALBY replied that the boats that would be eliminated are the largest ones with the largest crews. So if it's not the whole 650, it will be the lion's share of them. SENATOR LINCOLN asked about the 6 - $8 million per year in wages. MR. DALBY clarified that he was just talking about American Seafoods with that figure, not the whole fleet. SENATOR LINCOLN asked what his companys' figures were for Alaskan hire. MR. DALBY answered 280 out of the 650. SENATOR LINCOLN asked what his company's total employment was. MR. DALBY replied that it was about 1,800. SENATOR LINCOLN remarked that that was less than 20 percent Alaskan. She asked to see a matrix of his company's Alaska hire. She asked what they did with the incidental bycatch. MR. DALBY responded that their bycatch is about 1 + - 2 percent. According to skippers, about half of that is jellyfish. Federal law says they are supposed to throw that over the side, but the at- sea fleet has asked for permission and does process the odd salmon or halibut that might come aboard for donation to food banks. There are zero discards throughout the industry this year because of the regulation that went into effect. SENATOR LINCOLN asked what else they left for Alaskans other than the 650 jobs and the fish landing tax. MR. DALBY replied that they spend $35 million on various vendors throughout the State. They buy millions of gallons of fuel at Dutch Harbor and spend several million per year at the Ketchikan Ship Yard. The fleet as a whole spends about $90 million in Alaska. SENATOR LINCOLN asked where was his point of hire. MR. DALBY answered that contract signings take place in Seattle. He offers jobs in Alaska, provides air fare to Seattle, and when their contracts end and the ship docks back in Seattle after the season, the company provides a ticket home. SENATOR LINCOLN asked why it was necessary to go to Seattle to sign their contracts. MR.DALBY said part of it is logistics. Right now it's the most convenient. As Alaska hire becomes more and more, they will look at shifting some of that. SENATOR LINCOLN asked if the Committee passed this bill, was he concerned with what the final Steven's bill would look like. MR. DALBY replied that he was and recommended waiting to see what the final version looked like. SENATOR TAYLOR said he has a constituent who works out of Unalaska and he was very upset about the fact that Alaskan long shoremen were not being used to move supplies off of his vessels. MR. DALBY replied that they unload at Dutch Harbor. SENATOR TAYLOR asked what percentage of his company was either Alaska or U.S. owned. MR. DALBY replied that the outright ownership was primarily Norwegian. SENATOR SHARP asked what the difference in quality was between factory and shore based processors. MR. DALBY answered that at-sea processed fish tends to bring a higher price since the product is processed right away. For shore plants, the product may be on a boat for a day or two before it's delivered. SENATOR SHARP asked if his ships did any bottom dragging. MR. DALBY answered that a couple of vessels will do a cod trip after the pollock "A" season is over, but it's not the traditional dragging net, although it's going close to the bottom. Three or four vessels will participate in a hake fishery off of Washington and Oregon in May and June, which is similar to Bering Sea pollock. SENATOR SHARP asked if smaller ships were just as capable as bigger ships of efficiently doing a mid-ocean trawl. MR. DALBY replied that they essentially drag the same gear. CHAIRMAN HALFORD asked who was doing more of what. MR. DALBY said there wasn't any difference to his knowledge. TAPE 98-1, SIDE B Number 565 CHAIRMAN HALFORD asked if there was any difference in damage to the bottom. MR. DALBY replied that he didn't think it was an issue. SENATOR LINCOLN asked how many vessels they have in Alaskan waters. MR. DALBY replied 15 vessels. SENATOR LINCOLN asked for exact information about how many vessels were fishing and where, and for the percentage of the Board of Directors that was American. Number 565 MS. MICHELLE RIDGWAY, Marine biologist, said she wanted to comment on the benefits of the American Fisheries Act (AFA) and that she strongly supported SJR 33. Senator Stevens' bill effectively addresses the issue of reducing fishing capacity in the Bering Sea which has positive conservation benefits like limiting the number of vessels which can be more effectively controlled. Reducing the intensity of the fishing effort will provide managers more options for monitoring bycatch and adapting management strategy to protect marine mammals as well as provide better in-season assessment of other fishing activities. The AFA also limits the maximum size, tonnage and horsepower of vessels allowed in the groundfish fishery and, since horsepower limits the size of net these boats can fish, it can be used to limit the pace of the fishery. Collectively, these gear and vessel limitations will lead to better management of the public's lucrative fishery resources and reduce the risk of overfishing. MS. RIDGWAY also commented that they don't have good data in bycatch in the various fisheries right now. The last data analyzed was from 1995. ADF&G's funding was reduced and 1996 - 97 hasn't been done. She thought it would cost around $10 - $15,000. SENATOR TAYLOR asked who she worked for. MS. RIDGWAY replied she has a small consulting business in Juneau. SENATOR TAYLOR said he and Senator Sharp are on the Fish and Game subcommittee for Finance and thought ADF&G should have crunched those numbers. MR. DAVE BENSON, Director, Government Affairs, Tyson Seafoods, said he fished for a living for 18 years, about 10 years trawling, and supported SJR 33. AFA is designed to finally and fully accomplish the goals of the Magnuson-Stevens Act passed in 1976. It established exclusive U.S. management jurisdiction over all fishery resources within the U.S. 200 mile zone and gave American fishermen the first priority to harvest them. Customary with international law, the U.S. established a policy of exercising sovereign rights over fishery resources. Unfortunately, since 1987 this policy has been progressively reversed. Today, foreign controlled vessels harvest more than half the Bering Sea pollock quota. The AFA addresses the biggest problem today in this industry of overcapitalization. There are many negative consequences for the economics and safety of the industry. SENATOR GREEN asked him to define overcapitalization. MR. BENSON replied too many boats chasing too few fish. The AFA would directly address overcapitalization in four ways. First, Title 1 would assure that once and for all only bonafide U.S. citizens will benefit from the preference policy. Reduction in capacity should be achieved first by eliminating foreign fishing that is now conducted by foreign controlled companies under the guise of an American flag. The bill would increase from 51 percent to 75 percent the required level of U.S. citizenship of vessels operating in U.S. fisheries and, more importantly, would require 75 percent of the control of the vessels to be held by bonafide U.S. citizens. Additionally, the bill would establish a vigorous enforcement regime to prevent further circumvention of legislative intent by foreign controlled companies interested in preserving their ill-gotten American preference. Second, Title 2 would require those 18 foreign rebuilt high- capacity vessels that entered the U.S. fisheries through a loophole created by a misinterpretation of the Act to retire from the fishery. This means about 5 - 10 vessels, not the entire fleet, and a reduction of 20 - 30 percent of the current capacity of the Bering Sea fleet. Title 3 would prevent vessels that now operate under a foreign flag in foreign fisheries, such as Russia, from reentering U.S. fisheries. He estimates four or five large factory trawlers and approximately 13 large crab catcher processors will be prevented from entering or reentering North Pacific fisheries - three of which are owned by his company. Title 3 would also prevent the replacement of vessels over 165 ft. This is known as the phase out provision of large vessels, since they will be allowed to serve out their useful lives, but will not be replaced except in cases of fire or sinking. Over time, this will dramatically reduce the size of the fleet. Opponents of this bill say that it will benefit Tyson at the expense of its competitors, but that's not true since they will lose three crab catcher processors in Russia that won't be able to return to U.S. crab fisheries and they will be affected by the phase out provisions because the majority of their fleet is over the 165 ft. threshold. Tyson has been consolidating its fleet and has been reinvesting millions in the Kodiak shore plant and wouldn't be doing that if they had plans to take over the at-sea pollock sector. If industry consolidation and control is a concern, he suggested looking at the Norwegian controlled at-sea company that now has the distinction of owning the largest fleet in the U.S. Hopefully, the AFA will give the Coast Guard greater authority to enforce American control of vessels engaged in fishing. In spite of current regulations, they are aware that many factory trawlers are still controlled by foreign fish masters and have foreign citizens controlling the top management positions of these vessels. Tyson currently employees only U.S. citizens in those positions. Opponents will say that thousands of jobs will be lost, but he submitted that the same amount of fish will be caught although by fewer vessels and by fewer crew, but the jobs that remain will be proportionately longer, certainly more than 70 days per year. If you make the choice to decapitalize, then you eliminate some jobs. You can't have it both ways. His company started an Alaska hire campaign in 1995, increasing it by 40 percent that year and have increased it even more since then. They have about 800 employed at sea and about 250 people employed in Kodiak. There are over 25 percent Alaskans in their work force. SENATOR SHARP asked how many foreign nationals were working on board. MR. BENSON said he didn't know, but would find out for him. SENATOR SHARP asked how many other boats were affected around the U.S. MR. BENSON replied that there was concern about the tuna fleet and there were exemptions made in the bill for them, because they are primarily a high-seas fleet. He added that one third of the at-sea processing fleet supports this bill including two members of the At-Sea Processors Association. CHAIRMAN HALFORD asked about CDQ support. MR. BENSON replied that Tyson is a partner with coastal villages on the expanded CDQ groundfish that hasn't been implemented yet and are also in the process of negotiating a 1998 pollock CDQ arrangement with coastal villages. They have submitted a response to a request for proposals to coastal villages for 99 -2000 pollock cycle. He explained that the difficulty with processing in villages is that they have to pay a catcher vessel to go out and catch the fish whereas a factory trawler catches and processes right there. It's a matter of economy. If the intent is for the CDQ villages to make the best arrangements, that's been the best kind of arrangement. SENATOR GREEN asked if there was any limitation to the number of vessels that go out in that fishery and how that was determined. MR. BENSON explained that there was a moratorium on new entry established a couple of years ago by the North Pacific Fisheries Council that is due to expire at the end of this year. In its place they have instituted a system called limited license. So, effectively there will be no new entrants in the North Pacific. In other parts of the country, that doesn't exist and Senator Stevens' bill addresses that in all parts of the country for large vessels. SENATOR GREEN asked if that means that the total number of vessels in Alaska in that industry would be 7 - 18 less. MR. BENSON replied that was correct and he thought that would provide the conservation benefit because some of those vessels are fishing on the bottom. The discard and bycatch figures the Committee heard were only for the mid-water pollock fishery and did not address other fisheries. SENATOR GREEN asked if S. 1221 passed, would the boats that were permitted at day one have to reapply every year. MR. BENSON replied that if you were permitted on September 25, 1997 when Senator Stevens introduced his bill, you would be fine, but every year you will have to prove that you have 75 percent U.S. citizenship and control of the company. Small vessels under 32 ft. can get into the fishery, but it's already been established that there are no more new entrants for large vessels in the North Pacific. CHAIRMAN HALFORD asked if there was any safety concern with setting limits on size of vessels that go out into the Bering Sea. MR. BENSON replied aside from weather conditions, he thought safety was an issue because of the derby style of fishing that goes on during an opening. Bigger is not necessarily better; not having a choice about when to fish was an issue. He thought a smaller-more orderly fishery would be easier to manage and therefore be safer. Number 297 MR. JOE PLESHA, Trident Seafoods, said they are 100 percent American owned and operate shore-based processing plants throughout Alaska. Trident was one of the first companies to try to Americanize the groundfish resources off of Alaska buying the first Boder fillet machine that was used in Alaska that makes pollock and cod into a marketable product. They strongly support SJR 33. He informed the Committee in the late 1960s and early 70s foreign boats dominated the bottom fisheries in our waters. In 1971, Senator Stevens was the first member of Congress to introduce legislation that expanded U.S. federal jurisdiction out to 200 miles. That legislation went nowhere until 1974, when Senator Magnuson helped him get it going. In 1976, the Fisheries Conservation and Management Act was enacted and it created a preference for American flagged vessels. Under this Act, the American fishing industry developed to the point that it was utilizing 100 percent of all of the groundfish off of Alaska. Then it was determined that it was legal for a foreign owned corporation to flag a vessel as a U.S. vessel and just take over the fishery. Senator Stevens was the very first senator in 1987 to introduce legislation which prohibited the reflagging of the fishing vessels. That legislation had a grandfather provision for people who had made substantial financial investments based on the status quo and that provision was greatly abused and misinterpreted. The legislation made it clear that if any vessel was ever sold that was grandfathered, it would be required to be owned by a bonafide U.S. corporation - a corporation that was not only incorporated in the U.S., but owned by U.S. citizens. This intent was never carried forward and the bill allowed foreign owned fishing vessels to extend their domination of our fisheries to the point where at least half of the groundfish is harvested by foreign owned vessels again. The condition now is worse than any time since the Magnuson-Stevens Act was passed 25 years ago. That is the reason Senator Stevens introduced S. 1221 to reincorporate the Americanization component of the Magnuson-Stevens Act. This is not an anti-factory trawler bill, MR. PLESHA emphasized. There are factory trawlers that built their vessels in the U.S. with the understanding that that's what Congress was encouraging. They are U.S. owned corporations and they will continue to operate. The employment figures are important; it's important that this industry hire Alaskans and the misconception is that this bill somehow will decrease the amount of Alaskans that are hired. He feared that the Alaskan hire issue was being used as a political pawn. MR. PLESHA exhibited a letter from a crew member during the B season which pointed out that out of a crew of 130, only two were Alaskans. And of the 16 vessels in the fleet, he alleged that there were more Norwegians working for the company than Alaskans. This is the kind of practice Senator Stevens wants to stop. He said that last time he checked, Trident paid over $9 million in taxes to the State of Alaska and a major component of that was from their groundfish operations at Akutan and Sand Point. Their investments in Alaska for groundfish processing is over $120 million. They don't have a choice of moving those to Russia. If they fail, it will tell investors not to invest in Alaska because they won't have the flexibility to go elsewhere if things don't work out. The City of Akutan has passed a resolution supporting Senator Stevens' legislative effort. The Aleutians East Borough has also passed a similar resolution. The CDQ group they are partnered with, the Aleutian Pribiloff Community Development Association, has passed a resolution supporting this effort, also. He said if this issue comes down to who can spend the most money on lobbyists, they will fail, because Shell Roki, one of the principal owners of American Seafoods' parent corporation, is one of the richest men in Norway, worth about $700 million. In closing, he said that Senator Stevens has displayed a remarkable instinct for what's beneficial for the United States and what's beneficial to this State and Trident Seafoods supports him 110 percent. Number 188 SENATOR LINCOLN said one of the things Senator Stevens said is that the recovery rate for human consumption quality seafood is a third less than the recovery for the same pollock processed on shore, even as fish trawlers began making fish meal under the North Pacific full retention plan. Less benefit is derived by Alaska and the nation, if that pollock were processed on shore into seafood that could be eaten by people. She asked him to comment on this. MR. PLESHA said he didn't want to criticize factory trawlers, but the truth is that the recovery of a factory trawler vessel to a primary product is substantially less than the recovery that shore plants receive for the same product. The reasons are fundamental. They pay for the fish that are delivered to their plant, so there is incentive to make sure they get the most revenue from each pound of fish that's delivered to them. They have space at their plant and enough equipment to make sure they get maximum recovery. Often times factory trawlers lack the space for bunks for employees and the machinery to process all that they catch when they catch it. He said the differences are fairly dramatic. SENATOR MACKIE asked if there were lots of opportunities from U.S. owned shore-based operations to do joint ventures with CDQ communities for them to realize the benefits of those opportunities. MR. PLESHA replied yes, and if this legislation passes, he thought there would be numerous opportunities for CDQ groups who want to participate in the off-shore industry. Only the St. Paul Island Group that is partnered with American Seafoods would be opposed to this legislation because they would be directly affected. Other groups would not be impacted by the American ownership or the American build requirements. MR. MACKIE asked which CDQ group gets a negative impact. MR. PLESHA explained that American Seafoods, the factory-trawler company that is foreign-owned, would be negatively impacted by Senator Stevens' legislation. SENATOR SHARP asked where globally are the other pollock fisheries that could sustain the large trawlers. MR. PLESHA replied that these trawlers would likely go to Russia or South American where they have a system of selling their fishing rights. So they would have to somehow pay compensation for the right to fish in those waters. SENATOR LEMAN asked what he knew of foreign ownership of on-shore plants and how that's impacting the industry and Alaskan economy and asked him to comment on his company's Alaskan hire. MR. PLESHA responded that there is foreign ownership of shore plants, but he emphasized that Congress, the U.S. government, and the State of Alaska have always encouraged investment in shore- based processing facilities by foreign companies. In fact, the foreign companies in Dutch Harbor who own shore plants were almost told they had to invest if they wanted to maintain access to their off-shore fishing quota in the mid-1980s. Contrast that with the factory trawlers who were told we now want to eliminate all foreign ownership and then a specific law was passed to make sure that couldn't happen. There were efforts to circumvent that national policy by taking advantage of the grandfather exception in the Anti-Reflagging Act. Secondly, he pointed out that this country in the international legal community has a long history of limiting foreign ownership of fishing vessels and vessels in general. But that long-standing precedent isn't the case for on-shore investments. He thought there was a real difference between resource extraction and processing of that resource. MR. PLESHA said they had never tried to make a political issue of Alaskan hire and that is suddenly something that is being politicized and he thought people were being used to that regard. They have an agreement with their CDQ group that anyone they provide to them who is able to work will be found a job. Their client in Akutan has over 50 salaried voters registered in the City of Akutan. They have two people from the village, but the others have lived and worked there so long that they are now registered to vote. There needs to be an effort to recruit Alaskans in this industry whether Senator Stevens' bill passes or not. TAPE 98-2, SIDE A Number 001 MR. VINCE CURRY, Alaska Prime Resources Consultant, said he thought Alaska benefits by the fact that we have viable and strong on-shore and off-shore processing industries. He thought this was essentially a debate about which of the dominant processors can acquire the pollock to be delivered either to their plant or to their factory trawler operation. He urged the Committee to consider that we have a fully developed fishery in the North Pacific, the Bering Sea pollock fishery, which is the most valuable fishery we have in Alaska right now. He thought it was good for the State to have two sectors that are competing as hard as they can right now for lawmakers' attention and relationships with Alaskans. Data from the Department of Labor shows that the seafood processing industry historically both off-shore and on-shore has been one of the worst hirers of Alaskans in any industry. The targeted vessels by this bill are the key producers for the off-shore fleet. It is a difficult thing for Alaska to endorse a course of conduct that will remove investments that have been made with Alaskans who have joined in the enterprise. An excerpt from the license limitation document profiles who owns the vessels in the groundfish fishery. It does it by 60 ft, 60-125 ft., and above 125 ft. vessel lengths. Virtually every vessel that participates in the Bering Sea pollock fishery is over 125 ft. There is zero ownership in Alaska in the over 125 ft. category. This supports the notion that in terms of the Bering Sea harvesting this is not an Alaskan issue - unless you look at things like the Norton Sound purchase of a factory trawler company where they are harvesting the fish. The 60 and 60 - 125 ft. boats are largely in the Gulf of Alaska which is a non-issue for this bill, because the law of the federally managed fishery prohibits any factory trawler from coming in and harvesting pollock in the Gulf of Alaska. So, it's a non-issue in terms of Senator Mackie's constituents in Kodiak. In addition, he has charts reflecting the ownership of the vessels over 125 ft. from 1992 - 97 which show that the shore plants have been acquiring a greater share in ownership of the vessels that they depend on to deliver them pollock. He emphasized again that this is a processors' battle and asked legislators to look where the Alaskan interests rise and fall within the controversy. An article from Fishing News International of June 97 reflects that Westward Seafood's purchase of a factory trawler called the Alaska Command is being converted into a catcher boat. These are fine boats and are the kind you need to efficiently harvest pollock and bring it to a plant. There is nothing inherently evil about a factory trawler because the same kinds of vessels and gear are being used to bring the same resource to the processor on-shore. He said it is a constant game within the fishery to "throw mud at another group to make them look bad." Finally, one of the conclusions in a report from DCR&A on on-shore off-shore allocation of the pollock CDQ program says that there appears to be a substantial wage differential between each sector with greater earning opportunities to CDQ residents in the off- shore sector. The wages paid in the on-shore plants are often barely above minimum wage. Often residents of a community where a plant is located do not participate in the employment opportunities these plants provide due to the high cost of living in rural Alaska. Therefore, a large part of the on-shore plant's work force is imported from other communities, states, or nations. He thought we should pause and consider what kinds of opportunities there are in the pollock industry for Alaskans. Because of the complexity of this issue, it's hard to hear testimony from a few lobbyists from the on shore and off shore plants and conclude that you know what will be in the best interests of Alaska. He urged them to make a full scale inquiry into this matter. S. 1221 will have many hearings and there will likely be modifications to the bill. When it's in its final form, they could then properly consider whether it's something to endorse. SENATOR MACKIE asked how many CDQ groups he knew that would be affected by this bill. MR. CURRY answered that the Norton Sound one would be affected. SENATOR MACKIE interrupted to say that he talked to a person a Norton Sound today who said they wouldn't be affected because they are American owned. MR. CURRY responded if plants no longer have to compete for CDQ quota, then the quota that's out there will fall and that is one way all CDQ communities will be affected. Secondly, other support businesses would be affected without people returning to the villages. SENATOR MACKIE said he understood that there was only one group that would be affected because it is foreign-owned. MR. CURRY repeated that the issues are complex and we don't know or understand all the ramifications yet. MR. HENRY MITCHELL, Mitchell Inc., said he is here in conjunction with the Tyson Seafood Group and has been with the Bering Sea Fishermen's Association, which in the early 80's was one of the main proponents attacking the major issues - the dominance of the foreign fishery and the manipulation of the products of that fishery to do things that were bad long-term. He briefly reiterated the history of this issue and said S. 1221 would only acomplish an element of decapitalization which is very important. If there is reduction in capitalization, the participants who are left there will still be major players. He thought there would be at least a measure of moving toward sanity in these fisheries. Many of the bigger boats that were owned by other entities went bankrupt. A great portion of those boats were absorbed by American Seafoods which was moving forward. If the Stevens's legislation passes in its present form, it is a measure of decapitalization and will slow down the fishery. It will not deny opportunities for the CDQ groups to prosper. Back in the early 80's when they were proposing ways to get villagers from western Alaska into these fisheries, nobody wanted to help them out. Once it was orchestrated that they get this quota, everyone realized the value. He didn't believe the value of their CDQ quotas would be impacted by the passage of this bill. If this bill passes, it will allow for a slower fishery, one which allows for participants to spend more time watching out for bycatch hot spots which would have significant benefits in its reduction. He said these fisheries change over time and the only thing they are really going to know is that they will be conducted by smaller vessels, but it will be easier to stay within the parameters of successful fishing and bycatch limitations. He thought many of the effects were being overblown by many of the participants. Many of the vessels that are there now are not legitimately there; they snuck in through the back door and it isn't right. Number 308 MR. JIM INGRAM, Bristol Bay commercial fisherman, opposed SJR 33. Off shore processors provide his area with more salmon markets. According to his son, the off shore schedule is good, the pay is excellent, and the benefits are sufficient. He praised the off- shore processors for their strict drug policy requirements. Many young people refuse to work in at shore plants. He asked who would be liable for the lives and safety of the crew on a boat under 165 feet with a load of polluck in a 100 knot wind. He asked if this would end the competition of the bidding process for CDQ shares and eliminate employment opportunities. MR. AL BURCH, Kodiak vessel owner, said his two boats, 86 ft. and 96 ft., are engaged in the pollock fishery at this time. He supported the remarks made by Mr. Benson, Mr. Plesha, and Mr. Mitchell. He thought testimony was stretching the resolution out of shape and it was very concise and focused on a particular problem that needs to be solved. MR. HAROLD JONES, a commercial fisherman for 51 years, said he has a 96 ft. trawler and has seen a tremendous influx of factory trawlers that cut their fisheries down from the original 10 months out of a year down to 50 - 70 days. He heartily supported SJR 33. MR. EUGENE ASICKSIK, President, Norton Sound Economic Development Council (NSEDC), said they have purchased 50 percent of Glacier Fish Co. which owns two mid-water factory trawlers. He expressed concerns with this bill, although he supported the Magnuson-Stevens Act. He said they are watching this bill and he is concerned with what is happening to the fish. MS. TAMMY POUND, Dutch Harbor resident, said she wasn't employed by either sector or the pollock industry, but the livelihood of her family is derived directly from an off shore fishing company. The legislation will negatively impact her family with the loss of a living wage job. She thought this would affect many families in Dutch Harbor and the State. She thought the bottom line was which companies will get the fish and the dollar. MR. TINY SHASTEEN agreed with Senator Leman that the off-shore fleet is not as bad as its made out to be and the on-shore fleet isn't as good as it's made out to be. Many people own both on- shore and off-shore processors, he pointed out. If this is a conservation issue and they limit boats now, he asked who would they limit in the future? If it's an Americanization issue, he though we have healthy diversity with fish going to markets all over the world and some good competition. MR. KENNY WILSON said he was worried about the 165 ft. limit because the larger vessels employ a lot of young people who live in western Alaska. If they loose their jobs, it would put a lot of hardship on their families. He said a larger ship was safer in 100 knot winds. MR. OLIVER HOLM said he thought the factory trawlers affect the health of the shore plants, which is what Alaska fishermen are linked to and they need to be healthy in order for us to have good markets. This reflagging loophole will let more boats in than should have been allowed and the factory trawler fleet has been overcapitalized to the detriment of the shore-side industry. There is a long history of outside groups buying out small segments of the Alaskan population to the detriment of the State and policies as a whole. He strongly supported SJR 33. MR. JEFF STEPHAN, United Fishermen's Marketing Association, supported SJR 33 for all the reasons they have heard, generally, with the idea that it was a loophole that was meant to be closed. MR. CHRIS BERNS supported SJR 33, especially line 9. He said we kicked the Canadians out of our fisheries and we can do it to the Norweigans. He supported more local hire on the Slope. MAYOR RON SELBY, Kodiak Borough, said that some of the testimony has been overblown. It has no jobs impact, no CDQ impact, no on- shore/off-shore impact. It's a matter of 5 - 10 vessels that illegally entered the fishery in the first place and taking them out of the fishery. With the American Reflagging Act they tried real hard to keep the foreign vessels out. Without these boats, the fishery will still be overcapitalized, but it is a place to start. That's all this does. It doesn't change the off-shore quota allocation. It's just that 50 boats will be catching the fish now and not 60. He didn't see a lot of Alaskans losing their jobs over this issue. CHAIRMAN HALFORD thanked everyone for their testimony and adjourned the meeting at 5:55 p.m.