SPEAKERS       CONTENTS       INSERTS    
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49–404 CC

1998

OVERSIGHT HEARING ON UNITED STATES OWNERSHIP OF FISHING VESSELS

OVERSIGHT HEARING

before the

SUBCOMMITTEE ON FISHERIES CONSERVATION, WILDLIFE AND OCEANS

of the

COMMITTEE ON RESOURCES
HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

SECOND SESSION

JUNE 4, 1998, WASHINGTON, DC

Serial No. 105–98

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Printed for the use of the Committee on Resources

Available via the World Wide Web: http://www.access.gpo.gov/congress/house
or
Committee address: http://www.house.gov/resources

COMMITTEE ON RESOURCES

DON YOUNG, Alaska, Chairman

W.J. (BILLY) TAUZIN, Louisiana
JAMES V. HANSEN, Utah
JIM SAXTON, New Jersey
ELTON GALLEGLY, California
JOHN J. DUNCAN, Jr., Tennessee
JOEL HEFLEY, Colorado
JOHN T. DOOLITTLE, California
WAYNE T. GILCHREST, Maryland
KEN CALVERT, California
RICHARD W. POMBO, California
BARBARA CUBIN, Wyoming
HELEN CHENOWETH, Idaho
LINDA SMITH, Washington
GEORGE P. RADANOVICH, California
WALTER B. JONES, Jr., North Carolina
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WILLIAM M. (MAC) THORNBERRY, Texas
JOHN SHADEGG, Arizona
JOHN E. ENSIGN, Nevada
ROBERT F. SMITH, Oregon
CHRIS CANNON, Utah
KEVIN BRADY, Texas
JOHN PETERSON, Pennsylvania
RICK HILL, Montana
BOB SCHAFFER, Colorado
JIM GIBBONS, Nevada
MICHAEL D. CRAPO, Idaho

GEORGE MILLER, California
EDWARD J. MARKEY, Massachusetts
NICK J. RAHALL II, West Virginia
BRUCE F. VENTO, Minnesota
DALE E. KILDEE, Michigan
PETER A. DeFAZIO, Oregon
ENI F.H. FALEOMAVAEGA, American Samoa
NEIL ABERCROMBIE, Hawaii
SOLOMON P. ORTIZ, Texas
OWEN B. PICKETT, Virginia
FRANK PALLONE, Jr., New Jersey
CALVIN M. DOOLEY, California
CARLOS A. ROMERO-BARCELÓ, Puerto Rico
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MAURICE D. HINCHEY, New York
ROBERT A. UNDERWOOD, Guam
SAM FARR, California
PATRICK J. KENNEDY, Rhode Island
ADAM SMITH, Washington
WILLIAM D. DELAHUNT, Massachusetts
CHRIS JOHN, Louisiana
DONNA CHRISTIAN-GREEN, Virgin Islands
RON KIND, Wisconsin
LLOYD DOGGETT, Texas

LLOYD A. JONES, Chief of Staff
ELIZABETH MEGGINSON, Chief Counsel
CHRISTINE KENNEDY, Chief Clerk/Administrator
JOHN LAWRENCE, Democratic Staff Director

Subcommittee on Fisheries Conservation, Wildlife and Oceans
JIM SAXTON, New Jersey, Chairman

W.J. (BILLY) TAUZIN, Louisiana
WAYNE T. GILCHREST, Maryland
WALTER B. JONES, Jr., North Carolina
JOHN PETERSON, Pennsylvania
MICHAEL D. CRAPO, Idaho

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FRANK PALLONE, Jr., New Jersey
NEIL ABERCROMBIE, Hawaii
SOLOMON P. ORTIZ, Texas
SAM FARR, California
PATRICK J. KENNEDY, Rhode Island

HARRY BURROUGHS, Staff Director
DAVE WHALEY, Legislative Staff
JEAN FLEMMA, Democratic Legislative Staff

C O N T E N T S

    Hearing held June 4, 1998

Statement of Members:
Pallone, Jr., Hon. Frank, a Representative in Congress from the State of New Jersey
Prepared statement of
Saxton, Hon. Jim, a Representative in Congress from the State of New Jersey
Prepared statement of
Young, Hon. Don, a Representative in Congress from the State of Alaska
Prepared statement of

Statement of Witnesses:
Asicksik, Eugene, President, Norton Sound Economic Development Corporation
Prepared statement of
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Bohannon, Frank, Vice-President, United Catcher Boats
Prepared statement of
Evans, David, Deputy Director, National Marine Fisheries Service, Department of Commerce
Prepared statement of
Gilmore, Jim, Director of Public Affairs, At-Sea Processors Association
Prepared statement of
Kirk, Michael, Cooper, Carvin and Rosenthal
Prepared statement of
Leape, Gerald, Greenpeace
Prepared statement of
North, Rear Admiral Robert C., U.S. Coast Guard, Department of Transportation, accompanied by Thomas Willis, United States Coast Guard
Prepared statement of
Plesha, Joe, General Counsel, Trident Seafoods Corporation
Prepared statement of
Stevens, Hon. Ted, a Senator in Congress from the State of Alaska
Prepared statement of

Additional material supplied:
Alaska Ocean Seafood Limited Partnership, prepared statement of
Fraser, Dave, Captain, FV Muir Milach, prepared statement of
Giles, Don, President, Icicle Seafoods, Inc., prepared statement of
The Alaska Crab Coalition, prepared statement of
The Capacity Reduction and Buyback (''CRAB'') Group, prepared statement of
Hendricks, Jeff, General Manager, Alaska Ocean Seafood Limited Partnership, prepared statement of
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TCW Special Credits, Los Angeles, California, prepared statement of

Communications submitted:
Assessment of the World's Fishing Fleet 1991-1997, A Report to Greenpeace International, John Fitzpatrick and Chris Newton

OVERSIGHT HEARING ON UNITED STATES OWNERSHIP OF FISHING VESSELS

THURSDAY, JUNE 4, 1998
House of Representatives, Subcommittee on Fisheries Conservation, Wildlife, and Oceans, Committee on Resources, Washington, DC.
    The Subcommittee met, pursuant to other business, at 10:43 a.m., in room 1324, Longworth House Office Building, Hon. Jim Saxton (chairman of the Subcommittee) presiding.
    Mr. SAXTON. I ask you now, with consent, that Mr. Pombo and Mrs. Chenoweth be invited to sit on the panel, inasmuch as they are not members of the Subcommittee.
    The Subcommittee on Fisheries Conservation, Wildlife, and Oceans will come to order for purposes of a hearing.
STATEMENT OF HON. JIM SAXTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY
    Mr. SAXTON. Today we are discussing the American ownership of fishing vessels under the Magnuson-Stevens Fishery Conservation and Management Act and the Commercial Fishing Industry Vessel Anti-Reflagging Act of 1987.
    The Magnuson-Stevens Act has largely achieved the goal of eliminating foreign fishing in the EEZ and in developing domestic fisheries. In addition to this primarily successful legislation, Congress has taken other steps to foster further Americanization of the fleet. One bill to achieve this was the Commercial Fishing Industry Vessel Anti-Reflagging Act of 1987. This legislation created a new ownership standard, required that vessels engaged in the U.S. fishery be built in the United States, and required that specific manning requirements by American crews be maintained.
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    Two primary principles of this legislation, the American ownership standard and the American built standard, included grandfather or savings clauses. This was to allow vessel owners who were already in the fishery, or those who had made substantial investments to rebuild vessels in foreign shipyards, to maintain their eligibility to participate in U.S. fisheries.
    The Coast Guard, under the jurisdiction of the Department of Transportation, was charged with the implementing of these new requirements for fishing vessels. Differences in the interpretation of the two grandfather clauses by the Coast Guard has led to unfulfilled goals for the legislation. And that is why the Subcommittee is meeting today to analyze this issue.
    I am especially interested in the subject of U.S. ownership after this Subcommittee's scrutiny of the ATLANTIC STAR.
    Welcome to our many distinguished witnesses, and I look forward to their testimony.
    [The prepared statement of Mr. Saxton follows:]
STATEMENT OF HON. JIM SAXTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY
    Good morning. Today we are discussing the American ownership of fishing vessels under the Magnuson-Stevens Fishery Conservation and Management Act and the Commercial Fishing Industry Vessel Anti-Reflagging Act of 1987.
    The Magnuson-Stevens Act has achieved the goal of eliminating foreign fishing in the EEZ and developing domestic fisheries. In addition to this largely successful legislation, Congress has taken other steps to foster further Americanization of the fleet. One bill to achieve this was the Commercial Fishing Industry Vessel Anti-Reflagging Act of 1987. This legislation created a new ownership standard, required that vessels engaged in the U.S. fishery be built in the United States, and required that specific manning requirements by American crews be maintained.
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    Two primary principles in the legislation, the American ownership standard and the American built standard, included grandfather or ''savings'' clauses. This was to allow vessel owners who were already in the fishery—or those who had made substantial investment to build or rebuild vessels in foreign shipyards—to maintain their eligibility to participate in U.S. fisheries.
    The Coast Guard, under the jurisdiction of the Department of Transportation, was charged with implementing these new requirements for fishing vessels. Differences in the interpretation of the two grandfather clauses by the Coast Guard has led to unfulfilled goals of the legislation. And that is why the Subcommittee is meeting to analyze this issue. I am especially interested in the subject of U.S. ownership after this Subcommittee's scrutiny of the ATLANTIC STAR. Welcome to our many distinguished witnesses I look forward to your testimony.

    Mr. SAXTON. Before I turn to Mr. Young to introduce our first witness, let me ask Mr. Pallone if he has any opening statement.
STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY
    Mr. PALLONE. Thank you, Mr. Chairman. I want to thank you for having this oversight hearing today. You mentioned the Commercial Fishing Industry Vessel Anti-Reflagging Act which was signed into law in 1988. And that required that only vessels which are owned by a majority of U.S. interests can be U.S. flagged and eligible to fish in the U.S. Exclusive Economic Zone. And the law also required that fish processing vessels entering the U.S. fishery be U.S. built, and that vessels rebuilt abroad be prohibited from participating in the U.S. Fishing industry. The Coast Guard was given the responsibility for enforcing these requirements. Unfortunately, loopholes in the law have allowed several large vessels to be rebuilt overseas, thereby circumventing the law and going against congressional intent.
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    According to a 1990 GAO report, the Anti-Reflagging Act's American control provisions have had little impact on ensuring that U.S. fishery operations are controlled by U.S. citizens. And this is a result of the Coast Guard's interpretation allowing the grandfather exemption to remain with a vessel even if the vessel is subsequently sold to a foreign-owned company. Consequently, should the Congress desire another result, it may wish to consider changes to the existing legislation.
    Now I understand that Senator Stevens will testify before us, and he has introduced the American Fisheries Act in the Senate, S. 1221, which would increase the minimum U.S. ownership requirement for U.S. flagged fishing vessels to 75 percent in order to fly the U.S. flag and qualify for fishery endorsements. This bill would also phaseout the use of fishing vessels greater than 165 feet in length and prohibit vessels rebuilt abroad from participating in the U.S. fishing industry.
    As I understand it—and the Senator will probably talk more about it—his bill is primarily a fisheries allocation bill for the North Pacific U.S. EEZ. And while the bill would likely have a limited impact on fishing vessels off the Atlantic Coast, it could dramatically change the make-up of fishing vessels on the West Coast and the Bering Sea.
    I believe that U.S. flagged vessels should be primarily U.S. owned. The American citizens, not foreign interests, should be the ones to catch fish in our waters. And we should ensure that our important fishery resources are adequately protected for the current and future generations.
    I understand that today's hearing is not meant to debate the merits of the Senator's bill, but rather to shed light on what progress has been made, if any, in increasing the American control of fishing vessels in our EEZ.
    And again, I just want to thank you for holding this hearing, and I certainly look forward to the statement that Senator Stevens will be making.
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    [The prepared statement of Mr. Pallone Jr., follows:]
STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY
    Mr. Chairman,
    Thank you for holding this oversight hearing today on United States Ownership of Fishing Vessels. As you know, our Committee has jurisdiction over responsibly managing our fishery resources under the Magnuson-Stevens Act.
    The Commercial Fishing Industry Vessel Anti-Reflagging Act was signed into law in 1988. It required that only vessels which are owned by a majority of U.S. interests can be U.S. flagged and eligible to fish in the U.S. Exclusive Economic Zone. The law also required that fish processing vessels entering the U.S. fishery be U.S. built and that vessels rebuilt abroad be prohibited from participating in the U.S. fishing industry. The Coast Guard was given the responsibility for enforcing these requirements. Unfortunately, loopholes in the law have allowed several large vessels to be rebuilt overseas, thereby circumventing the law and going against Congressional intent.
    According to a 1990 General Accounting Office report, ''The Anti-Reflagging Act's American control provisions have had little impact on ensuring that U.S. fishery operations are controlled by U.S. citizens. This is a result of the Coast Guard's interpretation allowing the grandfather exemption to remain with a vessel even if the vessel is subsequently sold to a foreign-owned company. Consequently, should the Congress desire another result, it may wish to consider changes to the existing legislation.''
    Senator Stevens who will testify before us shortly, has introduced the American Fisheries Act in the Senate. S. 1221 would increase the minimum U.S. ownership requirement for U.S. flagged fishing vessels to 75 percent in order to fly the U.S. flag and qualify for fishery endorsements. The bill would also phase out the use of fishing vessels greater than 165 feet in length and prohibit vessels rebuilt abroad from participating in the U.S. fishing industry.
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    As I understand it, S. 1221 is primarily a fisheries allocation bill for the North Pacific U.S. EEZ. And while the bill would likely have a limited impact on fishing vessels off the Atlantic Coast, it could dramatically change the make up of fishing vessels on the West Coast and Bering Sea. I believe that U.S. flagged vessels should be primarily U.S. owned. American citizens, not foreign interests, should be the ones to catch fish in our waters. We must also ensure that our important fishery resources are adequately protected for the current and future generations.
    Today's hearing is not meant to debate the merits of the Stevens Bill, but rather to shed light on what progress has been made, if any, in increasing the American control of fishing vessels in our EEZ.
    Thank you again, Mr. Chairman, for holding this hearing. I look forward to hearing from Senator Stevens, the Coast Guard, National Marine Fisheries Service, and others today on this matter.

    Mr. SAXTON. Thank you, Mr. Pallone.
    I ask unanimous consent that all Subcommittee members be permitted to include their opening statements in the record; without objection. And for purposes of introduction of our colleague from the Senate and an opening statement——
    Mr. MILLER. I just want to ask——
    Mr. SAXTON. The gentleman from California.
    Mr. MILLER. I just want to join with Mr. Pallone and others to say that I believe that this hearing raises very, very serious issues about the goal of the Americanization of this resource and other issues about the capitalization of the fishing resources here.
    And I want to thank you for holding this hearing. It's an important hearing.
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STATEMENT OF HON. DON YOUNG, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ALASKA
    Chairman YOUNG. Mr. Chairman, I appreciate you holding these hearings, and I will go through my opening statements as quickly as possible.
    Mr. SAXTON. May I just interrupt you——
    Chairman YOUNG. Yes.
    Mr. SAXTON. [continuing] long enough to ask unanimous consent that Mr. Smith be permitted to sit on the panel as much as he's not a member?
    Chairman YOUNG. That's fine.
    Mr. SAXTON. Thank you.
    Chairman YOUNG. Now, may I continue?
    Mr. SAXTON. Please.
    Chairman YOUNG. Thank you.
    [Laughter.]
    I appreciate it.
    Before I introduce our esteemed witness and the author of S. 1221—which we're not holding the hearing on today—I just thank you, Mr. Chairman, for holding this hearing. It's deeply important to me, and I believe the fisheries, itself.
    There are many who may not know the Magnuson-Stevens Act originated in this Committee. Of course, now it's named the Magnuson-Stevens Act, and it was enacted in 1976. This Act gives Americans control of the fisheries. That was the first step; it was the right step.
    And then we passed the Commercial Fishing Industry Vessel Anti-Reflagging Act in 1987 to make sure that American owned and controlled vessels harvested our fishery resources. I specifically supported this bill because I believed it was important to have U.S. owned and U.S. manned vessels harvesting U.S. resources.
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    While we thought both laws were successful in Americanizing the fisheries, it appears we weren't as successful as we thought. In trying to be fair to those vessel owners who had already made substantial investment in fishing vessels—either those vessels already in the fisheries or those being rebuilt in foreign shipyards—Congress created grandfather clauses which the Coast Guard has now misinterpreted and which have potentially allowed the opposite results to occur.
    It now appears the Coast Guard has ruled that any vessel which was already in the fishery at the time of the passage of the Act could be sold to foreign interests. I'm deeply disappointed in the Coast Guard, although I have always been a strong supporter of it. Someone needs some better legal advice. And according to the GAO report in 1990, that Coast Guard ruling could lead to 29,000 fishing vessels that were in the fisheries at the time of the Anti-Reflagging Act's passage to be sold to foreign interests. This is clearly not what we intended.
    I was the sponsor of the ownership amendment at the Merchant Marine and Fisheries Committee markup. Existing law at the time allowed foreign entities to set up American corporations, even if they were foreign controlled, and own fishing vessels harvesting fish in U.S. waters. The intent of my amendment was to require a majority of voting stock to be in the hands of individuals who are American citizens. The Coast Guard ruling has created an opposite effect.
    In addition, the interpretation of the grandfather clause which allowed a certain number of vessels to be rebuilt in foreign shipyards and retain their eligibility to fish in U.S. waters may have had unintended consequences. There have been allegations that a number of speculative contracts were written to allow vessels to be rebuilt and brought to the U.S. fisheries when there had been no intent to do so prior to the grandfather clause, and the Coast Guard's interpretation of that clause.
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    I am also concerned that the Coast Guard did not seem to think that changes in the specifications of the vessels being rebuilt mattered. In several documented cases, vessels went to shipyards with the intent of being converted to fish tender vessels which do not harvest fish. And when they came out of that shipyard, low and behold, they were large factory trawlers certain to harvest fish.
    I also believe the Coast Guard missed the boat on interpreting the ownership requirement by allowing vessels which entered foreign shipyards as U.S.-owned projects to leave the shipyard and enter U.S. fisheries as totally foreign-owned projects.
    Most of the vessels which entered the U.S. fisheries through these grandfather clauses are now involved in the Bering Sea groundfish fishery. There is an overcapitalization problem in this fishery. I don't think anyone, including the witnesses, will debate that issue. I have tried not to assess blame nor have I claimed that eliminating all factory trawlers is the solution to that problem. There is an overcapitalization problem.
    Having said that, it is important that bycatch be further reduced in this fishery. Now I've talked to all sides in this issue, urged them to set down, stop the free-for-all, and stop the bycatch. So far, I've not had a proposal other than from the CDQ community. And by the way, I want to remind the people, the CDQ program was adamantly opposed by certain people in this audience when we tried to pass it. And now they're hiding behind the program. Very frankly, I might want to look at the CDQ program, and maybe we ought to CDQ the whole fishery. Let's really get working together where we don't have a free-for-all, and where we do maintain the shots, and we protect this fishery.
    This is not about allocation; this is about protecting the Bering Sea. I'm deeply disturbed that some people would think that the current situation is perfectly alright. That we don't have to worry about the sea; we can continue to catch these fish. We can continue to do harm to other species other than what they're targeted. I think this is terribly incorrect.
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    Again, most of you in this room have talked to me some time or other, and I've suggested you sit down and talk this over. You have not done so. Now I'm going to tell you right now, this issue is not going away. This issue is going to be with us. We're not talking about S. 1221, but we're talking about legislation that will be supported universally.
    This trawl fleet has to understand they're small in numbers; they're not large in numbers. Yes, they have a few dollars, and they have a lot of ships. But, in fact, the American public wants this industry to clean its act up.
    I'm hoping that the witnesses today will take and address the issues I've just suggested—and even those issues in S. 1221, although we're not debating that bill today.
    And the last issue, may I say one thing? For those honored guests in this Committee today, this is not a property taking. Fishing has always been at the privilege of a State or the Federal Government. It has never been a right in any coastal area in the United States. It has always been a prerogative of the State or the prerogative of the Federal Government, and it is not a taking. And to have someone that has been a hired gun write a legal opinion deeply disturbs me. A hired gun, not one that doesn't have an interest, but somebody that's been employed, has been hired, and now writes an opinion saying it's a taking. I also have another little group of people called the National Public Policy Research. And I don't know who in the world they are. God help us; there are so many of these people around that say, ''the bill in Congress, S. 1221, the American Fisheries Act managed to, all by itself, to violate the first three of the four abuses above.'' And I won't read those. ''The bill sponsored by Alaska's Ted Stevens would throw 1,500 Americans in Washington State out of work.'' Are we worried about jobs, or are we worried about the species? Are we worried about jobs, or are we worried about a continued ability not only to harvest but do it correctly?
    That's the role of this Committee. If we continue to do what's been done, we'll destroy the fisheries. The jobs will be lost, and we'll lose a great part of our history if we don't do something.
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    And, Mr. Chairman, I want to compliment you again for having this hearing today. And I'm a little bit excited now, but if you think I'm excited, watch my Senator.
    [Laughter.]
    [The prepared statement of Mr. Young follows:]
STATEMENT OF HON. DON YOUNG, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ALASKA
    Mr. Chairman, I appreciate you holding this hearing today on the American ownership of fishing vessels. This is an issue that has been debated and addressed by Congress since the 1970's.
    The Magnuson-Stevens Fishery Conservation and Management Act, enacted in 1976, gave first preference to American-flag vessels for the harvesting of fishery resources in U.S. waters. This was the first step in replacing foreign fleets in U.S. waters with our own fishing vessels.
    We then passed the Commercial Fishing Industry Vessel Anti-Reflagging Act of 1987 to make sure that American owned and controlled vessels harvested our fishery resources. I specifically supported this bill because I believed it was important to have U.S. owned and U.S. manned vessels harvesting U.S. resources.
    While we thought both laws were successful in Americanizing the fisheries, it appears we weren't as successful as we thought. In trying to be fair to those vessel owners who had already made substantial investment in fishing vessels—either already in the fisheries or being rebuilt in foreign shipyards—Congress created grandfather clauses which the Coast Guard has now mis-interpreted which has potentially allowed the opposite results to occur.
    It now appears that the Coast Guard has ruled that any vessel which was already in the fishery can be sold to foreign interests. According to a GAO report in 1990, that could lead to 29,000 fishing vessels that were in the fishery at the time of the Anti-Reflagging Act's passage to be sold to foreign interests. That is clearly not what Congress intended. I was the sponsor of the ownership amendment at the Merchant Marine & Fisheries Committee markup. Existing law at the time allowed foreign entities to set up American corporations, even if they were foreign controlled, and own fishing vessels harvesting fish in U.S. waters. The intent of my amendment was to require a majority of voting stock to be in the hands of individuals who are American citizens. The Coast Guard ruling has created the opposite effect.
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    In addition, the grandfather clause which allowed a certain number of vessels to be rebuilt in foreign shipyards and retain their eligibility to fish in U.S. waters may have had unintended consequences. There have been allegations that a number of speculative contracts were written to allow vessels to be rebuilt and brought into U.S. fisheries when there had been no intent to do so prior to the grandfather clause and the Coast Guard's interpretation of that clause.
    I am also concerned that the Coast Guard did not seem to think that changes in the specifications of the vessels being rebuilt did not matter. In several cases, I understand vessels went into shipyards with the intent of being converted to fish tender vessels which do not harvest fish. When they came out of the shipyard they were large factory trawlers which certainly do harvest fish.
    I also believe the Coast Guard missed the boat on interpreting the ownership requirements, by allowing vessels which entered foreign shipyards as U.S.-owned projects to leave the shipyard and enter U.S. fisheries as totally foreign-owned projects.
    Most of the vessels which entered the U.S. fisheries through these grandfather clauses are now involved in the Bering Sea groundfish fishery. There is an overcapitalization problem in this fishery. I don't think anyone here will debate that issue. I have tried not to assess blame nor have I claimed that eliminating factory trawlers is the solution to that problem.
    Having said that, it is important that bycatch be further reduced in this fishery. I am not happy that in some years this fishery is closed not because the target species quota is met, but rather because the bycatch quota is reached. The amount of salmon, crab and halibut that are wasted in this fishery is criminal. I understand the CDQ vessels are required to meet more stringent conservation requirements when they fish in this fishery. That is something else we need to look into.
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    I suspect we will hear more about these issues from the witnesses and I expect the Coast Guard will detail why they followed the interpretations that allowed these things to happen.
    A number of people have attempted to turn this hearing into a debate on S. 1221, introduced by Senator Stevens. This is not a hearing on that legislation and, at this point, no legislation has been introduced on the House side. It is clear that the Stevens bill does raise some interesting questions about why the goals of Americanizing the fisheries were not realized, but this hearing is not on that bill.
    In addition, some people have questioned whether fishing permits and licenses are considered property and have tried to turn this into a debate on property rights. Let me very clearly state that fishing permits and licenses do not give the permit holder any right to fishery resources in U.S. waters. Permits are a privilege that allow the permit holder to attempt to harvest fish. There are no guarantees beyond that. No one here should question my leadership in the area of defending personal property rights but in this case there is no claim of property associated with fishing permits or licenses.
    I look forward to hearing today's witnesses and engaging in a frank discussion of why the goals of Americanizing the U.S. fisheries has not been fully realized.
    Thank you, Mr. Chairman.

    Chairman YOUNG. At this time, I'd like to introduce my dear and good friend that has been with me for many, many years, that knows this issue probably better than anybody in this room—including myself—and that works very hard to try to make sure, not only Alaska, but all of the seas are protected. This is our Senior Senator. To look at him, I'm beginning to wonder if he's not taking something—well, there's new drugs out on the market nowadays——
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    [Laughter.]
    [continuing] but I tell you——
    [Laughter.]
    He is the person that has introduced the legislation. He'd like to talk about this issue. It's my honor to introduce our Senior Senator, Senator Ted Stevens.
    Senator, welcome.
    Mr. SAXTON. Senator, thank you for being here. Why don't you proceed as you see fit. And we've allocated enough time for you to make your case thoroughly. So why don't you proceed?
STATEMENT OF HON. TED STEVENS, A U.S. SENATOR IN CONGRESS FROM THE STATE OF ALASKA
    Senator STEVENS. Mr. Chairman, thank you very much. And, Congressman Young, Mr. Chairman, I appreciate your comment. You know as I look around this room I've been sort of——
    Chairman YOUNG. Senator, pull that mike just a little closer to you.
    Senator STEVENS. I've been reminiscing a little bit because 40 years ago, as legislative counsel to the Interior Department, I came up here and spent many hours, many days, in this room as we fought for statehood. And to now appear once again before you and know that our Congressman is the chairman of this Full Committee, it's just something that is hard to believe. Those days of 40 years ago are too bright in my mind really. I'm liable to start reminiscing about them, but I hope I won't.
    And I do thank you all for your statements. Mr. Pallone, I'd like to hear your comments. And Mr. Miller, George, I hope you will go into this very deeply because it's a very serious issue. It's of great importance, I think, to the United States fisheries as a whole. And it's obvious, from what Congressman Young has said, it's extremely important to the fisheries off our shore. And I hope by the time you conclude these hearings, Mr. Chairman, you will be convinced—as I was—that legislation in this area is very much needed.
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    I brought a series of charts that my staff has prepared to illustrate why Congress passed the Anti-Reflagging Act. And I've got to tell you, ladies and gentlemen, I've just returned from a flight to California and back in less than 24 hours because of a serious illness of one of my children—which was a very successful operation, thank God. But if I'm a little slow this morning and not as hot as Congressman Young would like to have me be, it's because I'm slightly restrained by a little lack of sleep.
    From 1984 to 1987, the foreign-flag fishing was phased out under the Magnuson Act. In 1986, we realized that nothing in our Federal law prevented foreign-flag vessels from simply reflagging to become U.S. flags. So, we introduced and proceeded with the Commercial Fishing Industry Vessel Anti-Reflagging Act of 1987. Its goals were to require the U.S. control of fishing vessels that fly the U.S. flag, and to stop foreign construction of U.S. flag vessels under the existing interpretation of the term ''rebuild,'' and to require U.S. flag fishing vessels to carry U.S. crews.
    Of these goals, only the U.S. crew requirement was achieved. We did not stop foreign interests from owning and controlling U.S. vessels. In fact, as Congressman Young has stated, over 29,000 of the 33,000 U.S. flag fishing vessels in existence are not subject to any controlling interest requirement. Let me say it again: 29,000 of the 33,000 are not required to be controlled by the United States even though they fly—by United States citizens—even though they fly the U.S. flag.
    We also failed to stop the massive Norwegian ship-building program, which took place between 1987 and 1990, that allowed 20 of the world's largest fishing vessels ever built to come into our fisheries and fish in our exclusive zone as American ships. Today, half of the Nation's largest fishery, which is the Bering Sea pollock, continues to be harvested by foreign interests on foreign-build vessels that are not subject to the U.S.-controlling interest standard.
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    Now if you look at this chart, if you look at the later years, you'll see that those are the white bars—they're labeled domestic. If we had it shaded for those that are really foreign controlled, it would be more than half. So, while the Magnuson Act has worked and we have Americanized the fisheries, we have not Americanized the vessels.
    So, on September 25, I introduced the American Fisheries Act that some of you have mentioned, S. 1221. Senators from just about every region of the country joined in support of this measure. The co-sponsors now include Senator Breaux from the Gulf, Senator Hollings from the Southeast, Senator Gregg from Northeast, Senator Wyden from the West Coast, and my colleague, Senator Mikulski. This bill would eliminate the foreign ownership loophole that the Coast Guard interpreted into the Anti-Reflagging Act. Congress provided a grandfather clause in that Act to allow vessels whose owners did not meet the new 51 percent standard, to continue to fish until that vessel is sold. Once the vessel is sold, it was intended to have to comply with the controlling interest standard.
    The Coast Guard misinterpreted that grandfather clause to run with the vessel—the legal concept of running with the vessel, to go with the vessel as the vessel is sold. And the matter was taken to court, and the DC Court of Appeals upheld the Coast Guard reading, but all sides agreed that the practical result was absurd giving the congressional primary intent of eliminating foreign control over our EEZ fishing.
    The next chart I have is chart 2, indicates why I believe the Coast Guard took the position it did. In the 3 months after the Anti-Reflagging Act became law, the Coast Guard Vessel Documentation Office began issuing letter rulings that granted permanent U.S. ownership waivers. The letter rulings were signed by the Chief of the Vessel Documentation Office, who—according to the Coast Guard at the time—was not required to get any other clearance to issue such letters. About three-quarters of the rulings were issued in response to requests from two attorneys, one who was a former employee of the Documentation Office. As the chart shows, by the time a Coast Guard legal opinion was prepared in December 1988, the Documentation Chief had granted at least nine permanent waivers. This December 1998 legal analysis, prepared by the Chief of the Coast Guard Maritime and International Law Division, correctly concluded that the grandfather provision could only be interpreted to apply to the current owner of a vessel. Nevertheless, the Documentation Office continued to issue letter rulings granting permanent exemptions.
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    Almost 2 years later, on November 16, 1990, the Chief of the Coast Guard Operational Law Enforcement Division wrote a memorandum asking why the earlier legal opinion was not being followed. By that time, the Documentation Office had issued at least 13 permanent waivers. For reasons still not clear, the Coast Guard ultimately ignored the Maritime and International Law Division memo, the previous legal opinions I have mentioned, and in its final rule 2 years after the letter rulings, the Coast Guard read the grandfather provision once again to run with the vessel. We have since learned that the Coast Guard did not provide the Maritime and International Law Division opinion to either the district or appeal courts during the lawsuits.
    At our Senate hearing in March, I called on the General Accounting Office to investigate these Coast Guard actions. The GAO will deliver its report to our committee—the Congress committee and to you—in mid-July, and I expect it will be helpful in ensuring that similar mistakes are not made again by the Coast Guard. For instance, the Coast Guard informed us that the letter rulings were permitted by the Administrative Procedures Act. And I suggest that that might be a subject, Mr. Chairman, you should look into, as we do, as to whether or not that should be changed. For one official to be able to issue a decision which binds the United States forever to recognize a grandfather and running with the ship until it expires, contrary to the intent of Congress, because of a provision that's been misinterpreted in the Administrative Procedures Act, to me, means that Act should be clarified.
    S. 1221 does not seek to make those changes, and we will look into that later. This bill seeks to correct the negative effects caused by the Coast Guard's actions which I have mentioned. S. 1221 would eliminate all exemptions to the U.S.-controlling interest requirement and would raise the standard from 51 percent up to 75 percent. Now that happens to be the same standard that applies to all other vessels operating commercially in U.S. waters. There must be at least 75 percent ownership to operate a U.S. flag vessel in U.S. waters.
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    And unlike the Jones Act, the system under our fisheries law is really a preference system for U.S. fishing industry interests, not an outright prohibition on foreign boats. The Magnuson Act—and I also note that it's the Law of the Sea concept, too—require that foreign flag vessels be allowed to harvest the portion of any U.S. catch that U.S. flag vessels cannot harvest. It would be possible, in other words, to bring in a foreign flag vessel to harvest a portion of our EEZ allocations if the U.S. flags could not harvest that portion. That is not the situation, however, in this area that we're talking about because these are foreign vessels that have been flagged as U.S. in order to pose as part of the Americanization effort. Without a meaningful controlling interest standard, there is no way to give U.S. interests the fishing preference envisioned under our law. Our law provides a preference for U.S. vessels, and so does the Law of the Sea. It provides that each nation can give a preference to its vessel.
    Under our bill, S. 1221, vessel owners would have 18 months to comply with the new controlling interest standard and could be sold or otherwise transferred to meet those requirements. The Maritime Administration, instead of the Coast Guard, would review company documents for compliance. MarAd has already expertise in this kind of work through the Federal loan and subsidy programs for ocean carriers that it administers. And to my knowledge, we've not had any conflict over their rulings.
    Fishing vessels under 100 tons, which tend to be owner-operated, would continue to demonstrate compliance as they do. Now there is a simple form that they file. The fishing vessels over 100 tons, of which there are about 3,500, would be reviewed annually, as well as whenever a new owner acquires more than 5 percent ownership of the vessel.
    Gentlemen and ladies, even if we enact that bill, S. 1221, in the Congress today, it would be a quarter of a century before we would achieve Americanization as envisioned by the 1976 Magnuson Act. And again, in my judgment, everything in S. 1221 is in compliance with the Law of the Sea concepts.
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    Now let me turn to foreign rebuilds. A second, major component of S. 1221 would correct the Coast Guard's misinterpretation of the foreign rebuild grandfather provision. Prior to the Anti-Reflagging Act, Federal law allowed U.S. flag vessels to be rebuilt in foreign shipyards. Under the Coast Guard's interpretation of that rebuild law, a vessel could be essentially built in a foreign shipyard as long as any portion of that vessel came from a U.S. hull. Now to illustrate how extreme the rebuild could be, I want you to look at this next board that's there by my young assistant. It's chart 3; it shows the vessel ACONA, which was a 74-foot, 167-ton vessel fishing in U.S. waters, before being rebuilt in Norway. There it is, that little vessel right in the center tied up—I don't know which dock it is; looks like it's tied up in Cordova. It could be Kodiak.
    Now take a look at this next one; this is chart 4, the ACONA after being rebuilt. A 74-foot, 167-ton vessel is now 252 feet, weighs over 5,000 tons, and is now the ACONA. The only thing left of the—and it's now called the AMERICAN TRIUMPH, it was the ACONA. The only thing left of the ACONA is a piece of steel in the side. I'm told there may be two pieces of steels, one in each side. Now that's a rebuild. It really is a totally new Norwegian vessel brought in and now poses as an American vessel. And it is flagged as an American vessel. This is one of about 20 of the so-called rebuilt vessels that now fish in the Bering Sea off our State.
    The Anti-Reflagging Act amended Title 46 to prohibit U.S. flag vessels from being rebuilt overseas. Unfortunately, it included this grandfather clause we've mentioned for six vessels which we knew of at the time for which legitimate investments had been made to rebuild those vessels. The grandfather provision allowed a vessel to be rebuilt in a foreign yard and still qualify for the U.S. flag if the U.S. hull was purchased by July 28, 1987; a contract for rebuilding was signed within 6 months after the enactment of the Anti-Reflagging Act; and the vessel was redelivered to the owner by July 28, 1990.
    Now, Congress specifically required the rebuilt vessel to be delivered to the owner of the U.S. hull in order to discourage speculators from buying U.S. hulls during the time we were working on this bill. Unfortunately, the Coast Guard did not require the same owner to receive the rebuilt vessel. And the speculation we sought to prevent became quite great. So, we're not talking really about American fishermen. We're not talking about people who have jobs on American boats. We're talking about stealth foreign vessels in our waters flying the U.S. flag.
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    Now, the next chart, No. 5, shows the speculative contracts for U.S. hulls that were signed between the original House markup which was scheduled for June 9, 1987, and the rescheduled markup which was held on July 28, 1987, which became the cutoff dates for contracts on U.S. hulls that could be rebuilt. Contracts for at least 13 vessels were signed in those 6 weeks, including 4 on the day before the markup.
    As you can see on the chart, like the ACONA, these vessels were rebuilt into massive fishing vessels. And the chart shows the extent to which that rebuilding took place. It's just staggering, the changes. A rebuilt vessel, when they first started going overseas—they went overseas primarily because they were putting in new types of accommodations for the fishermen. And they're what we call the hotel rebuilds. They were sent over to have these new rooms added that they redesigned, and they came back, and they're essentially the same hull. If you look at this, you will find what happened to these vessels as they went from 500 tons or less than 500 tons to almost 5,000 tons. I think this is one of the scandals of the fishing industry, what happened during this period.
    S. 1221—and incidently, I'm not going to rest until I get to the bottom of that scandal. I believe there was real fraud. I believe there were improper actions taken. And I intend to see that suits are brought and we, under the Freedom of Information, get the information that will show the conspiracy that existed at that time by a group of speculators to take advantage of this delay in the markup, over here in the House side, to just throw paper around and claim that those papers represented vessels that were to be rebuilt.
    S. 1221 would correct the problems created by this unintended influx of capacity by requiring some of those vessels to leave. As Congressman Young has said, there is no question—I don't think anyone before you will assert that there is not tremendous overcapacity in the fleet that harvests the area that is still the most productive of all of our fishery areas. Half of the fish that Americans consume is caught off of the State of Alaska. Now, this is not a bill to deal with allocations between U.S. and foreign vessels. It's not a bill to try to deal with any legitimate ownership. It's to try to deal with the situation that came about because of the actions taken by that Documentation Office that continued to approve pieces of paper that have now been ruled to go with the vessels that were constructed as enormous new vessels overseas, and allow them into our waters as rebuilt vessels.
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    We do not eliminate all of the foreign factory trawlers, or even all of the foreign factory trawlers that came in through that rebuild loophole. S. 1221 would remove from the fisheries only half of the rebuild vessels that continued to be foreign-controlled on September 25, 1997. I might add, many of them have gone through new devices to try to show they're not foreign-controlled since that date.
    From the records we have, it appears that 18 vessels were speculative, where the original owner of the hull did not receive delivery of the rebuild vessel. That's my definition of speculative, where someone stepped in and bought the paper that represented a vessel that was over there like the ACONA and rebuilt it into an enormous factory trawler. It had nothing to do with trawling before that time. It became a factory trawler after the rebuild clause was fused. Of those 18, only 13 appear to be foreign-owned on September 25, 1998. Of the 13 foreign-owned boats, 3 have already left. They went over and reflagged in Russia, and continue to fish there so far as I know. Under S. 1221, the remaining vessels, which we believe to be 10, would have to find a vessel of equal or greater size to surrender its U.S. flag in order to continue flying the U.S. flag. And there are vessels out there that are on the beach; they could be bought if they wish to stay on that basis.
    This was a more lenient approach than requiring all of the speculative vessels to leave U.S. fisheries. It would make the current owners of the vessels that caused the overcapitalization problems responsible for fixing the problem, but with the potential for some time to remain in the fishery.
    Let me parenthetically tell you one of the things we're working on in the Senate is a new concept of trying to find some way to have a buyout of some of those vessels in the North Pacific. Several of the fisheries have come to us and said they want to have an opportunity to do what has been done in New England and to buy down some of those vessels. And the owners of the vessels would borrow the money from a fund and repay that fund so that it would not be taxpayers' money that would be used. But they're devising ways to try and bring about a voluntary reduction in the capacity in each of these fisheries. But this main fishery, the pollock fishery, the investments are so large and the numbers are so large of the foreign-owned vessels, that that's just not possible to approach this problem on that basis.
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    The foreign rebuild provisions of S. 1221 would likely result in only five factory trawlers leaving the Bering Sea fisheries. It will allow 50 to 55 factory trawlers to remain, provided they comply with the U.S.-controlling interest standard—which any lawyer will tell you, it's not that difficult. We thought—those of us who designed this bill in the Senate side thought, under the circumstances, that this bill is very fair. I think we bent over backward to be fair. But since September, I have seen clearly that the people who have brought these vessels in knew what they were doing; they knew they were invading Congressional intent. And they have conducted just a staggering campaign now to try and defeat S. 1221.
    And my last chart I have there is chart 6. It shows the foreign rebuild grandfather was implemented by the Coast Guard in much the same way as the ownership grandfather clause. There are two separate grandfather clauses in the Anti-Reflagging Act. At least 13 rebuild waivers were granted before the final rule was promulgated, essentially foreclosing the possibility of correctly interpreting the provision. As with the ownership grandfathers, the letter rulings were issued primarily by the chief of the Vessel Documentation Office, and the majority were issued to two attorneys, again, one of whom was a former employee of the person that issued those letters. When you finish your review today, I hope you will consider whether we should remove all of the speculative vessels that came through the loophole and continue to be foreign-owned.
    If we continue to be opposed on a basis of our FARE bill, we're going to have a knock-down, drag-out fight in the Congress to win this issue to protect these fisheries in the North Pacific. We might as well go ''whole hog'' and get out of the whole area those who have speculated and tried to now destroy our fisheries based upon that speculation.
    I know I'm taking a long time, but there are some interesting views on the final major component of the bill. We called it the large vessel phaseout. It provides that no new fishing vessels greater than 165 feet, 750 tons, or 3,000 shaft horsepower would be allowed into these fisheries. Fishing vessels above any of these three thresholds that are already in the fisheries on September 25, 1997, could stay in for the useful life of the vessel, provided they meet the controlling interest standard and don't surrender their fishery's endorsement.
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    This phaseout could easily be called a moratorium. The measure would not only prevent new boats from entering, it would prevent foreign flag vessels from coming back into the U.S. fleet. I mention that of great importance because many of these large vessels went over to Russia and started fishing there as Russian vessels. And now they want to come back and claim they're still U.S. vessels.
    After the Senate hearing, I told many of the people involved I'd be willing to consider allowing the Councils, the Regional Fisheries Councils, to provide a means to override the moratorium even though I've yet to hear a single U.S. fishery that needs or wants any more large fishing vessels. It does seem to me Council created the regional corporations; the regional corporations should be the ones to decide if there is any need for any new vessels that would exceed that standard set by S. 1221.
    The bill also includes a special measure for Atlantic herring and mackerel fisheries, in part because a factory trawler recently modified overseas obtained a fishery endorsement before the control date of S. 1221. I believe that's sought by the people in the area very strongly.
    I would make one suggestion in closing, Mr. Chairman, and that is on what Congressman Young discussed—the concept of taking. I have practiced law now for almost 50 years, Mr. Chairman, and I would not draft a bill that would violate the Constitution knowingly. It was not a taking when we phased out the foreign flag vessels in the early–1980's. They were all foreign flag vessels then, and we've set up a provision for Americanization through the joint venture phase. And even the joint ventures were phased out by an act of Congress. And it will not be a taking when we remove the foreign-controlled vessels that purported to be U.S. flags from the U.S. flag registration. In both cases, we are eliminating a privilege the United States granted to those entities.
    In the case of foreign-flag vessels, the privilege came as a fishing permit that allowed them to operate in U.S. waters. That was before the Magnuson Act. In the case of foreign-controlled vessels, the privilege is in the form of a fishery's endorsement—a piece of paper issued by an administrative officer that allows them to operate in U.S. waters as U.S. vessels. As with the original Magnuson Act and the 1987 Anti-Reflagging Act, S. 1221 would not take anyone's vessel or prevent them from using it anywhere in the world with the proper fishery's endorsement.
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    It's ironic to me that some of the same factory trawler owners who now argue that their permits cannot be revoked, 2 years ago told us—when arguing for IFQs, Individual Fishing Quotas—that fishing was a privilege which could be revoked without compensation. These people have gone each way on several issues.
    With respect to IFQs, Congress should make clear that there will be no IFQs ever issued to foreign interests in our waters. That ought to be another thing we did not do that you should consider. Put the marker down now and state to everybody that if we go the IFQ route, there will be no foreign fishing IFQs in our water.
    Now the last chart I said was the last, but I'm mistaken. There is another chart, chart 7. It showed what happened to the Bering Sea pollock fishery since the foreign rebuilds entered. The allowable biological catch, which is called ABC, has declined by one-third, meaning there are one-third fewer fish to catch. And the Council, now, because of the pressure of all of these vessels, has eliminated what we call the buffer between that allowable biological catch and the total allowable catch, which is the TAC. So now, that if the ABC accidently gets set too high, the fleet will have already exceeded what should be the maximum catch.
    All of these mechanisms were designed to protect the fish, the reproductive capability of these fisheries—not to protect fisherman, not to protect who owns the vessel at any length, but to protect the reproductive capability. And because of the pressure of this overcapitalization the Council, now, has been forced to eliminate one of the basic protections for the species themselves, and that was the buffer. The decline in the allowable catch may be part of a normal stock cycle, but the shift to a riskier management practice is probably the direct result of the increased capital and harvesting capacity that go back to these erroneous rulings that I've mentioned.
    Now, ladies and gentlemen, you've been very patient with me. I can't tell you how chagrined I am to have to come and confess that when we marked up that bill, we just didn't do a good job. We should have closed that door, and we should have been very plain about what rebuild was. And when we said, ''to the owner,'' we should have said, ''to the original owner,'' to the owner who submitted the papers at the time that the exemption was sought; but we didn't. In other words, this is not something for the courts to deal with; its not something—and by the way, the Court of Appeals said it was something for Congress to deal with. We should have done it more specifically, and we need to now go back and do what we intended to do—assure that only U.S. flag vessels that are built in the United States can, in fact, be flagged as U.S. vessels to harvest a portion, the American portion, of the fisheries within our 200 mile limit.
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    And I commend you again, ladies and gentleman. I hope that you will pursue it. There are several other things here that I could mention about this issue, but I think, in the interest of time, I'll see if you have any questions of me. It is to me, the most serious thing that faces our great North Pacific fishery, and I'm saddened that it's viewed by some as being Alaska versus the State of Washington issue. It is not. And if anyone's got any solution to help us prove that, I'd be glad to explore any solution. We are not taking any of these vessels out on the basis of where their home port is, or anything. We're looking to take them out on the basis of whether they fraudulently came into the fishery. And I hope that you'll address it from that point of view.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Senator Stevens follows:]
STATEMENT OF HON. TED STEVENS, A SENATOR IN CONGRESS FROM THE STATE OF ALASKA
    Thanks to Chairman Young and Subcommittee Chairman Saxton for allowing me to testify today.
    The matter you are about to consider is of great importance in the U.S. fisheries, and particularly in the fisheries off Alaska. By the time you conclude today, it is my hope you will be convinced, as I was, that legislation is greatly needed.
    My first chart (chart 1) illustrates why Congress passed the Anti-Reflagging Act. From 1984 to 1987, foreign-flag fishing was being phased out of the EEZ under the Magnuson Act. In 1986 we realized that nothing in Federal law prevented the foreign-flag vessels from simply reflagging to the U.S. flag. The goals of the ''Commercial Fishing Industry Vessel Anti-Reflagging Act of 1987'' were therefore: (1) to require the U.S.-control of fishing vessels that fly the U.S. flag; (2) to stop the foreign construction of U.S.-flag vessels under the existing interpretation of the term ''rebuild''; and (3) to require U.S.-flag fishing vessels to carry U.S. crews.
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    Of these goals, only the U.S. crew requirement was achieved. We did not stop foreign interests from owning and controlling U.S.-flag vessels. In fact over 29,000 of the 33,000 U.S. flag fishing vessels in existence are not subject to any controlling interest requirement. We also failed to stop the massive Norwegian shipbuilding program between 1987 and 1990 that allowed about 20 of the largest fishing vessels ever built to come into our fisheries.
    Today, half of the nation's largest fishery—Bering Sea pollock—continues to be harvested by foreign interests on foreign-built vessels that are not subject to the U.S.-controlling interest standard. Therefore, while the white bars in the later years on the chart are labeled ''domestic,'' half of each could still correctly be labeled ''foreign.''
    On September 25, 1997, I introduced the American Fisheries Act (S. 1221) to fix these mistakes. Senators from just about every fishing region of the country have joined me in support of this measure. (Cosponsors include Senators Breaux (Gulf); Hollings (Southeast); Gregg (Northeast); Wyden (West Coast) and Murkowski).

Foreign Ownership

    S. 1221 would eliminate the foreign ownership loophole the Coast Guard interpreted into the Anti-Reflagging Act. Congress provided a grandfather in that Act to allow vessels whose owners did not meet the new 51 percent standard to continue to fish until they sold the vessel. Once the vessel was sold, it was intended to have to comply with the controlling interest standard. The Coast Guard misinterpreted this grandfather to ''run the vessel.'' While the DC Court of Appeals upheld this Coast Guard reading, all sides agreed that the practical result was absurd given Congress' primary intent of eliminating foreign control.
    My next chart (chart 2) indicates why I believe the Coast Guard took the position it did. In the three months after the Anti-Reflagging Act became law, the Coast Guard Vessel Documentation Office began issuing letter rulings that granted permanent U.S. ownership waivers. The letter rulings were signed by the Chief of the Vessel Documentation Office, who, according to the Coast Guard, was not required to get any other clearance in issuing the letters. About three-quarters of the rulings were issued in response to requests from two attorneys, one of whom was a former employee of the Documentation Office.
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    As the chart shows, by the time a Coast Guard legal opinion was prepared on December 19, 1988, the Documentation Chief had granted at least 9 permanent waivers. This December 1988 legal analysis—prepared by the Chief of the Coast Guard Maritime and International Law Division—correctly concluded that the grandfather provision could only be interpreted to apply to the current owner of a vessel. Nevertheless, the Documentation Branch continued to issue letter rulings granting permanent exemptions.
    Almost two years later, on November 16, 1990, the Chief of the Coast Guard Operational Law Enforcement Division wrote a memo asking why the earlier legal opinion was not being followed. By that time, the Documentation Office had issued at least 13 permanent waivers. For reasons still not clear, the Coast Guard ultimately ignored the Maritime and International Law Division memo. In its final rule—two years after the letter rulings—the Coast Guard read the grandfather provision to run with the vessel. We've since learned that the Coast Guard did not provide the Maritime and International Law Division opinion to the either the district or appeals courts during the law suit which it won.
    At our hearing in March, I called on the General Accounting Office to investigate these Coast Guard actions. The GAO will deliver its report in mid-July, and I expect it will be helpful in ensuring that similar mistakes are not made again by the Coast Guard. For instance, the Coast Guard informed us that the letter rulings were permitted by the Administrative Procedures Act, and perhaps that should be changed.
    S. 1221, however, does not seek to make these kinds of changes—it seeks to correct the negative effects by the Coast Guard's actions. S. 1221 would eliminate all exceptions to the U.S.-controlling interest requirement, and would raise the standard from 51 percent up to 75 percent, the same standard as other vessels operating commercially in U.S. waters.
    Unlike the Jones Act, the system under our fisheries law is really a preference system for U.S. fishing interests, not an outright prohibition on foreign boats. The Magnuson Act (and Law of the Sea) require that foreign-flag vessels be allowed to harvest the portion of any U.S. catch that U.S.-flag vessels can't harvest. Without a meaningful controlling interest standard, there is no way to give U.S. interests the fishing preference envisioned under this law.
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    Under S. 1221, vessel owners would have 18 months to comply with the new controlling interest standard, and could be sold or otherwise transferred to meet the requirements. The Maritime Administration, instead of the Coast Guard, would review company documents for compliance. MarAd already has expertise in this kind of work through the Federal loan and subsidy programs for ocean carriers that it administers.
    Fishing vessels under 100 tons—which tend to be owner-operated—would continue to demonstrate compliance as they do now (with a simple form). Fishing vessels over 100 tons—of which there are about 3,500—would be reviewed annually, as well as whenever a new owner acquires more than 5 percent ownership.
    Even if we enact S. 1221 today, it will have taken a quarter century to achieve the Americanization we envisioned in 1976.

Foreign Rebuilds

    The second major component of S. 1221 would correct for the Coast Guard's misinterpretation of the foreign rebuild grandfather.
    Prior to the Anti-Reflagging Act, Federal law allowed U.S.-flag fishing vessels to be ''rebuilt'' in foreign shipyards. Under the Coast Guard's interpretation of ''rebuild,'' a vessel could be essentially built in a foreign shipyard so long as some portion came from a U.S. hull. To illustrate how extreme a ''rebuild'' could be, my next board (chart 3) shows the vessel ACONA—which was 74-feet long and 167 tons before being rebuilt in Norway.
    Take a good look—the board after (chart 4) shows the ''ACONA'' upon the completion of its rebuild. It measures 252 feet and over 5,000 tons, and is now called the AMERICAN TRIUMPH. This is no reasonable way to call this the same vessel. This particular vessel is currently under investigation by the Coast Guard because documents used in obtaining the rebuild waiver may have been back-dated. This is one of about 20 so-called ''rebuilt'' vessels that now fish in the Bering Sea.
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    The Anti-Reflagging Act amended title 46 to prohibit U.S.-flag fishing vessels from being rebuilt overseas. Unfortunately, it also included a grandfather provision for 6 vessels for which legitimate investments had been made. The grandfather provision allowed a vessel to be rebuilt in a foreign yard and still qualify for the U.S.-flag if (1) the U.S. hull was purchased by July 28, 1987; (2) a contract for rebuilding was signed within 6 months of the enactment of the Anti-Reflagging Act; and (3) the vessel was ''redelivered to the owner'' by July 28, 1990.
    We specifically required the rebuilt vessel to be delivered to the owner of the U.S. hull in order to discourage speculators from buying U.S. hulls during the time we were working on the bill. Unfortunately, the Coast Guard did not require the same owner to receive the rebuilt vessel—and the speculation we sought to prevent became quite great.
    My next chart (chart 5) shows the speculative contracts for U.S. hulls signed between the original House markup (June 9, 1987) and the rescheduled markup July 28, 1987 which became the cutoff date for contracts on U.S. hulls that could be rebuilt. Contracts for at least 13 vessels were signed in those six weeks—including 4 on the day before the markup. As you can see on the chart, like the ACONA, these vessels were ''rebuilt'' into massive fishing vessels (see increases on the chart).
    S. 1221 would correct the problems created by this unintended influx of capacity by requiring some of those vessels to leave. S. 1221 would not—as some have suggested—eliminate all of factory trawlers or even all of the factory trawlers that came through the rebuild loophole. It would remove from the fisheries only half of the rebuild vessels that continued to be foreign-controlled on September 25, 1997 (the day of introduction).
    From records we have, it appears that 18 vessels were speculative (where the original owner of the U.S. hull did not receive delivery of the rebuilt vessel). Of those 18, only 13 appear to have been foreign-owned on September 25, 1998. Of the 13 foreign-owned boats, three already have left the fisheries (reflagged to fish in Russia). Under S. 1221, the remaining vessels (we believe 10) would have to find a vessel of equal or greater size to surrender its U.S. flag in order to continue flying the U.S. flag.
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    This was a more lenient approach than requiring all of the speculative vessels to leave the fisheries. It would make the current owners of the vessels that caused the overcapitalization problems responsible for fixing the problems—but with the potential for some to remain in the fisheries. The foreign rebuild provisions of S. 1221 would likely result in only 5 factory trawlers leaving the Bering Sea fisheries—and allow 50 to 55 factory trawlers to remain, provided they comply with the U.S.-controlling interest standard. We thought this, under the circumstances, was very fair—we bent over backwards to be fair. Since September I have seen clearly that the people who brought these vessels in knew exactly what they were doing—and that they were evading Congressional intent.
    As my next chart (chart 6) shows, the foreign rebuild grandfather was implemented by the Coast Guard in much the same way as the ownership grandfather. At least 13 rebuild waivers were granted before a final rule was promulgated—essentially foreclosing the possibility of correctly interpreting the provision. As with the ownership grandfathers, the ruling letters were issued primarily by the Chief of the Vessel Documentation Office, and the majority were issued to two attorneys, one of whom was a former employee. When you finish your review today, perhaps you will conclude that we should remove all of the speculative vessels that came through loophole and that continue to be foreign owned.

Large Vessel Moratorium

    There are some interesting views on the final major component of the bill. In S. 1221, we called it the large vessel ''phase out.'' No new fishing vessels greater than 165 feet, 750 tons, or 3,000 shaft horsepower would be allowed into the fisheries. Fishing vessels above any of these thresholds that were already in the fisheries on September 25, 1997 could stay for the useful life of the vessel—provided they meet the controlling interest standard, and don't surrender their fishery endorsement.
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    This ''phase out'' could as easily be called a ''moratorium.'' The measure would not only prevent new boats from entering, but would prevent former-U.S. flag vessels from coming back into the U.S. fleet. After the Senate hearing, I said I would be willing to consider allowing the Councils to override the moratorium—even though I've yet to hear of a single U.S. fishery that needs or wants any more large fishing vessels. I should mention that the bill includes a special measure for the Atlantic herring and mackerel fisheries, in part because a factory trawler recently modified overseas obtained a fishery endorsement before the control date in S. 1221.

Closing

    Before concluding, I will comment on the suggestion that this bill would constitute a taking. It was not a taking when we phased out foreign-flag vessels in the early-1980's, and it will not be a taking when we remove foreign-controlled vessels who happen to fly the U.S. flag. In both cases, we are eliminating a privilege the United States granted to those entities.
    In the case of foreign-flag vessels, the privilege came as a fishing permit that allowed them to operate in U.S. waters. In the case of the foreign-controlled vessels the privilege is in the form of a fishery endorsement that allows them to operate in U.S. waters. As with the original Magnuson Act and the 1987 Anti-Reflagging Act, S. 1221 would not ''take'' anyone's vessel or prevent them from using it anywhere else in the world.
    It's ironic to me that some of the same factory trawler owners who now argue their permits can't be revoked, two years ago told us—when arguing for IFQs—that fishing was a privilege which could be revoked without compensation. And with respect to IFQs, Congress should make clear that there will be no IFQs issued to foreign entities.
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    My final chart (chart 7) shows what has happened in the Bering Sea pollock fishery since the foreign rebuilds entered: (1) the ''allowable biological catch'' (ABC) has declined by a third—meaning there are fewer fish to catch; and (2) the Council has eliminated the buffer between the ABC and the ''total allowable catch'' (TAC)—so that now if the ABC accidentally gets set too high, the fleet may already have exceeded what should have been maximum catch. The decline in the allowable catch may be part of the normal stock cycles, but the shift to a riskier management practice is probably the direct result of the increased capital and harvesting capacity stemming back to the early-199Os.
    Mr. Chairmen and Committee members, I appreciate the time you have taken to listen to me, and commend you for addressing these important issues today.

    INSERT OFFSET FOLIOS 1 TO 7 HERE

    Mr. SAXTON. Senator Stevens, thank you very much for the very thorough, and explicit, and articulate testimony.
    And first, I ask unanimous consent that Mr. Delahunt and Mrs. Smith be permitted to sit on the panel. Thank you very much.
    Second, let me thank you, Senator, for including the provisions of the House bill relative to the northeastern part of the country, and specifically the ship that we referred to, in the language, I believe is the ATLANTIC STAR. We appreciate very much your including those provisions in your bill. We think that's of great importance, particularly to Mr. Delahunt and I, and Mr. Pallone, and other Members of the Congress who represent sections of the northeast.
    I'd just like to make one point if I may, and then I'm going to ask Mr. Young for his questions or comments. I'd like to try to help clear up this issue regarding property rights. You spoke very eloquently, and I understand what you said, and I agree with you. I would just like to underline this and perhaps you can respond to this statement. On February 28 of 1995, the American Factory Trawler Associations wrote to the Chairman of the Full Committee, Mr. Young. And I have a three-page letter signed by Joseph Blum, the executive director. And I might add that the American Factory Trawler Association is represented here today by Jim Gilmore. They are now called the At Sea Processor's Association, so they'll have a chance to comment on this as well. In addressing the issue of ITQs, there's an interesting passage—statement here on page 2 of this letter. In speaking to what Congress ought to do relative to a number of issues involving the North Pacific fisheries, and they are addressing the issues of ITQs. And they say, and I'll quote this, ''Specifically,'' they say, ''Congress should clarify that a quota share issued to a person under a ITQ program is not a property right. Under the ITQ program, an individual is provided with a privilege of harvesting a percentage of the annual allowable catch.'' This is the American Factory Trawlers Association which I believe today may be taking a different view.
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    I would just like you, if you would, sir, Senator, to comment on this statement and how you see it in the context of our discussion today.
    Senator STEVENS. Well, Mr. Chairman, I think you're correct that the group that represents the factory trawler have taken all three sides of that same issue. On CDQs, IFQs, and on the fishery's endorsement, they, on one hand, argue that it is a property right. On the other hand, when it's convenient, argue that it's just a privilege. It just depends on what they want in terms of what the constitutional provision means as far as I'm concerned. They have not addressed this issue, I think, fairly on a legal basis. There is no constitutional right; there is no taking of any property right here. I know of no one that previously had claimed that about a fishery's endorsement issued by the Coast Guard. And as such, I just hope the Committee and the Congress will ignore this new argument.
    Mr. SAXTON. If fishery quotas or fishing privileges were property rights, we'd have a hard time regulating fisheries at all, wouldn't we?
    Senator STEVENS. You're right. As a matter of fact, the Regional Councils under the Magnuson Act can take those down and can stop them from exercising those rights at any time. If they were property rights, they could not do that without compensation. But the Regional Fishings Councils have been doing that since day one under the Magnuson Act because they set the allowable catch, and they tell you how much that endorsement is worth in each year. And the Act, as well as the Law of the Sea, contemplates that that because they're both provisions to protect the fish—not protect the fishermen or any vessel. Now, their argument would mean that a vessel that acquires such an endorsement has a greater right than an American-built vessel. Think of that, Mr. Chairman. There is no such concept involved, that I know of, in constitutional law.
    Mr. SAXTON. Senator, thank you very much.
    Mr. Young.
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    Chairman YOUNG. Thank you, Mr. Chairman.
    Before you leave, Senator, I'd like to have both of the two pictures of the so-called rebuilt ship. I want to leave those here and remind each member, that is a classic example of what was not intended. Because other than the Senator and myself, we're the only two that were here. We knew what we were intending to do, and now to have that abused as was done is just absolutely beyond my comprehension. You know, I have hundreds, Senator—and I know you do, too—of people coming in and asking for changes in the Jones Act; we need documentation to get our vessel out of Canada, for instance. The Coast Guard said you can't do it. And this is the example I think of malfeasance, if I've ever seen it.
    And, Senator, one question—and I want to thank you for your testimony——
    Senator STEVENS. Congressman?
    Chairman YOUNG. Yes.
    Senator STEVENS. May I interrupt just—sir, attached to each one of the statements we've provided you, are a black and white——
    Chairman YOUNG. There's something about—maybe it's the maturity—there's something about a little picture and a big picture.
    Senator STEVENS. Oh.
    Chairman YOUNG. I would rather look at the big picture, believe me.
    Senator STEVENS. Senators have the trouble of seeing the big picture every once in awhile.
    [Laughter.]
    Chairman YOUNG. OK. The other thing is, to your knowledge, Senator, is there any fishing in any State that it is a right, other than the Indian treaties? That all fisheries, to your knowledge, within the three-mile limit are managed by the State Fish and Game; is that correct?
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    Senator STEVENS. That's correct.
    Chairman YOUNG. Nobody has the right. They can shut it down. Let's go beyond the three-mile limit. What happens if the Council changes the size of the net from an eight-inch net which they used to use, to a two-and-one-half-inch net, or from a two-and-one-half-inch to eight-inch net? Would that be a taking, for instance?
    Senator STEVENS. Absolutely not. As a matter of fact, look at the foreign factory trawlers; they argued before the Council and got a ruling of the Council that changed the allocation of fish. It used to be 65 percent onshore, 35 percent offshore. Now, it's 65 percent offshore and 35 percent onshore. In other words, the Council, in its ruling, put more than half of the boats that were fishing or bringing the fish back to shore put them on the beach. Now that wasn't deemed to be a taking. They're arguing right now before the Council for a larger allocation of this fish.
    Chairman YOUNG. All right. I'm——
    Senator STEVENS. All the endorsement gives you is the right to take the amount of fish the Council says you can take.
    Chairman YOUNG. All right.——
    Senator STEVENS. How can that be a property right?
    Chairman YOUNG. Senator, if I'm an onshore processor. And if the Council determines I'd get 50 percent of the fish for example. The Council rules that instead of my getting 50 percent, I get 35 percent; it goes to the offshore trawl fleet. That is not considered a taking from me. But under their premise, it would be a taking. Is that correct?
    Senator STEVENS. Well, they consider it to be a taking when we say that they have to give up the rights they acquired through the improper interpretation of the law. Now that is on another phase of this question of constitutionality. That flag that they get, you can see how temporary it is. They have voluntarily given up—if they just go across the line and start fishing in Russia, they give up that right. Now if it's a property right, how can Congress provide it just by going across an imaginary line? They lose that constitutional right. Their property right argument is just full of holes. It has never been a property right. And I do not understand——
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    Chairman YOUNG. Again, Senator, I know what this is. This is an attempt to what we call ''muddy the water,'' not ''tongue in cheek.'' There is something really fishy about that argument, and I hope we are able to beach it so it never swims again.
    Thank you, Mr. Senator.
    [Laughter.]
    Senator STEVENS. Well, let me tell you, Congressman, these vessels, if we take their flag away from them, they can still fish in U.S. waters at any time that any Council says that the American effort is not sufficient to harvest all the fish. We have not taken away the right to fish; we've just taken away their privilege to fish as a U.S. flag vessel when they really are foreign-built, foreign-operated vessels.
    Mr. SAXTON. Thank you.
    I believe Mr. Farr has some questions.
    Mr. FARR. Well, thank you very much, Mr. Chairman. I appreciate you having this hearing and request that my remarks be submitted in the record.
    And I really want to thank the Senator for being here. This is the International Year of the Ocean. Next week is the National Oceans Conference out of my district in Monterey—and a district that you are familiar with because I understood you spent some years at Fort Ord there—and I appreciate the connection. It's also very interesting because Monterey used to be the largest sardine port in the world. And we lost that fishery because we never paid attention to what happens if you don't manage the fisheries.
    And I think often people forget that our responsibility as elected Members of Congress—and frankly, it's only our responsibility because State legislators and local governments can't do it—is to protect the resources of this country which have been declared to be the fisheries out to 200 miles. I mean, in sense, the Law of the Sea Treaty recognizes that all ocean politics are local.
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    And I appreciate the fact that you're bringing this legislation and this issue to us because if we don't—the bottom line is really fisheries management. And this goes in to how you better manage the fisheries so that there is not an unusual amount of harvesting or harvesting that we can't control, and that that benefit of that doesn't inure to American businesses; that we have been a country that has always looked at the bottom line, and I think that often in resources, we forget that the bottom line is one that really needs to be managed appropriately.
    And as far as this idea that anything we would do in this area in regards to taking or—I'd like to remind the Members of Congress that in where you have local fisheries in the States—the State that I come from, California, we've banned gill nets, and there was no takings issue in that. We have required limited entry in numerous fisheries, and there was no takings in that. We have required trawlers to have new gear that is—and we have provided the loan program so that they can transfer from old technology to new technology; there was no takings in that.
    I agree with the Senator; this is not a takings issue. To go in and fish in American fisheries is a privilege, not a right. And that privilege is extended by law that is created by this Congress. And I think if we don't pay attention to the fact that we need to be on top of that law, making sure that that law is a wise law, smart law, is law that really does the best we can to regulate a fishery, then we are losing perspective of what we are here elected to do. So I appreciate you bringing this bill to this Committee. And I look forward to working with you on it.
    Senator STEVENS. Thank you very much. In years gone by, Senator Magnuson sent me to the Law of the Sea Conference. I had known him for many years before I came to the Senate. He had wanted me to go to the Law of the Sea Conference to represent the Congress committee when he was chairman, and I was a minority member.
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    I came back and told Warren that I thought that the major issue facing us was the jurisdiction beyond the three-mile limit, and we prepared to draw up—and I drafted the first Magnuson Act and introduced it as a matter fact. Warren made it his bill when he wanted to get it passed, and I think that was the way we got it passed. He was the chairman, and I respected him very greatly, but what I'm telling you is we were not looking at any kind of conflict between States or between anyone, we were looking to try and satisfy the objectives of the Law of the Sea. And when we adopted the concept of the 200-mile limit, the world did.
    Mr. FARR. That's right.
    Senator STEVENS. But it adopted it with the Law of the Sea concept that the Nation didn't have the capacity to harvest within the 200-mile limit, it had to allow foreign vessels to come in and harvest up to the allowable quota. Now that provision that came out of the Law of the Sea is what inhibited us when we wrote the Magnuson Act. We couldn't go against what we'd argued worldwide, so we said if we find that there's any place where we cannot harvest it with American fleets, we must allow the foreign fishing vessels in. And for the first 7 or 8 years—we've given you the chart—after the Magnuson Act passed, the foreign vessels continued to harvest within our waters.
    These people that came in later, whether they are U.S. flags or foreign flags, they have no property right within that 200-mile limit, as you rightly state. And these people now that are foreign built, foreign dominated, they're arguing that our Constitution protects their right because they came in under our flag. But our own flag people don't have that right. Well I hope that everybody keeps that in mind.
    Thank you very much.
    Mr. SAXTON. Senator, thank you very much. We very much appreciate your being here and your willingness to spend this amount of time with us. We have two other panels to deal with here this morning, so at this point, unless you have something further, we will move on to our second panel. And thank you, again, very much.
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    Senator STEVENS. We welcome your interest greatly, Mr. Chairman, and all of your patience with me. Thank you very much.
    Mr. SAXTON. Thank you, sir.
    I will now introduce our second panel. We have Dr. David Evans, the Deputy Director of the National Marine Fisheries Service, and Rear Admiral Robert C. North of the U.S. Coast Guard.
STATEMENT OF DAVID EVANS, DEPUTY DIRECTOR, NATIONAL MARINE FISHERIES SERVICE, DEPARTMENT OF COMMERCE
    Mr. SAXTON. While you are coming forward to take your seats, and before we hear your testimony—Dr. Evans, prior to your testimony I have one question which I'd like you to respond to if you don't mind. The Subcommittee submitted budget questions to your agency on March 27, 1998, and asked for a response by April 17, in order to permit us to include these responses in today's record. Now, June 4, 1998, almost 2 months later, and we still haven't seen responses to the questions. What has been the hold up, and when will we receive these responses?
    Dr. EVANS. Mr. Saxton, the answers to those questions are right now at OMB, and I am told that they will be released almost immediately. But I don't know the exact day.
    Mr. SAXTON. Well, we would appreciate whatever you can do to break the answers to those questions loose because we believe that they are extremely important. And OMB has apparently had them for quite some time, and has failed to release them. Is that correct?
    Dr. EVANS. Yes. There's been some discussion back and forth between the Department and OMB on these questions to get them to you. We're very much aware of the importance of your having that information so that you can continue with this year's process, and we are working very hard to get them to you.
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    Mr. SAXTON. Do you know roughly how long OMB has had your responses?
    Dr. EVANS. No, I don't, sir.
    Mr. SAXTON. OK. Thank you very much. You may proceed, Dr. Evans, to give your testimony. We are about an hour and 15 minutes into this process, and so we are going to abide by our 5-minute rule for the second and third panel, so if you would proceed to try to stay within the 5 minutes, we would appreciate it. Those little lights there in front of you will help you understand or know when the time limit has expired. So, proceed, sir.
    Dr. EVANS. Thank you very much, Mr. Chairman, members of the Committee. I'm pleased to be here today to present the views of the Department of Commerce on the Americanization of the U.S. fishing fleet and U.S. ownership of fishing vessels.
    Before I focus on the Americanization issue, I'd like to comment on the overcapacity and overcapitalization issue that was raised in your letter—it was noted in your letter. It's increasingly evident that excessive investments in harvesting capacity can contribute to resource overutilization in fisheries. Both domestically and internationally, there's little doubt that a significant number of our most valuable commercial fisheries are burdened with excessive levels of investment and harvesting capacity. The most obvious domestic examples of these problems are New England groundfish and scallop fisheries, the West Coast groundfish fishery, and the Alaska crab fishery.
    The National Marine Fisheries Service is involved in both international and domestic activities that will help us better manage capacity in the fishery sector. Internationally, we're working with the Department of State on an initiative sponsored by the Fish and Agriculture Organization of the United Nations on managing harvesting capacity throughout the world. At home, NMFS has sponsored vessel and permit buyout programs in New England, Texas, and the Pacific Northwest and is currently working with both the Pacific and North Pacific Councils to review the first industry-funded buyout programs developed under the new authority for fishing capacity reduction under the Magnuson-Stevens Fishery Act. We believe that the Councils provide an appropriate mechanism for evaluating the best ways to maximize the benefits to the industry while minimizing potential costs or social impacts from capacity reduction efforts.
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    Now, let me address the main matter for today. The Committee has requested the Department's evaluation of the Americanization of our coastal fisheries. We use the term ''Americanization'' to mean actions taken to ensure that the benefits derived from the use of the U.S. Exclusive Economic Zone (EEZ) resources are effectively channeled to U.S. enterprises and citizens. This effort began in earnest with the passage of the original Fishery Conservation and Management Act in 1976. The goals of the FCMA were to phase out foreign fishing off U.S. coasts, expand domestic capacity, optimize domestic benefits, achieve optimum yield, and enhance economic and employment opportunities. In addition to establishing the 200-mile EEZ, the Act directed the Secretary of Commerce to provide the domestic fishing industry priority access to the fishery resources in the EEZ.
    In 1979, the Department undertook a major effort to study the social costs and benefits of accelerating utilization of fishery resources in the EEZ. Based on these findings, the White House established a fisheries development policy which stated that significant opportunities for industry expansion existed and that partnerships between local, State, and Federal governments in the fishing industry were needed.
    This policy led to the enactment of the American Fisheries Promotion Act of 1980 which was directed toward expanding commercial and recreational fishing efforts in underutilized fisheries. The amendments specifically authorized financial assistance to industry, supported the development or expansion of market opportunities for U.S. fishery products, and allowed foreign access to fishery resources in exchange for ''chips,'' including trade concessions, technology transfer, and so on.
    In 1982, the Processor Preference Amendment gave U.S. processors preference over joint venture processors for fishing allocations, and accelerated the phaseout of joint venture processing.
    Finally in 1987, the Anti-Reflagging Act sought to tighten domestic ownership requirements by increasing the minimum domestic share to 51 percent. These actions had greatly Americanized fishing operations by the end of that decade.
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    One way to determine whether the goal of Americanizing the U.S. fishing fleet has been achieved is to review the level of foreign fishing in the EEZ under Governing International Fisheries Agreements, GIFAs. The United States currently has GIFAs in force, or is taking steps to extend GIFAs, with Estonia, Latvia, Lithuania, China, Poland, and Russia.
    At present, the only foreign fishing activity occurring within U.S. jurisdiction is joint venture processing of U.S. harvested fish off the northeast coast. We permitted joint venture processing for Atlantic mackerel and herring by two processing vessels from Estonia and two others from Lithuania. The total amount of fish available for these activities is 15,000 metric tons of mackerel and 40,000 metric tons of herring.
    Finally, we've also issued transshipment permits under section 204(d) of the Magnuson-Stevens Act to one vessel each from Cambodia, Russia, and Panama to receive and transport processed mackerel from those operations. In addition, last year we issued transshipment permits to 14 Canadian herring transport vessels operating in the Gulf of Maine.
    While the Department can state that Americanization of the U.S. fleet has been achieved, based on the relatively low GIFA-related fishing activity, it cannot provide the Committee with a clear picture of the ownership structures of the U.S. fishing fleet. The 1987 Anti-Reflagging Act applied only to vessels documented after the date of enactment. However, it's clear that significant foreign participation remains because our maritime and cabotage laws enable foreign firms to retain and even increase ownership shares in some segments of the U.S. fishing fleet. Approximately 25,000 fishing vessels documented prior to the enactment of the Anti-Regflagging Act are exempt from the ownership requirements of that statute. And we have no certain information on their present ownership.
    The Department applauds the Committee for its efforts to deal with national policy issues on excess harvesting capacity and Americanization. However, our fisheries are highly diverse and vary substantially in the nature of the fishing vessels deployed in different fisheries. Our limited knowledge suggests that foreign investment differs markedly from region to region. While it would be appropriate for Congress to continue with the established trend of Americanizing U.S. fisheries, I'd urge you to carefully examine any retroactive application of the ownership requirement. Such measurements could have unintended impacts on those sectors of the industry currently exempt from ownership requirements or on those that rely on foreign investment. The retroactive application of the ownership requirements could also raise concerns about compliance with U.S. obligations to foreign investors under a variety of international treaties.
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    The National Marine Fisheries Service is prepared to work with the Councils, the fishery constituencies, and Congress to determine the most appropriate course of action for our Nation's fishermen and fisheries. It is the Department's desire to reduce levels of harvesting capacity among all classes of fishing vessels to levels that are matched with sustainable use of our resources and that maximize the economic benefit to our Nation.
    Mr. Chairman, this concludes my remarks, but I'm prepared to respond to any questions that you might have. Thank you very much.
    [The prepared statement of Dr. Evans may be found at end of hearing.]

    Mr. SAXTON. Admiral North, you may proceed.

STATEMENT OF REAR ADMIRAL ROBERT C. NORTH, U.S. COAST GUARD, DEPARTMENT OF TRANSPORTATION, ACCOMPANIED BY THOMAS WILLIS, UNITED STATES COAST GUARD
    Admiral NORTH. Yes, sir. Good morning, Mr. Chairman, members of the Committee, I am Rear Admiral Bob North, the Assistant Commandant for Marine Safety and Environmental Protection. I am pleased to represent the Coast Guard before this Subcommittee today to discuss the Americanization of the U.S. fishing fleet. With me to my left is Mr. Tom Willis, who is the Director of the Coast Guard's National Vessel Documentation Center.
    The Anti-Reflagging Act was designed to prohibit the reflagging of foreign-built vessels for participation in U.S. fisheries. It harmonized fisheries and maritime laws, by generally imposing requirements regarding the documentation, ownership, manning, and construction of vessels engaged in the fisheries trade similar to those imposed on vessels engaged in the coastwise trade. The Act also broadened the definition of fisheries to include processors and tenders.
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    Prior to enactment of Anti-Reflagging Act, it was possible to use foreign-built and 100 percent foreign-owned fish processing vessels to participate in U.S. fisheries. As a result of the Anti-Reflagging Act, fishing vessels today are required to have a certificate of documentation with the fishery's endorsement, must have 51 percent of their stock owned by U.S. citizens, except for vessels that are grandfathered from the American control provisions of the Anti-Reflagging Act.
    Two portions of the Anti-Reflagging Act prove problematic. These are the grandfather provisions intended to protect the interests of investors already committed to the U.S. fisheries, and deal with foreign rebuilding and ownership. I will address each separately, because each has a different impact on the Americanization of the U.S. fishing industry.
    Prior to the Anti-Reflagging Act, fishing vessels had to be built in the United States, but could be rebuilt abroad. The Act, among other things, prohibited vessels seeking fishery endorsements from being rebuilt in foreign shipyards. However, the rebuild grandfather provision in the Act exempted vessels that were built in the U.S. before July 28, 1987, and rebuilt in a foreign country under a contract entered into before July 11, 1988, and also purchased or contracted to be purchased before July 28, 1987, with the intent to use the vessel in the fisheries. The rebuilding grandfather provision also required that a vessel rebuilt under the above circumstances had to be redelivered to the owner before July 28, 1990. The window of eligibility for this exemption has long passed, so no additional vessels may be rebuilt outside of the United States and enter or reenter the U.S. fishery. Furthermore, no additional foreign-built vessels may be documented for use as fish processors.
    As mentioned earlier, the Act requiring a fishing vessel to be owned by a majority of U.S. citizens. Under the grandfather provision, the required 51 percent of U.S. ownership does not apply if before July 28, 1987, the vessel was documented and operating as a fishing vessel in the Exclusive Economic Zone or as contracted for purchase for use as a fishing vessel in the U.S. fisheries.
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    The ownership grandfather provision of the Anti-Reflagging Act has been the subject of much controversy. The Coast Guard, following careful examination of the law, concluded that based on the plain language of the statute the grandfather provision ran with the vessel. Although this was seemingly contrary to the purpose of the law, grandfather provisions by their very nature run contrary to the overall purpose of a statute.
    Recently, the Senate began consideration of the American Fisheries Act of 1998, S. 1221, a bill which among other things directly addresses the problems that arose as a result of the ownership and rebuild grandfather provisions of the Anti-Reflagging Act.
    First, S. 1221 would repeal the ownership grandfather effective 18 months after enactment. In addition, it would increase the American control provision for entities owning fishing vessels from 51 to 75 percent. Entities currently owning documented fishing vessels and which meet the majority American control provisions of the Anti-Reflagging Act would have 18 months to conform to the new standard. A proposed ownership standard would place fisheries on a par with the ownership standard for coastwise trade.
    Additionally, S. 1221 would also provide for the orderly phase out of larger vessels, including all of the processing vessels known to have been deemed grandfathered from the rebuild prohibition of the Anti-Reflagging Act. This would remove the remaining 20 vessels which were rebuilt foreign under the grandfather provision of the Anti-Reflagging Act.
    The Coast Guard appreciates the opportunity to testify about this important matter and stands ready to work with the Congress on this issue. I'd be pleased to answer any questions that you may have, sir.
    [The prepared statement of Admiral North may be found at end of hearing.]

    Mr. SAXTON. Admiral, thank you very much.
    I understand, Mr. Willis, you're here just to respond to questions. You don't have any testimony? OK, thank you.
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    As you noted, we are now into the second bells of our vote. We're going to go vote. There are 2 votes, so we'll be 20 minutes or so before we get back. And at that time, we'll begin with our questions. Thank you.
    [Recess.]
    Mr. SAXTON. I would like, at this time, to turn the floor over to Mr. Young for his questions.
    Chairman YOUNG. Thank you, Mr. Chairman.
    Dr. Evans, does the administration believe the United States has the right to restrict the harvest of U.S. fisheries resources by foreign vessels?
    Dr. EVANS. Does the United States believe that we have the right to restrict the—yes, sir.
    Chairman YOUNG. You do?
    Dr. EVANS. Yes, under the Magnuson Act. Yes, sir.
    Chairman YOUNG. OK. I want to make certain that that is clear for the record.
    Does it concern NOAA, the agency responsible for managing and conserving in our fisheries resources that there's approximately 29,000 U.S. fishing vessels for which there is lack of knowledge about ownership?
    Dr. EVANS. Well, it can concern us on a couple of grounds. Principally, we're responsible for managing the resource, looking out for biology of the resource, and dealing with the enforcement of the regulations that are promulgated, initiated by the Councils. And from a practical perspective, we apply the same kind of enforcement policies regardless of who is driving the vessels and where they come from. We look to the Coast Guard to provide us with guidance on the ownership and documentation of the ownership of the vessels. We need to enforce the regulations relative to the harvest and provide for the conservation of the stocks regardless of who is on board.
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    Chairman YOUNG. Doctor Evans, I just have one comment. You know, the Coast Guard's reputation has been thoroughly sullied in this whole operation. Have you requested documentation of who owns what in these vessels?
    Dr. EVANS. Any time that a person applies for a permit to go fishing, we rely on the Coast Guard to provide us with documentation——
    Chairman YOUNG. Have they done so?
    Dr. EVANS. [continuing] for an endorsement.
    Chairman YOUNG. Have they done so?
    Dr. EVANS. Yes, they do.
    Chairman YOUNG. Well, we'll get back to you later and see how recently this has occurred.
    What's the total number of factory trawlers in the Bering Sea fisheries, and the total number in the North Pacific fisheries?
    Dr. EVANS. I believe it's around 55. Let me check. I have Mr. Kent Lind from our North Pacific——
    Chairman YOUNG. He'll write you in a little note there in a minute.
    Dr. EVANS. OK.
    Chairman YOUNG. How many of these factory trawlers meet or exceed the U.S. ownership requirement of 51 percent?
    Dr. EVANS. I don't know the answer to that question, sir. I don't know the ownership characteristics of those trawlers. That's information——
    Chairman YOUNG. Admiral, do you know the ownership characteristics?
    Admiral NORTH. Of those in the Bering Sea?
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    Chairman YOUNG. Yes.
    Admiral NORTH. Not without knowing which specific vessels they are.
    Chairman YOUNG. I would suggest, with all due respect, that you knew this hearing was coming forth. I would suggest that you find out.
    Admiral NORTH. Sir?
    Chairman YOUNG. Because that is the law.
—————
    From the list of 35 vessels identified as Catcher Processors permitted to target North Pacific Pollock for 1997, provided to the Coast Guard by the National Marine Fisheries Service, 20 meet or exceed the U.S. ownership requirement of 51 percent.

    Dr. Evans, how does NMPS view fishing permits and fishing licenses? Are they revokable? If so, does NMPS issue compensation? Are permits or licenses given forever? If not, how long are permits or licenses issued? And what's the difference between IFQ and other fishery permits?
    Dr. EVANS. I'm sorry, sir. I didn't hear the very last part of your question.
    Chairman YOUNG. Well, answer the first one. How do you view fishing permits and licenses?
    Dr. EVANS. Fishing permits are basically permission to use the fisheries resource.
    Chairman YOUNG. Are they revokable?
    Dr. EVANS. Yes, they're revokable.
    Chairman YOUNG. Do you issue compensation?
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    Dr. EVANS. No, we do not.
    Chairman YOUNG. They're not forever, are they?
    Dr. EVANS. No, they're not.
    Chairman YOUNG. How long are they usually issued? And how long are the permits or licenses usually issued?
    Dr. EVANS. Well, they vary from fishery to fishery. There're some which are renewed annually; some which are issued for a period of 3 years. It varies.
    Chairman YOUNG. What's the longest one?
    Dr. EVANS. The longest.
    Chairman YOUNG. I mean it's usually 1 to 3 years?
    Dr. EVANS. Typically, yes.
    Chairman YOUNG. OK. So in reality, if I was a boat owner, a vessel owner, and I caught 16 sea lions in my nets repeatedly, you could revoke by permit. Is that correct?
    Dr. EVANS. Probably. I would imagine that——
    Chairman YOUNG. If you didn't, I'm sure somebody would——
    Dr. EVANS. [continuing] under the Marine Mammal Protection Act, where if the 16 sea lions were, you know, characterized as a problem, that's a possibility. Certainly, yes.
    Chairman YOUNG. Very likely. Well, let's say I caught an abundance amount of bycatch beyond in anyone's acceptable amount. You could revoke it, couldn't you?
    Dr. EVANS. I'm not sure that there are provisions to do that right now. We tend to use other measures to control bycatch.
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    Chairman YOUNG. OK. Let's get back—how do you revoke a license, and what for?
    Dr. EVANS. Typically, as a consequence of violations of regulations, licenses have been and——
    Chairman YOUNG. That's what I just asked.
    Dr. EVANS. [continuing] should be revoked. Yes.
    Chairman YOUNG. What, I mean——
    Dr. EVANS. Exceeding a quota, having——
    Chairman YOUNG. I just asked——
    Dr. EVANS. [continuing] prohibited species on board, for example. Yes.
    Chairman YOUNG. Admiral, how many vessels currently involved in the U.S. fisheries are majority foreign? I asked that question, majority foreign owned?
    Admiral NORTH. Sir, there's 29,000 some vessels in the fishery. There's no data base that shows the total number of foreign majority.
    Chairman YOUNG. How many in the Bering Sea?
    Admiral NORTH. I don't know how many in the Bering Sea are majority-owned. I don't know what vessels are——
    Chairman YOUNG. Mr. Chairman, I'm going to suggest we have the Coast Guard before this Committee for a prolonged period of time for more questioning when they are better prepared.
    Why did the Coast Guard follow a course of ownership standard which could have led to fully foreign-owned fishing fleet in the United States? And didn't the internal Coast Guard documents raise this issue, and indicate that it was counter to the congressional intent?
    Admiral NORTH. The Coast Guard did what it did in interpreting the plain language of the statute.
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    Chairman YOUNG. Now, Admiral, be careful here. Did not your legal branch warn you of this?
    Admiral NORTH. There were a number of legal opinions within Coast Guard that were expressed, and the discussion or the——
    Chairman YOUNG. You chose to disregard them?
    Admiral NORTH. Those were not disregarded; those were considered by the Chief Counsel. The Chief Counsel's final conclusion was that the grandfather ran with the vessel.
    Chairman YOUNG. OK. That's why we're having a GAO investigation, isn't it?
    Admiral NORTH. Yes sir. That's right.
    Chairman YOUNG. That wasn't on your watch, was it?
    Admiral NORTH. It was not.
    Chairman YOUNG. That's good. Well, then, thank God for that.
    [Laughter.]
    Because, you know, I have been a big support of your agency, and I am thoroughly, thoroughly disappointed.
    Admiral NORTH. Yes sir.
    Chairman YOUNG. I think that someone ought to take the time to do a little more research, and I'm not going to particularly beat up any individuals. But this is not the intent. Like I say, I was the only one sitting on this Committee. We knew what our intent was. I'm probably remiss in not finding out what was occurring. But to have the Coast Guard, especially, Mr. Chairman, when I have about a hundred requests a year on documentation for Canadian-made vessel or vessel made in Hong Kong or something. And the Coast Guard says, ''Oh, we can't document it.'' And yet, I look at this vessel over here. Now if you can tell there is some justification for that. I mean that is a disgrace to have that—in fact, I want to find out where that remaining piece of metal is on that ship. Maybe it's in the captain's quarters; it's the only place I can figure out it would be. I wonder how they can identify; maybe it has a DNA.
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    [Laughter.]
    Thank you, Mr. Chairman.
    Mr. SAXTON. We have three members with us who are members of the Full Committee but not members of this Committee. And, Mr. Pombo, if you would like to take your 5 minutes at this point.
    Mr. POMBO. Thank you, Mr. Chairman.
    Admiral, I just have a few questions. Is it standard practice for the rights and privileges relating to vessels to run with the vessel or with the owner?
    Mr. WILLIS. Standard practice is that the rights run with the vessel. Certain rights accrue only to owners, such as the right to engage in coastwise trade because of 75 percent ownership. And if a coatwise-eligible vessel was sold to an entity that didn't meet the 75 percent during that time of ownership, the vessel would not be eligible for coastwise trade. If it were sold to an entity that did qualify to engage in coastwise trade, the vessel would again hold that right.
    Mr. PALLONE. So typically, if they meet the ownership requirement, it runs with the vessel?
    Mr. WILLIS. That is correct.
    Mr. POMBO. Was there a general industry understanding in 1987 as to the amount of work necessary for a vessel to be considered to have been rebuilt overseas?
    Admiral NORTH. There's a regulatory standard for what constitutes a new vessel, what constitutes a rebuild. So——
    Mr. POMBO. And that's a regulatory standard?
    Admiral NORTH. Yes.
    Mr. POMBO. And it was understood both within the agency as well as in the industry what that standard was at that time?
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    Admiral NORTH. It was understood within the agency. Whether everyone in the industry understood it or not, I could not tell you.
    Chairman YOUNG. Will the gentleman yield?
    Mr. POMBO. Yes.
    Chairman YOUNG. Is that in the regulations there?
    Admiral NORTH. Yes.
    Chairman YOUNG. That is under regulations? There's only two pieces of steel; that's considered a rebuild?
    Admiral NORTH. Yes, sir.
    Chairman YOUNG. Where is that regulation?
    Admiral NORTH. 46 CFR 67.
    Chairman YOUNG. You have it? That's not the current standard. Hello?
    Admiral NORTH. Yes.
    Chairman YOUNG. It's the current standard.
    Admiral NORTH. Yes sir.
    Chairman YOUNG. I beg to differ with you, but I'd like to see where it is. And I don't think that's the standard at all.
    Admiral NORTH. It is the standard.
    Chairman YOUNG. OK. Well, we'll see.
    Mrs. LINDA SMITH. Would the gentleman yield?
    Chairman YOUNG. Yes.
    Mrs. LINDA SMITH. Those pictures before me, that is a rebuild?
    Admiral NORTH. Yes. That is correct.
    Mrs. LINDA SMITH. Does that meet that standard?
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    Admiral NORTH. Yes.
    Mrs. LINDA SMITH. So that any piece of metal of any size is the standard?
    Admiral NORTH. Not any piece of metal of any size.
    Mrs. LINDA SMITH. Obviously, there isn't much there. There's nothing that is structurally going to build that boat and that. So, give me the standard then. I can see no standard. That's like the little one we take out compared to one that is commercial. That's barely commercial. We have one of those like that in our family. But that is not that.
    Mr. WILLIS. Typically, rebuilt vessels may include mid-bodies, and so forth. That has been a fact since the second proviso was enacted back in the 1950's. The standard is that if any structural parts from an existing vessel are used in constructing a vessel and those parts are not torn down to a degree where they're committed to use in building a vessel, you do not have a new vessel.
    The new vessel standard was written very tightly to protect American interests. In this case, it has been turned in a different direction.
    Mrs. LINDA SMITH. Obviously, that's not a standard.
    Chairman YOUNG. Madam, I'm getting a little confused because I got something in front of me, Admiral, that says only 7.5 percent of a vessel can be changed on a rebuild in order to keep your U.S. documentation.
    Now, the gentleman on the right, is that correct?
    Mr. WILLIS. No, sir, that is not correct. If it's 7.5 percent or less it is not deemed rebuilding at all; between 7.5 and 10 percent, it may be a rebuilding; above 10 percent, it is a rebuilding. We're talking about two separate issues here—new vessel versus rebuilding.
    Chairman YOUNG. We're talking about rebuilding?
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    Mr. WILLIS. Yes, sir.
    Chairman YOUNG. Now to keep your documentation, there is no standard then? There is no standard. That is not—that cannot be a standard. If it is, we've got to change it. That is not a standard.
    Mr. WILLIS. The standard, Mr. Young, is that if you rebuild and use less than 7.5 percent, you do not lose any entitlements which you might have such as coastwise; but if you do exceed the 10 percent, then you will lose entitlement to engage in the coastwise trade and fisheries.
    Chairman YOUNG. You think that's more than 10 percent there?
    Mr. WILLIS. Yes, sir, I do. And if that project were performed today, it would absolutely lose all privileges.
    Chairman YOUNG. When——
    Mr. WILLIS. Absolutely.
    Chairman YOUNG. [continuing] did they change?
    Mr. WILLIS. Pardon?
    Chairman YOUNG. When did that change? Since 1987, when was—did the Coast Guard change it?
    Mr. WILLIS. No, sir, the Coast Guard did not change it. The Anti-Reflagging Act, as we read it, permitted rebuildings. This is a rebuilding. It is not a new vessel.
    Mrs. LINDA SMITH. Would the gentleman yield?
    Chairman YOUNG. Yes, I'll continue to yield.
    Mrs. LINDA SMITH. Then my understanding is on the reflagging, then at that point we dropped all reasonable standards of a rebuilding and you took that opportunity then. Up to that point, there were reasonable standards. But at that point, anything went, and we no longer had standards because it qualified then, as you said, as a rebuild. So, we changed.
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    Mr. WILLIS. The Coast Guard did not change the standard. Any vessel could be completely rebuilt overseas without losing privileges prior to effective date in the Anti-Reflagging Act.
    Mrs. LINDA SMITH. So there was no standard——
    Mr. WILLIS. There was no standard——
    Mrs. LINDA SMITH. [continuing] as to what percentage?
    Mr. WILLIS. [continuing] for fishing vessels prior to the Anti-Reflagging Act.
    Chairman YOUNG. This vessel, ma'am—this vessel was built in that gap, wasn't it?
    Mr. WILLIS. Yes, it was, sir.
    Chairman YOUNG. In fact, it was put on the waves after the passage of the Act.
    Mr. WILLIS. Yes, sir.
    Chairman YOUNG. I'm thoroughly confused. You said it couldn't be done after the reflagging.
    Mrs. LINDA SMITH. That's right.
    Mr. WILLIS. It couldn't be done after the windows enacted in the Anti-Reflagging Act.
    Admiral NORTH. Unless it were grandfathered.
    Chairman YOUNG. Was this vessel on the waves when we passed the Act?
    Mr. WILLIS. No, sir. But the Anti-Reflagging Act required that it be rebuilt under a contract entered into within 6 months after enactment of the Anti-Reflagging Act.
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    Chairman YOUNG. Do you know when this contract was entered into?
    Mr. WILLIS. We can provide that information; yes, sir.
    Chairman YOUNG. Thank you.
    [The information follows:]
—————
    The date of the ACONA's contract was July 10, 1988.

    Mr. POMBO. Can I have two additional minutes?
    [Laughter.]
    Which leads me to my next question.
    [Laughter.]
    Assuming that all relevant documents provided to the Coast Guard concerning the grandfather vessels to be true and correct, does the Coast Guard consider the foreign rebuilding of grandfather vessels that are purchased, or sailed since 1987, or their entry into U.S. fish areas as fraudulent or illegal?
    Admiral NORTH. No.
    Mr. POMBO. So the statement that these entered into the fisheries fraudulently or illegally, the Coast Guard would not consider to be correct?
    Admiral NORTH. Of those 23 vessels that were rebuilt under the grandfather clause, there was one vessel, this vessel in particular, where an issue has been raised as to whether the documentation that was provided was appropriate or correct. We have no other knowledge or reason to believe that of the other 22 vessels, the documentation provided to prove the rebuild of the vessel, the grandfather rebuild, was not correct.
    Mr. POMBO. If you were provided with the documentation showing that these vessels entered in a way that was not true and correct, that they were fraudulent or illegal, would you remove them?
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    Admiral NORTH. It could be removed, yes.
    Mr. POMBO. And what would that take to remove them? Could the Coast Guard do it?
    Admiral NORTH. Can we do that? Yes, but we would need whatever documentation one has that would tend to prove the documentation originally submitted was false.
    Mr. POMBO. So, if anyone could provide you a documentation showing that these vessels entered into the fishery fraudulently or illegally, you could remove them——
    Admiral NORTH. Yes.
    Mr. POMBO. [continuing] under current law?
    Admiral NORTH. Yes.
    Mr. POMBO. If there was evidence of speculation by particular vessel owners subsequent to the passage of the Anti-Reflagging Act, would such speculation have provided the Coast Guard with a legal basis under this or any other act for refusing to issue such a vessel a certificate of documentation with a fishery's endorsement?
    Admiral NORTH. I'm not sure how you would define speculation. I know Senator Stevens gave us his definition, but if you look at the documentation again for the various vessels involved, and you look at the time frames provided under the Act, with the exception of the ACONA and the information we've been provided in that case, there is nothing to suggest that the documentation was not correct.
    Chairman YOUNG. Will the gentleman yield just for a moment?
    Mr. POMBO. Sure.
    Chairman YOUNG. Admiral?
    Admiral NORTH. Yes.
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    Chairman YOUNG. Most of these were done within a 2-month's period. You don't call that speculation? Maybe it's seize an opportunity, but it's speculation, too.
    Admiral NORTH. Not my definition.
    Chairman YOUNG. I know it's not your definition, I know, but I hope you don't take offense because you weren't on this watch. I wished you were on the watch.
    Admiral NORTH. Yes, sir.
    Chairman YOUNG. You'd have a lot of problems today. But you've got to tell me that you don't think—you don't consider that speculation? Do you deal in the stock market?
    Admiral NORTH. No, I don't.
    Chairman YOUNG. You don't? Well, you're probably smarter than I am then. Thank you.
    [Laughter.]
    Mr. POMBO. The difference between a permit to fish and endorsement on a ship, can you explain that to me?
    Admiral NORTH. I believe we're talking about a permit issued by NOAA for certain species, versus the endorsement on a certificate of documentation which allows a vessel to engage in a trade called the fisheries.
    Mr. POMBO. So the definitions are not interchangeable? One is the permission to fish in a particular fishery, the other one is the ability to use a boat to fish?
    Admiral NORTH. One is the ability to engage in a trade; the other is a permit to allow you to take a certain amount of catch or to engage in a certain fishery.
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    Mr. POMBO. So you would—your answer is that there is a big difference between a——
    Admiral NORTH. Yes.
    Mr. POMBO. [continuing] permit and an endorsement?
    Admiral NORTH. Yes.
    Mr. POMBO. Thank you, Mr. Chairman.
    Mr. SAXTON. Thank you, Mr. Pombo.
    Mrs. Chenoweth.
    Mrs. CHENOWETH. Admiral?
    Admiral NORTH. Yes, ma'am.
    Mrs. CHENOWETH. The Coast Guard issues the endorsement?
    Admiral NORTH. The endorsement on the certificate of documentation, yes.
    Mrs. CHENOWETH. And the endorsement transfers with ownership? It's pertinent to the vessel?
    Mr. WILLIS. The endorsement can be issued if the vessel meets the qualifications for the trade. Transfer of an endorsement is not automatic, however. In order for the endorsement to be transferred, the new owner must qualify for the endorsement, either by conforming to the law or qualifying under a grandfather provision, and must make application for the endorsement. Even if the vessel is qualified for an endorsement, if the new owner does not qualify for the endorsement, it cannot be transferred. If the new owner does not apply for the endorsement because of a desire to use the vessel in a service for which the endorsement is not required, the endorsement will not be issued. However, this does not prevent a future qualified owner from obtaining the endorsement.
    Mrs. CHENOWETH. But the endorsement is different than the permit, and——
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    Mr. WILLIS. The endorsement is different from the permit.
    Mrs. CHENOWETH. Can you use the vessel for fishing purposes without the endorsement?
    Mr. WILLIS. Not on U.S. navigable waters or in the EEZ.
    Mrs. CHENOWETH. So the endorsement, then, is appurtenant to the vessel ability to fish?
    Mr. WILLIS. Absolutely.
    Mrs. CHENOWETH. Then one could say that the endorsement is a private-property use right?
    Mr. WILLIS. I'm not qualified to answer that question.
    [Laughter.]
    Mrs. CHENOWETH. If you aren't, who is?
    [Laughter.]
    Now, does NOAA issue the permit to fish?
    Dr. EVANS. Yes, we do.
    Mrs. CHENOWETH. So the permits and the endorsements are two entirely different—one's a permit, and one——
    Dr. EVANS. Right.
    Mrs. CHENOWETH. [continuing] is a right.
    Dr. EVANS. There is a wide range of permits. There are different kinds of permitting that take place in different fisheries and different places. They last for different times. Some of them are tied to quotas; some of them are permission to fish in open access fisheries. There's a wide variety of permits. It's the way that we have to regulate the fisheries basically, yes.
    Mrs. CHENOWETH. Dr. Evans, none of the permits that you have referred to in your answer to me are endorsements?
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    Dr. EVANS. That's correct.
    Mrs. CHENOWETH. There's only one endorsement and that goes with the vessel, right?
    Dr. EVANS. That's correct.
    Mrs. CHENOWETH. The permit goes with the season and the conditions of the ocean?
    Dr. EVANS. Right.
    Mrs. CHENOWETH. Thank you.
    Mr. SAXTON. Thank you, Mrs. Chenoweth.
    Mrs. Smith.
    Mrs. LINDA SMITH. Thank you, Mr. Chairman. You've been very lenient so far, and I appreciate that.
    I have two issues I'm trying to grapple with and that is private-property rights, and obviously the last question Mrs. Chenoweth addressed that. I'm going to try to clarify a question. It's because I don't totally understand, and certainly you do understand the fishery better than I at this point.
    In our household and in our family, we both fish. And we have some that commercially fish, and we have some that are private. But we have known for a long time that when we buy equipment whether it be for private or commercial, that we are relying then on the resource being allocated to us. When I buy fishing licenses or hunting licenses, or even picking berries, I have to go get that permit. And sometimes I get it, depending on the resource, and sometimes they'll restrict it to me. I bought equipment, but the equipment can't be used unless I get the permit. Tell me how it is different with these ships who have the same characteristics, or is it similar? I'm trying to establish a private-property right discussion because I am trying to sort that out. I don't have a right—from what I can see—to hunt or fish anytime I want because I happen to have the equipment. Is there a difference here that would designate some type of a right beyond the fact that I have the equipment. And my equipment is authorized, as are certain of my guns and certain of my—I can't fish with hooks in certain fishing runs if certain equipment is allowed. How is it any different than having equipment and a permit when you come to this fishery?
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    Dr. EVANS. You're directing that—I'll take a crack at that and see if I understand it.
    Mrs. LINDA SMITH. Yes, thank you.
    Dr. EVANS. Obviously, you need appropriate equipment, and we can place regulations upon the characteristics of the equipment that is used to pursue the fishery. But you also need to have a permit; you need to fish in season; you need to comply with a whole variety of regulations with——
    Mrs. LINDA SMITH. Which is what I get when I get a license——
    Dr. EVANS. Exactly.
    Mrs. LINDA SMITH. [continuing] or a permit.
    Dr. EVANS. Exactly.
    Mrs. LINDA SMITH. So it has the same two characteristics.
    Dr. EVANS. Yes.
    Mrs. LINDA SMITH. I'm trying to establish whether I have a private-property right because I have both.
    Dr. EVANS. I can't answer that. I can tell you that the permit is quite analogous to your hunting or fishing permit in general, or your berry-picking permit, for that matter, yes.
    Mrs. LINDA SMITH. The other question I have comes around the amount of investment in these ships. I'm trying to sort each one of them out—where they come from, when they were retrofitted or rebuilt, where they were rebuilt, and where they were capitalized. Because some of them, I'm finding, have 51 percent in America; but where the money is, is really where the control is. So they'll have 51 percent in our State or in our country, but they were totally capitalized somewhere else. They are built—all the money came from somewhere else. So they might show controlling stock interests, but we all know that he that he who has the money is really the one in control. So, what I'm asking is a question of value of these ships. My understanding is we're talking about several million, hundreds of millions of dollars to build these. Is that right?
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    Dr. EVANS. I'm sure in the case of some vessels, yes.
    Mrs. LINDA SMITH. OK. So, if an asset only had—say the value of the original ship was an American vessel, which is what we need, right? We needed something, one little piece of something to be the original. If, let's say, that was the only American investment in dollars, and it was $100,000 dollars in assets. But on paper, it shows that the American interest, which is that, is 51 percent; is that 51 controlling percent just because it shows on paper to be controlling stock?
    Mr. WILLIS. We require that 51 percent of all classes of stock be owned by U.S. citizens, and in our regulations we state that equity is the issue. So we are concerned about U.S. equity in the regulation.
    Mrs. LINDA SMITH. OK. So, that does answer what you're concerned with. I don't know that that answers the actual application right now. But you do consider equity?
    Mr. WILLIS. Yes.
    Mrs. LINDA SMITH. OK, you've answered my questions. Thank you.
    Mr. POMBO. Will the gentle lady yield? I had an additional question.
    Mrs. LINDA SMITH. Yes, I'll yield.
    Mr. POMBO. If we were to remove—is it 23 vessels? Would there be less fish—and I guess this is for Dr. Evans—less fish caught then are currently caught if we took this class of boats out of the fishery? Would you then have less fish taken out of the fishery next year?
    Dr. EVANS. No, I don't think so. There's plenty of capacity there to harvest the full quota of pollock, for example.
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    Mr. POMBO. So it's not a matter of there being there or less fish caught? That would not impact——
    Dr. EVANS. I don't think so.
    Mr. POMBO. [continuing] the decision that you make?
    Dr. EVANS. I don't think so.
    Mr. SAXTON. Will the gentleman yield?
    Mr. POMBO. Yes.
    Mr. SAXTON. Just let me try to make a point which you're speaking to. When Senator Stevens was here, he made the point, and I think he repeated the point, that this is an overcapitalized fishery. And Dr. Evans is right; it is so overcapitalized that taking these ships out of the fishery probably would not reduce the catch, but it moves toward a lesser capitalized fishery which is where we want, eventually, to go.
    Mrs. CHENOWETH. Would the lady yield?
    Mr. SAXTON. The gentle lady's time has expired. We'll be lenient and permit you to ask one more question, and then we're going to move on.
    Mrs. CHENOWETH. Mr. Chairman, in focusing on the overcapitalization rather than either a scarce resource or the overriding public health, safety, and welfare goal which usually has been the standards in the courts for a governmental taking. I, out of great respect for the chairman, I honestly do feel that we're moving into new and unchartered waters. And I appreciate the fact that you are holding this hearing and allowing these issues to come out. And I just want to thank you very much for doing that. But I do think that if this Congress establishes overcapitalization as a new standard for perhaps taking, we may be moving into dangerous waters.
    Thank you very much.
    Mr. SAXTON. Admiral, let me just ask my questions, if I may. Other types of fishing vessels are endorsed by the Coast Guard as well; is that right? Smaller vessels?
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    Admiral NORTH. Yes, sir. All vessels that are in the fishery, whatever fishery it may be.
    Mr. SAXTON. Scallop fishery, the long-line fishery——
    Admiral NORTH. For U.S. flag vessels.
    Mr. SAXTON. [continuing] whatever the fishery is?
    Admiral NORTH. Yes, sir.
    Mr. SAXTON. In New England, we recently saw—or there is recently pending from Dr. Evans' shop, a proposal to dramatically reduce fishing days permitted for scallopers. If that new regulation is adopted, does there come into play a takings issue?
    Admiral NORTH. Again, I don't believe that I can really answer a question on taking versus——
    Mr. SAXTON. Well has there historical, when we reduce permitted catches? Has there ever been a takings issue?
    Admiral NORTH. Not that I'm aware of. I'm not versed in what a taking issue is. I'm not a lawyer; all I can tell you is the vessel documentation laws don't get into that issue.
    Mr. SAXTON. Dr. Evans, would you like to comment?
    Dr. EVANS. Let me just check with my counsel. I don't believe that there's a case.
    No, to the best of our knowledge, there's not—the issue has not been raised. We regulate fisheries, increase quotas, decrease days at sea, increase them, have closed areas. There are many kinds of regulations which greatly impact the fisher's ability to prosecute the fishery.
    Mr. SAXTON. In the Gulf of Mexico, back in the 1980's, we required a gear change for shrimpers with the provisions relative to turtle-excluder devises. Was there any takings issue considered there?
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    Dr. EVANS. Not that I'm aware of.
    Mr. SAXTON. When we closed the red fish fishery in the Gulf of Mexico, was there a takings issue?
    Dr. EVANS. No, sir.
    Mr. SAXTON. Striped bass in the northeast?
    Dr. EVANS. No.
    Mr. SAXTON. Fifty percent reduction in shark in the Atlantic?
    Dr. EVANS. I don't think so; no. It hasn't been raised as an issue.
    Mr. SAXTON. Sea urchins on the West Coast?
    Dr. EVANS. No, sir.
    Mr. SAXTON. So without going further, which I could do, basically we have set a—we're not upon setting out on new waters here or creating a new precedent with our discussion here. If we fail to issue permits or if—let me ask this question. Can the Congress change the eligibility standings for qualifying for fishing permits?
    Dr. EVANS. I believe so; yes.
    Mr. SAXTON. And as far as you——
    Dr. EVANS. I mean you've established the laws under which we issue the permits. We try to prosecute those laws as best we can.
    Mr. SAXTON. And if we choose to say, in establishing qualifications for fishing permits that of a ship over 165-feet long with more than 3,000 horsepower does not qualify for a fishing permit, then you could administer that law without fear of reprisal under some kind of a takings?
    Dr. EVANS. Well, I'm not sure—we would certainly administer that law. If you passed it, we would certainly administer that law. But in my experience in the Fishery Service it seems possible for us to be, you know, sued and challenged on almost all the decisions that we prosecute——
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    [Laughter.]
    [continuing] so, I wouldn't go so far as to say that we wouldn't be, but we would certainly comply.
    Mr. SAXTON. Does changing qualifications lead to any compensation generally to those who don't meet new qualifications?
    Dr. EVANS. Not that I'm aware of; no.
    Mr. SAXTON. Thank you very much. I have no further questions.
    Mrs. CHENOWETH. Would the gentleman yield?
    Mr. SAXTON. Briefly.
    Mrs. CHENOWETH. Thank you, Mr. Chairman. I very much appreciate your indulgence, but I think there's a fine line that you so astutely were able to bring out.
    Dr. Evans, do you have any authority or any jurisdiction over the issuance of an endorsement?
    Dr. EVANS. No, ma'am, we do not. The endorsements are issued by the Coast Guard.
    Mrs. CHENOWETH. And so, for the retrofitting of a boat such as we see here, you have absolutely no authority over that?
    Dr. EVANS. That's correct.
    Mrs. CHENOWETH. And your authority lies with the issuance of the permit and the carrying out of the terms and conditions of the permit?
    Dr. EVANS. That's correct.
    Mrs. CHENOWETH. Such as closing fishing to certain species in certain areas, you have that authority?
    Dr. EVANS. That's right.
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    Mrs. CHENOWETH. And the permit is seasonal?
    Dr. EVANS. Can be, yes. Or——
    Mrs. CHENOWETH. And the permit is not appurtenant to the property or the vessel, itself; right? The permit is issued on the basis of ocean conditions and the season?
    Dr. EVANS. Right, and can only be issued to people who are qualified, for example, who would have an endorsement.
    Mrs. CHENOWETH. The endorsement has to come first?
    Dr. EVANS. Right.
    Mrs. CHENOWETH. Thank you, Doctor.
    Mr. SAXTON. Thank you very much, Panelists, for your testimony and for answering our questions.
    At this time, we're going to move on to panel No. 3. We have Mr. Joe Plesha, the general counsel of Trident Foods Corporation; Mr. Jim Gilmore, director of Public Affairs at the At-Sea Processors Association; Mr. Eugene Asicksik, president of Norton Sound Economic Development Corporation; Mr. Michael Kirk of Cooper, Carvin and Rosenthal; Mr. Frank Bohannon, the vice-president of United Catcher Boats; and Mr. Gerald Leape of Greenpeace.
    Welcome aboard, if you can all fit.
STATEMENT OF JOE PLESHA, GENERAL COUNSEL, TRIDENT SEAFOODS CORPORATION
    Mr. PLESHA. Thank you, Mr. Chairman, members of the Committee. I appreciate the opportunity to testify today. My name is Joe Plesha, and I work for Trident Seafoods.
    Mr. Chairman, during consideration of the Anti-Reflagging Act, you, Congressman Young, and other Members of Congress were led to believe that there were substantial, identifiable, and irrevocable commitments by U.S.-owned fishing companies to rebuild their vessels in foreign shipyards. In reliance on those representations, Congress allowed foreign rebuilding for particular owners of vessels which were purchased before July 27, purchased with the intent that the vessels be used in the fishery, and which had entered into a contract to rebuild that vessel in foreign shipyards by July 12, 1988.
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    I'd love it if I could describe each and every project that entered in under this grandfather provision, but because of time, I just want to describe two that came in under this grandfather.
    Congress was told that the vessel STATE EXPRESS would be converted into a 500-gross ton, Coast Guard-inspected refrigeration cargo vessel. The facts are that on July 8, 1987, Sunmar Holdings acquired an option to purchase the STATE EXPRESS. The agreement required that Sunmar convey in writing to the seller its intent to purchase or reject the vessel by September 6th. That option was extended twice.
    Finally, on February 29, 1988, 7 months after the purchase cutoff date, Sunmar gave written notice of its intent to purchase the vessel. Then on July 10, 1988, 2 days before the rebuild cutoff date, Sunmar signed a document which contemplated rebuilding this vessel in a Norwegian shipyard. But the document contained conditions which allowed either party to walk away from the project without penalty. Under U.S. law, there was no legally binding consideration. Lawyers representing the project said that U.S. law didn't matter because the agreement was a valid contract under Norwegian law.
    The STATE EXPRESS, a vessel of less than 500 gross tons was ultimately rebuilt into a 376-foot factory trawler of almost 5,000 gross tons, now called the ALASKA OCEAN.
    A second example is the vessel ACONA. Although the rebuilt grandfather specifically requires that evidence of the intent that the vessel was purchased for use in the fishery be in the contract of purchase itself, this small research vessel was grandfathered based solely on a very short letter of intent. According to the seller of the ACONA, he was asked to sign that undated letter of intent well after the actual sale. The letter was then allegedly backdated and submitted to the Coast Guard as evidence of the intent that the vessel was purchased for use in the fishery. The paperwork for this project was then sold to a foreign-owned fishing company, and the vessel was rebuilt into what now is the AMERICAN TRIUMPH, the single largest fish producer in the Bering Sea pollock fishery.
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    Now lawyers representing these projects claimed that they were just following the plain meaning of the statute's grandfather provisions. But the plain meaning of the language requires that these foreign rebuilt vessels be under a contract of purchase, not an option to purchase. The plain meaning of the statute requires evidence of intent to use the vessel in the fishery, quote, ''be in the contract itself,'' close quote, not in a backdated letter of intent. The plain meaning requires a rebuilding contract entered into by July 12, 1988. And I can only assume that Congress meant a rebuilding contract valid under U.S., not Norwegian, law.
    These boats do not belong in the U.S. fishery under the law, Mr. Chairman. The Coast Guard blew the call. I think the Coast Guard made a disastrous decision when it issued ruling letters allowing foreign-owned corporations to purchase any vessel that was in the fishery as of 1987.
    In the case of the foreign ownership grandfather, though, at least the Coast Guard's Division of Maritime and International Law got the call right when it held the correct interpretation is that the savings provision terminates once the vessel is sold or transferred. Unfortunately, the Coast Guard's written, legal opinion was not followed by its Special Documentation Office.
    Because of abuses in the Act's grandfather provisions, a flood of foreign-built, foreign-owned, foreign-subsidized vessels has entered the North Pacific fisheries. Foreign control of our fisheries is increasing each year. It is likely that over a billion pounds of groundfish is now harvested in the North Pacific by foreign-owned fishing vessels. The pollock season has been reduced from a year-round fishery in 1989 to one that lasts just over 2 months each year now. The remainder of the year, our investments lie idle.
    My company, Trident Seafoods, is 100 percent American-owned. It's a seafood processing company, and during its 25-year history, we have never once declared a dividend for our company shareholders. Instead, all of our earnings have been reinvested back into the business. After the Anti-Reflagging Act was passed in late 1987, we invested well over $100 million dollars to expand our plants in Alaska to process pollock into various product forms including surimi. Every penny of the money of those investments came from earnings or borrowings from U.S. banks. Trident's plants were built with U.S. materials, U.S. labor; our employees are U.S. residents.
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    We made these investments because the cornerstone of the Magnuson-Stevens Act was to Americanize the utilization of our Nation's fishery resources. Yet, unless Congress removes the fishing privileges—and I do mean privileges—from the vessels that blatantly abuse the Act's rebuild provision and requires true U.S. ownership and control of American flag fishing vessels, the goals of the Magnuson-Stevens Act will have been defeated. And those of us who invested everything that we had in this industry to truly Americanize the fishery will be displaced.
    Thank you.
    [The prepared statement of Mr. Plesha may be found at end of hearing.]

    Mr. SAXTON. Thank you very much.
    Mr. Gilmore, please.
STATEMENT OF JIM GILMORE, DIRECTOR OF PUBLIC AFFAIRS, AT-SEA PROCESSORS ASSOCIATION
    Mr. GILMORE. Thank you, Mr. Chairman, and members of the Committee. I am Jim Gilmore; I represent the At-Sea Processors Association, a trade association comprised of companies that own and operate 23 U.S. flag catcher/processor vessels. Our member vessels participate primarily in the Bering Sea pollock and West Coast Pacific whiting fisheries. APA companies have made significant contributions to Americanizing U.S. fishery resources and in creating benefits in the local, regional, and national economy.
    Recently, competing fishing interests have attempted to mischaracterize U.S. flag catcher/processors as foreign vessels because of foreign investment in the fleet, such as that found in many other sectors of the U.S. seafood industry.
    All vessels in the U.S. catcher/processor fleet are U.S.-built vessels and are operated by U.S. corporations formed under the laws of the U.S. or a State. The corporations and documented U.S. vessels are subject to all laws of the U.S., including tax, environmental, labor, and all other applicable laws and regulations. We are subject to maritime manning requirements, that 75 percent of the crew members on-board vessels be U.S. residents. We estimate that APA member vessels easily exceed that minimum requirement.
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    Our principal competitors, onshore processors, are not subject to similar manning requirements. And independent reports indicate that, indeed, Bering Sea shore plants hire a high percentage of foreign guest workers. Government surveys report that at-sea processing workers earn two to three times higher wages than workers in onshore plants. Also, the catcher/processor fleet produces a higher percentage of pollock products for the domestic consumer. Major U.S. seafood buyers such as Long John Silver's restaurants point out that onshore plants, particularly the Japanese-owned onshore processors in the Bering Sea, largely produce surimi for export to Japan regardless of what market prices are between surimi and fillet products, the two principal product forms.
    It has also been pointed out by the National Marine Fisheries Service, and more importantly in the seafood marketplace, that at-sea processed products are consistently higher grade than pollock products made onshore. That benefits the American consumer and helps boost U.S. export earnings for those products that we do produce for overseas markets.
    While our record of Americanizing the North Pacific fisheries is good, some suggest going further. Some suggest revoking the ownership grandfather contained in the Anti-Reflagging Act that extends to most U.S. fishing and fish processing vessels. The grandfather exempts these vessels from having to meet the 51 percent U.S. citizen ownership requirement.
    APA member companies support eliminating the grandfather rights that cover all of our catcher/processor vessels. Revoking the grandfather will result in changes of ownership for certain companies. APA urges that companies be provided a reasonable period of time to comply with the new set of rules. In addition, we do compete in an international marketplace, and ask Congress not to limit our ability to sign long-term marketing agreements with foreign buyers or to seek financing from abroad.
    Unfortunately, some advocate going even further, that is revoking fishery endorsements for a substantial portion of the U.S. catcher/processor fleet when they come into compliance with new ownership standards. That's right. Some advocate eliminating vessels from the fishery that have lawfully and responsibly participated in U.S. fisheries since 1990 and earlier. This proposal places at risk at least 1,500 jobs held by licensed officers, fishermen, and processing workers. It will also force the forfeiture of investments held by individuals who relied on the law as well as executive and judicial branch rulings that confirm that their projects were consistent with all relevant laws and regulations.
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    We have up here a third chart—perhaps a little less dramatic than Senator Stevens: You see the cover of this month's Alaska Fishermen's Journal, ''In and Out?''—question mark. You'll see the two vessels in the top right-hand corner. They are foreign-built vessels that would be allowed to stay in under the Senate bill. The other vessels are U.S.-built, but foreign-rebuilt, vessels that would be out under the legislation.
    Some advance the rationale that revoking fishery endorsements for certain U.S. catcher/processors is intended to punish speculators. These speculators are individuals deemed to have rushed through business deals back in 1987 that resulted in the rebuilding of vessels overseas. But the proposal to bar certain vessels from the fishery doesn't penalize the speculators, they are long gone. It punishes the American workers, fishermen who have stayed the course, or more recent purchasers of vessels who made investments based upon the law.
    Another rationale is that the fisheries are overcapitalized. Mr. Plesha and Mr. Bohannon suggest that someone has to go, and that someone would be us. And that is the nub of the issue, allocation. Should Congress be in the business of allocating fish among participants in the fishery?
    NMFS has stated in its Senate testimony that proposals to bar certain vessels from the Bering Sea pollock fishery offer no conservation benefits and are not an effective method of addressing overcapitalization. The same amount of fish will be caught. There will continue to be a race for the fish. And NMFS has even suggested that within 1 or 2 years, capacity would return to the fishery that was taken out under the Senate legislation. There is not likely to be a reduction in bycatch, nor will there be increased utilization of fishery resources as the race continues.
    There will be winners and losers, but legislating winners and losers in the marketplace is not Americanization.
    Thank you, Mr. Chairman.
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    [The prepared statement of Mr. Gilmore may be found at end of hearing.]

    Mr. SAXTON. Thank you very much.
    Mr. Asicksik.
STATEMENT OF EUGENE ASICKSIK, PRESIDENT, NORTON SOUND ECONOMIC DEVELOPMENT CORPORATION
    Mr. ASICKSIK. Yes, thank you, Mr. Chairman, members of the Committee. My name is Eugene Asicksik. I am president of Norton Sound Economic Development Corporation, which is a managing organization for 15 western Alaska villages participating in the Western Alaska Community Development Quota Program.
    Let me start by saying that NSEDC is totally in support of the Americanization of the Bering Sea fisheries. In fact, from our standpoint we are not only in support of Americanization, but also Alaskanization.
    This has happened in our case where 15 western Alaska villages of NSEDC have 50 percent ownership of Glacier Fish Company, a company which owns two catcher/processors and one long-line vessel. Our ownership carries through to the harvesting, the processing, and the marketing of the fishery. Through our direct participation and in ownership in the Bering Sea fisheries, we have learned a lot about the Bering Sea, both what is working and what is not working.
    In addition to NSEDC, another CDQ group has an ownership position in catcher/processor, and several CDQ groups have ownership positions in long-line vessels and crabbers.
    In the pollock fishery, which is the single largest fishery in the Bering Sea, there is extensive foreign ownership in the onshore sector. Nearly 70 percent of the onshore factories which process Bering Sea pollock are foreign-owned. This foreign-owned processing carries directly through to foreign-owned marketing. Almost all of the production of the shore-based plant is surimi, which is largely the Japanese market. In addition, foreign ownership is increasing in the catcher boat fleet which delivers to the foreign-owned processors.
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    In summary, the Bering Sea pollock and onshore trend is actually going backward to more foreign.
    I should clarify a point here which occasionally causes confusion. In the Bering Sea pollock fishery, the term onshore and offshore refer to the physical location of the processing facilities. They do not mean domestic and foreign as the onshore and offshore label might imply if we were referring to, for example, banks.
    So back to the pollock fishery; in the offshore sector, there are vessels called motherships which are vessels which only process the pollock after being harvested and delivered by catcher boats. And there are catcher/processors in which both activities take place on the single hull. The three motherships in the fishery are all owned, financed, or operated by foreign entities.
    In the catcher/processor portion of the fishery, the companies operating the fishery are mostly U.S.-owned. But one large firm is foreign-controlled. This firm has most vessels so that where the catcher/processors overall, foreign ownership is approximately 60 percent. We estimate that our little only owned, U.S.-owned and half Alaskan-owned company, Glacier Fish Company, has about 9 percent market share among the catcher/processors. To our knowledge, there are no Alaskan ownership with a shore-based processing plants. The Alaskan ownership which has started to show up in the Bering Sea pollock fisheries in the offshore sector. In the Bering Sea there is still significant foreign presence. In the biggest picture of harvesting and processing and marketing pollock, Americanization has occurred the most among the catcher/processors including a trend of Alaskanization of which we are very proud of.
    In our support of Americanization, we have an additional point we wish to make. Some of the measures and proposals which might be proposed and those of Senate bill 1221 have measures regarding both Americanization and capacity reduction. We believe that this is critically important for Congress if it is to affect measure regarding capacity reduction, to take precautionary measures against reallocation of fish to less Americanization sectors. If, for example, there were capacity reductions in catcher/processor fleet such as might occur in the passage of S. 1221, we are very fearful that there will be assertions in North Pacific Fishery Management Council that Congress intended for there to be a companion at reallocation for the onshore sector. Any such reallocation would defeat Americanization; Congress would have succeeded in Americanizing the offshore fleet. Then the fishery would slip away to the foreign-dominated onshore fleet.
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    In conclusion, Mr. Chairman, we believe strongly in Americanization because of the great benefit which the Bering Sea fisheries have brought to western Alaska villages through the CDQ program. We also are very proud of the Alaskanization of this fishery. And most American presence in this fishery to date is with the catcher/processors. We would support further Americanization. We have a fear, however, that a measure to Americanize the fishery are at risk of being defeated if they do not apply equally to the onshore sector. If they are not to be applied equally to the shore-side sector, then we strongly urge to be viewed to place a moratorium on other protective measures to prevent our Bering Sea resources from being reallocated from an Americanized sector to foreign-dominated sector.
    Thank you.
    [The prepared statement of Mr. Asicksik may be found at end of hearing.]

    Mr. SAXTON. Thank you very much, Mr. Asicksik.
    Mr. Kirk, please.
STATEMENT OF MICHAEL KIRK, COOPER, CARVIN AND ROSENTHAL
    Mr. KIRK. Thank you, Mr. Chairman. Mr. Chairman, members of the Committee, I appreciate the opportunity to be here today. My purpose was to lay to rest the tenuous argument that has been made by some that legislation along the lines of S. 1221 would work a taking of private property in violation of the takings clause of the Fifth Amendment. In large part, however, Mr. Chairman, you and Chairman Young and Senator Stevens have beaten me to the punch and have made the point that is dispositive of any claim that a taking would take place.
    Fishing is not—and throughout our history has never been—a property right. Rather, it is a privilege that has been granted by the State and Federal Governments and is, and continues to be, fully subject to the regulatory authority of Congress and the States.
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    My partner, Chuck Cooper, who during the Reagan Administration served as head of the Office of Legal Counsel in the Department of Justice, has carefully analyzed the claim that has been made that a bill like S. 1221 would work a taking. And I can report with some confidence that the Supreme Court's Fifth Amendment jurisprudence, along with numerous cases from the lower Federal courts, fully confirm your understanding of the law in this area.
    As an initial matter, no reasonable claim can be made—and I don't understand one to be made—that the Senate bill or like legislation would result in a physical taking of the vessels, for the bill neither directly appropriates vessels nor ousts the owner of possession of the vessels, nor does it require owners to acquiesce in any physical invasion or occupation of their vessels. Any takings challenge, therefore, must allege that the bill effects what the Supreme Court has called a regulatory taking of some right that's been secured by regulation. Analysis under either of the two broad conceptual approaches that the Supreme Court has taken to regulatory takings yields the inescapable conclusion that S. 1221 or any legislation like it would not effect a regulatory taking.
    Now some have argued that under the Supreme Court's decision in the Lucas versus South Carolina Coastal Commission case, a taking of vessels could be effected because a bill like S. 1221 somehow denies owners of all economically beneficial use of the vessels. For several reasons, that analysis is inapt. As an initial matter, it is not at all clear that Lucas even applies to personal property like vessels. The Supreme Court did note in Lucas, that the principles applied to the real property at issue in that case did not necessarily give rise to similar conclusions in cases involving personal property.
    But beyond whether or not it applies to personal property, the plain fact is that the value of affected fishing vessels simply will not be significantly diminished by any legislation such that it could be said that the bill would deprive vessel owners of all economically beneficial use of their vessels.
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    The courts that have applied that test have determined without setting a specific threshold that it generally means upwards of 90 percent of the fair market value of the property must be taken to work a regulatory taking in this area.
    There can be no question that legislation such as that introduced by Senator Stevens would at most require owners of vessels subject to the bill to sell their vessel or to use their vessel in fisheries outside the EZZ—EZE, excuse me, EEZ, I'll get it right the third time. In that regard, it is noteworthy that well over 90 percent of the fish that have been harvested worldwide have been harvested outside the EEZ. Accordingly, there can be no question that any sale that would take place in response to legislation enacted by Congress would take place at a price at or approaching fair market value. In other words, at a value far in excess of any claim that all economically beneficial use has been deprived. Even vessels that are forced to surrender their fishery endorsements would continue to be able to fish outside the EEZ. And finally, any vessels that lose or have their ability to fish within the EEZ limited by such legislation could be converted to other economically beneficial uses.
    In summary, whatever policy considerations may guide the members of this Committee as you deliberate over the merits of proposals to alter Magnuson-Stevens or the Anti-Reflagging Act, the potential that the Federal Government will be compelled to pay compensation to owners of affected fishing vessels can safely be dismissed.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Kirk may be found at end of hearing.]

    Mr. SAXTON. Thank you very much, Mr. Kirk.
    Mr. Bohannon.
STATEMENT OF FRANK BOHANNON, VICE-PRESIDENT, UNITED CATCHER BOATS
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    Mr. BOHANNON. Thank you, Mr. Chairman. Mr. Chairman, and Committee Members, my name is Frank Bohannon and I am vice-president of United Catcher Boats.
    UCB consists of 58 harvesting vessels, and we fish principally in the North Pacific for pollock and whiting. I have been a fisherman for 35 years, and I own a vessel called NEAHKAHNIE that participated in the first joint ventures in 1979 and 1980 where we began the Americanization of the pollock and whiting fisheries. I now have two sons fishing in those fisheries, and one of them runs the vessel. We are an American fishing family.
    Over 20 years ago, we fought hard to pass the 200-mile limit law to Americanize our fisheries and end foreign fishing in our waters. Ten years ago, Congress passed the Anti-Reflagging Act in support of full Americanization of U.S. fisheries. At that time, U.S. fishermen had fully Americanized the harvesting but not the processing of North Pacific fishery resources. Today, we have more foreign fishing in our waters than we did 10 years ago. So, UCB asks this Subcommittee to approve legislation that will put an end to foreign fishing in our waters and fully Americanize our fisheries.
    The 1987 Act did more to harm American fishermen in the North Pacific than it did to help them. Boats like mine went from harvesting 92 percent of the catch in 1987 to only 26 percent in 1990. Our catches were reduced by 66 percent over a 4-year period because Congress was told that in order to Americanize the processing industry, our foreign partners had to go.
    The 1987 testimony before Congress was all about U.S. processing replacing foreign processing. There was almost no testimony about the new harvesting capacity coming into the fishery. The issue was processing, and we were given every assurance that the Congress did not intend to harm U.S. fishermen. Unfortunately, the 1987 Act had a severe negative impact on the catcher boat fleet because it allowed 17 or so foreign-owned, foreign-built, and heavily subsidized factory trawlers to enter our fishery and harvest in direct competition with an Americanized catcher boat fleet. This was certainly not the intent of the 1987 Act or the Magnuson-Stevens Act. Congress did not intend to allow foreign companies to buy and sell ownership in foreign-built factory trawlers. Yet, in spite of this, the Coast Guard Documentation Office, against the advice of their own lawyers, issued letter rulings which exempted foreign owners from complying with the new U.S. ownership and rebuild requirements. This was wrong, and I hope this Committee will investigate why the Coast Guard so subverted the intent of Congress.
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    Ten years ago, my vessel fished throughout the entire year and harvested enough annually to create a viable business. Over the last 5 years, I have seen many factory trawler companies go broke and the vessels assimilated into the empire of a foreign factory trawler company. I have also watched a number of my fellow catcher boat captains who pioneered the North Pacific in the 1980's reluctantly sell their vessels to large processing companies. Fishing less than 3 months out of the year for little or no profit has taken the future out of the fishery.
    S. 1221 corrects a wrong that was done some years ago by restoring the intent of the Magnuson Act that American fishermen get first priority. We had achieved that in the late 1980's. The misinterpretation of the Anti-Reflagging Act by the Coast Guard undid all our gains and has given foreign fishing companies a large share of our fisheries resources. It is time to fix that. For the sake of preserving American fishing communities, we ask that you approve legislation similar to S. 1221 as quickly as possible.
    United Catcher Boat believes the key element to the legislation are as follows:

    Removal of the foreign-owned fleet. UCB believes that those foreign-owned factory ships that sneak through the loopholes in the 1987 Act and have not provided any meaningful markets for U.S. harvesters must be removed from the fishery. This non-citizen, heavily subsidized, new entrant fleet contributed greatly to the overcapitalization of the industry, should not have been allowed to enter our fisheries in the first place, and have had 10 years of fishing opportunities at the expense of the existing fishermen.
    The ownership. A new 75 percent U.S. ownership requirement to be established for all fishing industry vessels. In order for a vessel to be eligible for a fishery endorsement, it would have to be owned by an entity which has at least 75 percent of the controlling interest vested in citizens of the United States. Virtually all of our vessels already meet this requirement, and we strongly support a tougher U.S. ownership standard.
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    No reentry into the U.S. fishery. The legislation should contain a provision that will prevent the issuance of any new fishery endorsements for fishing vessel that have reflagged foreign and left our fisheries. The owners of these vessels have made a conscious business decision to fish in Russia or other foreign waters. And in light of the overcapitalization of our fisheries, we do not think these vessels should be allowed back into our fisheries.
    National vessel size limitation. UCB recommends that if Congress wants to establish vessel size limits within our fisheries that it direct the Management Councils to do so. While most of the harvesting vessels are under the 165-foot threshold proposed in the Stevens bill, several are not. Many of our fisheries are already under limited entry, meaning that the threat of new, large vessels entering the fisheries is not great. UCB would support a requirement that directs the Councils to review this issue on a fishery-by-fishery basis and prescribe appropriate vessel size limitations in those fisheries where it is needed.
    Excessive control. As catcher boat owners, UCB wants more competition in the marketplace so that we receive the fairest price for our fish. We hope that the Subcommittee will consider a provision that will ensure that no company would obtain excessive control within the fisheries as a result of the enactment of the legislation. In removing the foreign-owned fishing fleet, we would like to see additional markets open up, as opposed to closing markets for our catch and further consolidating control of the fisheries.
    Again, thank you for the opportunity to testify, and I would be pleased to answer any questions. Thank you for letting me go overtime.
    [The prepared statement of Mr. Bohannon may be found at end of hearing.]

    Mr. SAXTON. Thank you very much, sir. We appreciate it, and we'll get to the questions here in a minute.
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    Mr. Leape.
STATEMENT OF GERALD LEAPE, GREENPEACE
    Mr. LEAPE. Thank you, Mr. Chairman. On behalf of Greenpeace, I want to thank you for the opportunity to testify at this oversight hearing on the failure of the Magnuson-Stevens Act and the Anti-Reflagging Act to Americanize the ownership of fish harvesting vessels in U.S. fisheries.
    These failures have allowed 13 of the largest factory trawlers to enter the world's largest fishery, the pollock fishery between 1988 and 1990. These vessels have not only had a devastating environmental impact on the Bering Sea ecosystem and the fishery it supports, but if gone unchecked could eventually impact fisheries both on the Pacific Coast and in New England. These boats which increased fishing capacity in the pollock fishery exponentially have had detrimental impacts on the pollock stocks, on other marine mammals and birds that rely on fish, and as you've heard, small-scale fishermen who have been the life line of many of our Nation's coastal communities for decades.
    In addition, as the seasons have gotten shorter, it's become increasingly difficult for many of the factory trawler crews to earn livable wages. I direct you to a recent article in the Tacoma News Tribune. In 1989, the last year before these boats began to enter the fishery, boats were able to fish for pollock year round. And as you've heard, in 1997 the fishery lasted just 55 days. In 1991, the first full year that all of these boats were active in the fishery, factory trawlers caught over 1 million metric tons of pollock, or almost 70 percent of the total prompting the enactment of a mandated allocation split, split seasons, and an end to the practice by the Council of mandating a buffer between the scientifically suggested limit of catch and the actual allowable catch.
    The increased effort in the split season have forced the fishery into greater concentrations of fishing in smaller areas of the eastern Bering Sea, much of which is critical habitat to many marine mammals where they forage for food. In addition, there has been a tenfold increase in fishing on pollock as they're spawning.
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    The impact of this increase is beginning to be seen. The half a million metric ton quota for the spawning season represents almost 25 percent of the estimated total spawning biomass of 2.2 million metric tons. Even if there is no mandated reduction in catch, as we frankly hope there will be, allowing the fishery to spread out over space and time will inevitably have a conservation benefit.
    The fishery is now dependant on a strong recruitment of a 1996-year class to stave off more draconian action by the year 2000. And I direct you to a plan team graph at the end of my testimony that you have before you.
    Finally, there is the bycatch issue. The operators of the boats being investigated today say that they are among the cleanest fishers in the world. They are careful not to compare themselves to their shoreside competitors. Using National Marine Fisheries Service numbers, that have been cleansed to show that they correspond to the specific fishery, these boats have a bycatch rate that is two to three times that of their shoreside counterparts. As recently as 1997, these boats were wasting more fish than the catch of many of the rest of the fisheries in the U.S. combined.
    What is done, or not done, with these boats will have an impact on the rest of the country as well. For the West Coast, if the pollock fishery continues to decline, these large factory trawlers will have to look elsewhere to fish, making it difficult for many of the Pacific fisheries to maintain their limitations on entry. On the East Coast, a campaign supported by environmentalists such as the National Resources Defense Council, the American Oceans Campaign, and others, fishermen from coast to coast, and this Committee overwhelmingly endorsed action last summer, H.R. 1855, which resulted in an appropriations rider preventing the factory trawler, ATLANTIC STAR, rebuilt in a Norwegian shipyard, from entering the Atlantic herring and mackerel fisheries.
    As many of you know, the Fisheries Service has fought the implementation of that rider every step of the way. That moratorium on factory trawlers needs to be extended to allow completion of the plan without a factory trawler waiting in the wings.
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    Toward that end, we would urge you in legislation to mirror the language in S. 1221 on this issue. Many of the groups that were active on the East Coast campaign last year have lined up in support of S. 1221 and would be poised to support you, Mr. Chairman, if you choose to introduce a companion bill in the House.
    All around the world over-fishing and destructive fishing practices on the part of factory trawlers are destroying fish stocks damaging ecosystems and threatening the livelihoods of millions of people. On the East Coast to the U.S. and Canada, over-fishing by foreign factory trawlers has cost almost 40,000 jobs.
    Mr. Chairman, we strongly urge you to introduce legislation that will not only phaseout these boats which are being the subject of this hearing, but to include provisions from S. 1221 which would limit the allowable size, weight, and power of the new vessels, eliminate the remaining subsidies that could be used to build these large boats or expand existing boats, and prohibit the replacement of remaining vessels that currently exceed these limits at the end of their useful life.
    Failure to act this session could spell the beginning of the end of the Bering Sea pollock fishery in the North Pacific.
    Thank you, and I'd be happy to answer any questions.
    [The prepared statement of Mr. Leape may be found at end of hearing.]

    Mr. SAXTON. Thank you, Mr. Leape. Thank all of you for your very fine testimony.
    Mr. Young, do you have a question?
    Chairman YOUNG. Thank you, Mr. Chairman.
    Eugene, the CDQs have environmental restrictions placed on them in the form of bycatch. Could you comment on those restrictions and the environmental restrictions as far as the open access of the fishery?
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    Mr. ASICKSIK. Yes; the CDQ program, as you well know, is an allocation program, and they are six groups that apply to the State of Alaska who has an oversight. And each CDQ group has to submit a Community Development Plan to the State. And we have to identify the targeted fisheries, and we have to identify that we would have a vessel, a certain—the type of vessel, what kind of processing, what kind of marketing, and you know, the cost.
    And once all of that is submitted, the State allocates. And they also, when they allocate the targeted fishery, they also allocate a prohibited or a bycatch allocation. And the bycatch allocation can vary from specie to specie. But also in that bycatch allocation is that if we go over our bycatch in a targeted fishery, we cannot target the other fishery. So if we have two fisheries that have the same type of bycatch, and one is 15 percent and the other one is 20 percent. Say, we went over in one fishery, we can't go and harvest the other fishery.
    Chairman YOUNG. OK. Now what I'm suggesting here is that you have a quota or amount of tonnage that you're allowed to catch; right?
    Mr. ASICKSIK. Yes.
    Chairman YOUNG. You can catch that over a longer period of time, can't you? You don't have free-for-all fishery, do you?
    Mr. ASICKSIK. No, we're not. We can fish outside of the open access fishery, or CDQ fishery can take place outside——
    Chairman YOUNG. OK——
    Mr. ASICKSIK. [continuing] or prior or after.
    Chairman YOUNG. Now, what I've heard from everybody on that table that I don't—even you, Jim, think there's an overcapitalization of the fishery?
    Mr. GILMORE. Yes. There is certainly an overcapitalization of the fishery. Where the CDQ program works well is that they don't race to catch the fish and, therefore, they're able to control the bycatch similar to the Pacific whiting cooperative.
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    Chairman YOUNG. I would like to refer again to my opening statement—I want to stress this again, Mr. Chairman—is again, for those that are being paid lots of money to represent everybody in this room, you better listen to me very carefully because the issue here is the retention—with all due respects to Greenpeace—the retention of a viable trawl industry which does play a major role, other than an environmental role. A role that I don't think is on the positive side. That this overcapitalization, this free-for-all fishery, and I think the excessive amount of bycatch has to stop. And I think it appears to me, if you're right, Gene, that the CDQs have done that. Is that correct?
    Mr. ASICKSIK. Yes, we have. And as the regulations are being written, we will, you know, go into the other fisheries. We've done the pollock; we are able to do the halibut and sable fish. And I understand, by August, we will start the mackerel and——
    Chairman YOUNG. OK.
    Mr. ASICKSIK. [continuing] shortly we should fish the other fisheries.
    Chairman YOUNG. Joe, would you clarify something in your testimony? The District Court and the Appeals Court rulings, with regard to Southeast Shipyards Association of the United States versus United States case, specifically did the original case deal with both the American ownership and foreign rebuilding saving clauses? And did the Appeals Court ruling deal with both issues?
    Mr. PLESHA. Thank you, Mr. Chairman. Just to refresh your recollection, that case was about two vessels, the GULF FLEET 10 and the GULF FLEET 14. Those vessels were purchased on the very last day, July 27, right before the Committee's markup. They were then contracted to be rebuilt in a Norwegian shipyard. After that, they were subsequently sold to a foreign company—I believe a Japanese company. They were then taken to Japan and rebuilt in a Japanese shipyard to completely different specifications than the original rebuild contract. Southeast Shipyards brought a lawsuit against the Coast Guard. That lawsuit made two allegations. One is that the Coast Guard misinterpreted the ownership requirement because they allowed the boat to be transferred to foreign ownership. And second, they requested in their complaint that these specific vessels be investigated, the Coast Guard make findings, and revoke the fishery endorsements because they had violated the rebuild provision of the Anti-Reflagging Act.
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    The District Court granted the plaintiff's motion for summary judgment because their memorandum in support of that then discussed the idea that the concept of the Anti-Reflagging Act was Americanization, the Coast Guard asked for a clarification. The clarification was denied. The ownership issue was appealed, and eventually reversed. But the Order, with regard to the rebuilding provision specific to those two boats, has never been reversed.
    Chairman YOUNG. And so the Coast Guard hasn't fulfilled their obligation, according to that?
    Mr. PLESHA. I believe so.
    Chairman YOUNG. Again, I think the Coast Guard came here very ill-prepared for this testimony, as they did in the Senate. And I think it's a slap to the Congress. And now we have this court case that actually verifies that.
    I'm about out of time, Mr. Chairman, so go ahead and I'll ask more questions later on.
    Mr. SAXTON. Thank you very much.
    Mr. Pombo.
    Mr. POMBO. Thank you, Mr. Chairman.
    Mr. Kirk, I had the opportunity to review your analysis. Since your original analysis in March, and there has been a Federal Court decision on a similar issue, the Martirans versus United States, concern Federal legislation requiring oil tankers in the U.S. waters to have double-hulls by a set date causing significant property devaluation for the owners of the single-hull vessels. The Court held that the plaintiffs in that case had a takings claim. The Court's opinion stated, ''that the right to use vessels has been described as one of the classical property rights inherent in the ownership of vessels is the right to use them.''
    How does that affect your analysis?
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    Mr. KIRK. Thank you, Mr. Pombo. You're correct. The Maritrans decision was issued after we put in the paper that we submitted in the context of Senator Steven's hearing in March. I would correct one—quibble with one statement you made in describing the opinion. Judge Hodges did not hold in Maritrans that the plaintiff had a takings claim. That is still the subject of that litigation. Rather, the judge rejected certain arguments that the United States had made in seeking to dismiss the claim, and the case will continue. There's been no final determination that the plaintiffs have a takings claim.
    But beyond that, to address the substance of the point you were making, I think the most significant portion of Judge Hodges' decision—Judge Hodges, as you know, Congressman, is on the Court of Federal Claims here in Washington—is the care with which he distinguished the long line of decisions holding that revocation of permits—permits going to such activities as building, grazing, prospecting, mining, traversing, and fishing on public lands or in government-regulated waters—all of which hold that such revocations do not constitute takings under the Fifth Amendment. In particular, he talked about a decision from the Court of Appeals for the Federal Circuit called Mitchell Arms which explained this principle.
    So at bottom, the Maritrans decision in no way changes our view. In fact, most of the portion of his opinion dealing with the line of permits cases confirms our view.
    Mr. POMBO. Can you differentiate between the permit processes and the endorsement process on these boats? Do you know the difference, and that there is a difference? And I'm sure you've had the opportunity to read this case from your answer to my question. There's a distinct difference in the judge's decision between the permit and the endorsement.
    Mr. KIRK. Well, I don't think the judge's decision addressed the endorsements that are before this——
    Mr. POMBO. The argument that you laid forth in answering my question, you dealt with the permit issue—whether it's grazing permit or a fishing license, or whatever it is. That's one side of the argument, and we could have an interesting debate as to whether or not that is truly a taking. But I do believe that there is a difference between a permit and an endorsement. And in the answer to the question you gave, you seemed to try to run all of that together in order to make your point. And I think that you're mistaken in——
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    Mr. KIRK. With respect, Congressman, I have to disagree with you on that. When one is looking at this from a constitutional perspective and analyzing a potential takings claim, the endorsements that the Coast Guard issues under current law are really no different than the fishing permits. Yes, it is true and in answer to some of the questions that were put to the prior panel, some distinctions between the endorsements——
    Mr. POMBO. So your argument is there's no difference?
    Mr. KIRK. As a matter of constitutional law, no. At the end of the day, what the endorsement does is it allows fishing to take place.
    Mr. POMBO. So you disagree with the judge's opinion that inherent in the ownership of vessels is the right to use them?
    Mr. KIRK. I do not disagree with that point, but with holding the——
    Mr. POMBO. Which part of it do you agree with?
    Mr. KIRK. I——
    Mr. POMBO. If the permit and the endorsement are the same thing in your mind, I don't see how you can say that you agree with the judge's statement.
    Mr. KIRK. The judge didn't address the distinctions that the Coast Guard has between permits and endorsements. He had before him a completely different case. The statement that you read concerning——
    Mr. POMBO. It was a very similar case.
    Mr. KIRK. Well——
    Mr. POMBO. In terms of a regulatory taking, it was a very similar case. Unfortunately, I'm just about out of time. I'm sure the chairman will be very lenient——
    [Laughter.]
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    If you——
    [Laughter.]
    If you accept that the revocation of a fishing endorsement completely destroys the market value of these ships, would you concede that the Lucas decision applies, if that were the case?
    Mr. KIRK. If you start with the assumption—which I don't share—that a revocation of the fishing endorsement completely destroyed all economic value in the vessel, there would still be a significant question as to whether or not Lucas led to the conclusion that a taking had taken place because Lucas was quite—the Supreme Court in Lucas was quite clear in limiting its decision to real property. And of course, vessels are personal property. So, I would not say that it necessarily follows that there is a taking, even under that hypothetical that you offer.
    Mr. POMBO. In your understanding of the Constitution, does the Fifth Amendment say that only real property applies? Or does it say private property?
    Mr. KIRK. It just uses the word ''property,'' but in the Supreme Court's cases addressing issues of takings, they've noted that expectations are different with regard to real property as opposed to personal property. Throughout our history, both the States and Congress have regulated personal property with considerably more detail, so property owners have a greater expectation with regard to real property.
    Mr. POMBO. Because that's where the cases have been, but the cases have not——
    Mr. SAXTON. Mr. Pombo, why don't you ask one final question so we can move on to Mrs. Chenoweth?
    Mr. POMBO. Mr. Chairman, I'm going to ask for a second round of questioning. Thank you.
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    Mr. SAXTON. Mrs. Chenoweth.
    Mrs. CHENOWETH. Thank you, Mr. Chairman.
    Mr. Kirk?
    Mr. KIRK. Yes, ma'am.
    Mrs. CHENOWETH. I'm aware of a March 12th document produced by your firm, Cooper, Carvin and Rosenthal entitled ''Constitutional Analysis of S. 1221, the American Fisheries Act.'' On whose behalf did you prepare this analysis? And who paid your fees to prepare this document?
    Mr. KIRK. We are appearing in this proceeding, and I believe in Senator Steven's hearing in connection with which the document you are referring to was submitted on behalf of the American Fisheries Act Coalition.
    Mrs. CHENOWETH. But that's not the question I asked you.
    Mr. KIRK. I apologize.
    Mrs. CHENOWETH. All right. Let me repeat it.
    Mr. KIRK. Yes, ma'am.
    Mrs. CHENOWETH. Mr. Kirk, I'm aware of a document that was produced by your firm dated March 12, 1998, entitled ''Constitutional Analysis of S. 1221, the American Fisheries Act,''——
    Mr. KIRK. Yes, ma'am.
    Mrs. CHENOWETH. [continuing] prepared by the firm that you work for, Cooper, Carvin and Rosenthal. I assume you work for that firm?
    Mr. KIRK. I'm a partner in that firm. Yes, ma'am.
    Mrs. CHENOWETH. All right; you're a partner. On whose behalf did the firm prepare that document?
    Mr. KIRK. We prepared that document, I believe, in my name—I didn't write it, my partners did. But it was my understanding that we prepared it on behalf of the American Fisheries Act Coalition. I hope that's responsive.
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    Mrs. CHENOWETH. And you don't want to add——
    Mr. KIRK. And I believe that second——
    Mrs. CHENOWETH. [continuing] anything to your answer, right?
    Mr. KIRK. I wanted to respond to the second part of your question. You'd, I believe, also inquired as to who paid our fees, and it's my understanding that it was Tysons Seafood.
    Mrs. CHENOWETH. All right. Thank you.
    In the Maritrans case, the court did distinguish from cases involving guns and nuclear power, as you referred to in your testimony, from cases such as this one. And as you know the facts of the Maritrans case goes to the requirement of regulation that oil tankers in U.S. waters have to have double-hulls by a certain date.
    Mr. KIRK. Yes, ma'am.
    Mrs. CHENOWETH. And the Court held that the inquiry is not so simple as examining whether the government prevents the exercise of a property right by regulating it, transforming the property right into one totally dependent on the government's regulatory regime. ''That is tautology,'' the Court said, ''mere participation in a regulated industry does not preclude a finding that a taking has occurred.'' So the Court did rule that a taking had occurred in that case.
    I wanted to ask Mr. Plesha——
    Mr. PLESHA. Yes.
    Mrs. CHENOWETH. You mentioned the fact that vessels were, of course, taken over to Japan and retrofitted and so forth. Are you aware that on July 28, 1987, the Committee adopted a provision allowing vessels purchased for use as fish processors up until the date of the markup to be rebuilt overseas? Were you aware of that bit of history?
    Mr. PLESHA. Actually they had to be purchased before the date of the markup. They had to actually be purchased, and then they had to have a contract to rebuild by July 12, 1988. So, yes; I was certainly aware of that provision.
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    Mrs. CHENOWETH. So, if any of the vessels that you were referring to in your testimony violated those provisions, then it would be a legal question, wouldn't it?
    Mr. PLESHA. Is it a legal question? Had the statute of limitations passed——
    Mrs. CHENOWETH. A question of violation of the contract?
    Mr. PLESHA. We have not even learned of how these contracts are put together until the last 6 months. We have just now discovered, for example, that the STATE EXPRESS was never had a contract to purchase by the right date. They had an option to purchase. I didn't know that 6 months ago, and I assume that the statute of limitations has passed for anything that can be done in court.
    Mrs. CHENOWETH. You know——
    Mr. PLESHA. But the honest answer is that the Coast Guard made a mistake in how they interpreted the Anti-Reflagging Act's grandfather provisions. They didn't follow the literal meaning of the statute. They basically just allowed these vessels in on representations of their owners.
    Mrs. CHENOWETH. Don't you think in most cases, though, that people who invested in the vessels invested on the basis that they were assured that they could make those investments under the 1987 Amendment?
    Mr. PLESHA. There were people who had these projects that absolutely had no investments. They had no financial investments whatsoever prior to the boats being rebuilt and delivered into the United States. That's part of the problem. For example, on one of the boats, it was a conditional sales contract without any money being put down in the contract whatsoever. They had no obligation to pay a cent; that's not a financial investment.
    Mrs. CHENOWETH. Then, wouldn't that be a question for the courts? I mean if somebody—like the chairman, our Chairman Young said, there's malfeasants. Gosh, if there is somebody should be hung for that. And our concern here, as members of the Committee, is to protect those who legally and honestly have relied on the current laws and——
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    Mr. PLESHA. Excuse me, but what about us who tried to follow the intent of Congress and have spent everything that we have following that intent by trying to Americanize this fishery? We are the people who are impacted by that boat. Now if that boat's legal, there's a backdated document allegedly involved in that qualifying. We have for 10 years suffered from that boat being in the fishery. And I mean what we've tried to do from day one is follow the intent of Congress to Americanize this fishery with American dollars from American banks.
    Mrs. CHENOWETH. You know, Mr. Plesha, I have great concern over our fisheries being over-fished, being from Idaho. I don't want to see our salmon over-fished. I identify with that issue; but capitalization as a means for a taking is a concern that we have here. And so if someone has failed to follow the law, if they have not been honest in upgrading their fishing vessels, then they should be taken to court.
    Mr. PLESHA. You know, I reflect back to Oscar Dyson who had the PEGGY JO. That was the very first steel-hulled crap catcher vessel in Alaska. It fished there for 15 years, and he was the pioneer of the crab fishery. There is a moratorium put in place that eliminated that boat from ever fishing crab again. And PEGGY JO—its value was impacted by that. It found alternative uses, but that is a boat that—I don't know the distinction that you're trying to reach between a permit and an endorsement, but it will never, ever fish crab again, because of a regulation.
    Mr. SAXTON. The gentlelady's time has expired. Let me——
    Mrs. CHENOWETH. Chairman, I would like to have another round of questioning.
    Mr. SAXTON. OK, we'll get to it. We sure will; that will be fine.
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    [Laughter.]
    Let me just explore two points, if I may. First, with Mr. Plesha. Mrs. Chenoweth just made a point—I believe, perhaps incorrectly—that people, investors who invested in the fishing vessels which in effect would have their endorsement nullified by Stevens' bill would suffer a loss on their investment which we, in essence, according to the premise of the question, provided assurance that they would have some kind of security. I would make a different point; those decisions apparently were made—and you correct me if I'm wrong; I want to make sure I understand this. Those decisions were made to enter into contracts during a window of opportunity that was provided because of a delay in the Merchant Marine and Fisheries Committee. And that those contracts were signed—A, not knowing whether the law would ever be passed; B, not knowing what the provisions of the law would be, if it passed; and C, not knowing what—given those two facts—not knowing what the competition or the fishery would be like subsequent to the passing of that law. Is that a fair statement?
    Mr. PLESHA. That's correct. The markup was July 28, 1987, and the bill was signed into law December 11, 1988. So it was a long period of time between the markup and eventual signing.
    Mr. SAXTON. So one could conclude that during that period of time when those decisions were made, that the individuals who made those decisions didn't really have any assurance as to what the future would be like, anymore than when those of us who buy mutual funds or put our money into real estate investments or any other type of investment decision that we make, they certainly didn't have any greater assurance than any other investor. Is that a fair statement?
    Mr. PLESHA. That's correct.
    Mr. SAXTON. And so if one were to lose on an investment of this type, it would be no more out of character than any other investor in a free economy?
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    Mr. PLESHA. That's exactly correct.
    Mr. SAXTON. Thank you.
    Mr. Kirk?
    Mr. KIRK. Yes, Mr. Chairman.
    Mr. SAXTON. With regard to my friend, the gentleman from California, Mr. Pombo's questions regarding the endorsement issue and whether or not there would be a taking if the Stevens bill were to pass, I believe, and I may—anyone can correct me, including Mr. Pombo, but I think the assumption was—part of the question was an assumption that there would be a significant devaluation in the property known as a fishing vessel; right? Is that—can you explain from a legal point of view how that devaluation would generally be considered by the Court?
    Mr. KIRK. Yes, Mr. Chairman. In analyzing a takings claim, the economic impact is one factor that a court will look at assuming that the predicate has been established that there is a property right there in the first place. In my view, that predicate cannot be established here for the reasons that I discussed in my testimony.
    But even assuming that there is—that a takings challenge could overcome that hurdle and get to the question that the analysis that the Supreme Court developed in the Penn Central case, and economic impact was something that the court looked at, in my opinion, notwithstanding—the impact in this case would not be sufficient to support a taking. There are cases on the books where upwards of 70 percent of the value of the plaintiff's property has been diminished by regulations enacted by Congress. And the courts have held that that's not enough.
    In view of all the remaining uses that these vessels would have upon passage of legislation like Senator Steven's bill, I just don't believe that the economic impact is severe enough to support a takings finding.
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    Mr. SAXTON. Thank you. Now, let me just make a statement, and then perhaps you would like to respond to it. With regard to devaluation in this circumstance, should the Stevens bill pass?
    I would make the point that there is at least some evidence to indicate that there would be no significant devaluation based on information I have here in front of me involving other opportunities, or potential opportunities, for these ships. This is verified, I believe, quite well by the situation involving the huge Dutch factory trawler known as the ATLANTIC STAR which recently announced its arrival in the Mauritanian waters off the coast of Africa to begin a new fishing venture on pelagic species. Also, in May 1998, China announced its rapidly expanding distant water fishing industry will need an unspecified number of 240 to 250 to 300-foot factory trawlers soon after the turn of the century. In 1998, a German fish company announced taking delivery of a refitted 171-foot factory trawler to replace two others that were sold abroad. In May, also of this year, an Icelandic fishing company announced its intent to purchase a 195-foot factory trawler from Lithuania for fishing in the North Atlantic, and—I won't read all these, but there an additional 8 or 10 opportunities for sales.
    So it seems to me that if you were dead wrong, with regard to your interpretation of whether or not there was a taking, that there is ample evidence here for us, at least, to assume that there is a market or an opportunity for these ships to be put to other uses which certainly would have an economic value speaking strongly against the position that would be taken when someone suggests that there is a taking here.
    Mr. KIRK. The only comment I have, Mr. Chairman, is I agree wholeheartedly with the point you just made.
    Mr. SAXTON. Thank you very much.
    Mr. Pombo, would you like to——
    [Laughter.]
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    Mr. KIRK. That's a risky position.
    Mr. SAXTON. [continuing] take another shot here?
    Mr. POMBO. Yes, I would, Mr. Chairman.
    Mr. Kirk, have you been heavily involved with the fishing industry in the past?
    Mr. KIRK. No, I've not, Mr. Pombo.
    Mr. POMBO. And are you familiar with the sale of boats and fishing vessels, and have you done a lot of work in that area?
    Mr. KIRK. No, sir, I've not.
    Mr. POMBO. What about in the property rights area? Have you done an extensive amount of work on that area?
    Mr. KIRK. In that area, I do have a fair amount of experience; yes, sir. We've represented—and I've personally represented clients in a wide-range of industries, primarily bringing takings claims against either the United States or various States. And I've testified a number of times before State legislatures, I believe up until today, always arguing that the legislation on the table would effect the taking of private property. This is the first time that I've testified that, in my view, the proposed legislation would not effect a taking.
    Mr. POMBO. Mr. Gilmore, the question that the chairman just asked about the sale of these boats on the open market; would you like to comment on that?
    Mr. GILMORE. I'm not an expert on the brokerage of vessels either, however, what the Senate legislation would do would be to put 18 factory trawlers from the United States out of business within an 18-month period. That would be a capital value of $400 to $500 million that would be on the market at one time. They would lose their fishery endorsement in the U.S. Comments were made earlier that there are opportunities for foreign flag vessels in the U.S. 200-mile zone, but these boats were built for the largest fishery in the United States, the Bering Sea pollock fishery. I don't know of any other joint venture type operations that would be available to them. The fate of the ATLANTIC STAR would indicate that there are relatively few opportunities, and so I think it would be highly unlikely that these vessels would—in fact, if you go to Seattle, when you go down to pier 91, you'll find a boat called the AMERICAN MONARCH, a $60 million catcher/processor vessel that was permitted to fish in Chile that had its permit in Chile revoked. I don't know the takings law in Chile, maybe we've got something here, but had its permit revoked before it ever caught a fish in Chile, and has been sitting idle for over a year now at the dock there. So, if there are opportunities, I think they're few and far between. And for the forced-sale of assets in such a short time-frame, it would be very difficult to get a fair market price.
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    Mr. POMBO. Mr. Leape, is that correct? The organization that you represent, and in your testimony, you stated that you would like to see a reduction in the number of fish that are taken in this fishery. Is that accurate?
    Mr. LEAPE. Yes. If legislation is introduced, we have urged that a mandated reduction be included.
    Mr. POMBO. And the boats that they're talking about here—the 18 boats or whatever it is—if they were taken out of production, would that be enough to satisfy the reduction that you're talking about?
    Mr. LEAPE. Yes, our request urge the Congress to direct the Councils to achieve an approximate reduction as the boats leave. So, yes; the answer to your question would be yes.
    Mr. POMBO. So, just so I understand your position, what you're saying is that if you took these boats out of production and the remaining boats just caught the number of fish they are now, that would meet your goal?
    Mr. LEAPE. Well, as I said in my statement, a lot of things would happen if those boats left. Currently, the fishery lasts 55 days. And as recently as 1989, it was year-round. If it was allowed to lengthen, fishing would slow. It could be spread out, and it would have less of an impact. You wouldn't see the problem of localized depletions and heavy focus of effort on the pollock when they're spawning. And it could be run in a much more environmentally friendly manner.
    Mr. POMBO. But the total number of fish that are caught would remain the same? That instead of doing it in 3 months, they might be able to do it year-round, but the total number of fish would remain the same?
    Mr. LEAPE. Well, what's hard about this hearing, Mr. Pombo, is it's an oversight hearing and not on specific legislation. And so if we comment about specific legislation, it's about what's out there, and that's S. 1221 currently. And what I said is, we would be urging that a change be included in the legislation to provide for a mandated reduction in the fishery. Currently, as the legislation stands, no, it doesn't contain that.
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    Mr. POMBO. Well, I wasn't referring to legislation necessarily, I was trying to figure out where your position was on total number of fish being caught, or at least your organization's position, because you said that you wanted to see a reduction——
    Mr. LEAPE. Right.
    Mr. POMBO. [continuing] in the number of fish that were caught. And I was trying to figure what that reduction was——
    Mr. LEAPE. Well, we felt——
    Mr. POMBO. [continuing] that you would prefer——
    Mr. LEAPE. [continuing] if you take out the factory trawlers in question, from estimates, it seems to be that they account for about 30 percent of the harvest. That would approximate what we feel would be the appropriate level of reduction.
    There are others who disagree with us. I can only speak for Greenpeace and what we feel would be appropriate.
    Mr. POMBO. So, you believe that a 30 percent reduction would be appropriate?
    Mr. LEAPE. Yes; and we have said that before the North Pacific Council 2 years running.
    Mr. POMBO. Is that just in this particular fishery, or is that in all fisheries?
    Mr. LEAPE. Well, let's keep with the matter at hand, with all due respect. These factory trawlers fish primarily in the pollock fishery, and some of them fish in the whiting fishery. We have been focusing on the pollock fishery because that's where they all fish. You know, fisheries are different as you go around the coast, and the conditions they're in are different. For now, that request is just for the pollock fishery in the Bering Sea.
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    Mr. SAXTON. Mrs. Chenoweth.
    Mrs. CHENOWETH. Thank you, Mr. Chairman.
    Mr. Kirk, are you here on behalf of Mr. Cooper? Was the testimony that was prepared which stated testimony of Mr. Cooper was that all along supposed to be your testimony?
    Mr. KIRK. Let me explain the circumstances, Mrs. Chenoweth. My partner, Mr. Cooper, is today in the midst of a 7-week trial in the Court of Federal Claims. At the time we prepared the testimony, we had hoped that he would be able to personally break away from the trial and appear and give the testimony. As matters developed, the government's expert witness that he was responsible for dealing with was up this morning, and so I was prepared to and appeared in his stead.
    Mrs. CHENOWETH. Well, in Mr. Cooper's written analysis of S. 1221, and I noticed that in your oral testimony you skipped over this part. But he stated that the Supreme Court's decision in Lucas versus South Carolina Coastal Council set forth a per se rule applicable to the taking of all beneficial and productive use of private property; that it is limited only to land. I noticed you very carefully said private—or property, private property. Do you agree with him that it's only limited to land? And is it your position that Lucas, then, does not apply to other property rights as defined by the Supreme Court such as contracts entered into by Savings and Loan and——
    [Laughter.]
    [continuing] I mean it's——
    Mr. KIRK. That's a——
    Mrs. CHENOWETH. Where do you go with this?
    Mr. KIRK. The specific holding in Lucas, Congresswoman, was limited to real property. And the Supreme Court carefully noted that. I think it's an open question as to whether the per se taking analysis where all economically beneficial use of the property has been taken would apply to rights other than real property.
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    That being said, it is certainly not our view, and I don't believe we've said anywhere that a taking claim, in general, can not be brought involving contract rights, personal property, or other forms of property aside from land. In the Savings and Loan case that you referenced, coincidentally enough, that's the case Mr. Cooper is trying, the damages phase of that case. The takings claims there were not based upon the standard in Lucas. It was based on other Supreme Court takings jurisprudence.
    Mrs. CHENOWETH. I assume you have read Lucas?
    Mr. KIRK. Yes, ma'am.
    Mrs. CHENOWETH. You know that Lucas was involved—the taking and the case centered around a special permit procedure. The court did rule that, with regards to the State's power over the bundle of rights which includes land and the permits and the right to build on the land, including a house, that they acquire, when they take title to property, in other words when they take the title, they have actually taken the bundle of rights. ''Because it is not consistent with the historical compact embodied in the takings clause that title to real estate is held subject to the State's subsequent decision, to eliminate all economically beneficial use of regulation having that effect cannot be newly decreed and sustained without compensations being paid the owner.''
    Mr. KIRK. Yes, ma'am.
    Mrs. CHENOWETH. And I'm quoting directly from Lucas.
    Mr. KIRK. Yes, ma'am.
    Mrs. CHENOWETH. Now, Mr. Kirk, you've heard my line of questioning before. Section 201(b), I think it is, in the new Bennett 1221 would prescribe new requirements for the size of the ship and where it was built, and so forth. That would effectively render, unless someone could meet those new requirements, render the endorsement useless, wouldn't it? Unless they could meet the new requirements of section 201(b) without paying for it?
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    Mr. KIRK. It would deprive them of the endorsement, but I don't believe that it would render the underlying vessel economically useless for the reasons that the chairman gave. It appears likely to me that the underlying vessel would continue to have almost all, if not all, of its current market value.
    Mrs. CHENOWETH. Isn't it true that without the endorsement, they cannot use the vessel to fish?
    Mr. KIRK. No, ma'am. It's true that they cannot use the vessel to fish within the——
    Mrs. CHENOWETH. Legally?
    Mr. KIRK. Legally within the——
    Mrs. CHENOWETH. Right.
    Mr. KIRK. I can never——
    Mr. SAXTON. The EEZ.
    Mr. KIRK. [continuing] get the acronym right. The EEZ, thank you. They could still use the—and actually even that's not true. As I understood Senator Stevens's testimony, when the full quota has not been fished out of the particular area, the foreign vessels who don't possess the endorsements are allowed to come in and fish.
    Mrs. CHENOWETH. That is under the permit, and I'm talking about the endorsements that are appurtenant to the vessel. So, when the endorsement is taken away from vessel, it cannot be used for fishing, correct?
    Mr. KIRK. Within the EEZ. It could still be used for fishing anywhere else in the world.
    Mrs. CHENOWETH. So my question is, who would buy a vessel that would have no place to fish immediately after sale? I mean, you know, those are just dynamics of the marketplace.
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    Mr. KIRK. Yes, ma'am.
    Mrs. CHENOWETH. So——
    Mr. KIRK. I would assume somebody who wanted to use it to fish elsewhere in the world would be interested in buying it. I assume somebody who could, himself, obtain the endorsement would be interested in buying it. Or I assume somebody who would be interested in converting it to other uses——
    Mrs. CHENOWETH. Why would we——
    Mr. KIRK. [continuing] would be interested in buying it.
    Mrs. CHENOWETH. [continuing] as lawmakers assume that under these sets of circumstances a forced sale under these sets of circumstances would bring a full market-value price? And therein lies the question with the taking.
    Thank you, Mr. Chairman.
    Mr. KIRK. Thank you, ma'am.
    Mr. SAXTON. Thank the gentlelady very much for her very thoughtful questions. And I thank the panelists very much also for their patience in sticking with us here today. Thank you very much everyone for your participation, and the hearing is adjourned.
    [The prepared statement of Mr. Giles may be found at end of hearing.]

    [Whereupon, at 2:16 p.m., the Subcommittee adjourned subject to the call of the Chair.]
    [Additional material submitted for the record follows.]

STATEMENT OF DR. DAVID EVANS, DEPUTY ASSISTANT ADMINISTRATOR, NATIONAL MARINE FISHERIES SERVICE, NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION, DEPARTMENT OF COMMERCE
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    Thank you, Mr. Chairman, for the opportunity to present the views of the Department of Commerce on the Americanization of the U.S. fishing fleet and U.S. ownership of fishing vessels.
    Before I focus on the main topic of this hearing, the Americanization of U.S. fisheries, I would like to take this opportunity to discuss briefly the issue of overcapacity and overcapitalization. As noted in the letter of invitation, it has become increasingly recognized both in the United States, as well as many other countries, that excessive harvesting capacity and investments in the harvesting sector are contributing to the difficulty in developing management policies to address widespread resource overutilization in capture fisheries. In a global context, the Food and Agriculture Organization (FAO) of the United Nations has estimated excess capacity in world fisheries for the most important commercial species at about 30 percent. From a domestic standpoint, similar concerns have intensified in recent years, and it now appears beyond doubt that a significant number of our most valuable commercial fisheries are burdened with excessive levels of harvesting capacity and investment in that sector. The most obvious example of these problems are the New England groundfish and scallop fisheries, the West Coast groundfish fishery, and the Alaska crab fishery.
    NMFS is heavily involved in both international and domestic initiatives that we believe will help us better manage capacity in the fishery sector. Internationally, NMFS is working with the Department of State on an FAO-
sponsored initiative on managing harvesting capacity throughout the world. Recently, FAO held a technical experts consultation in La Jolla, California, which will result in a report on defining and measuring harvesting capacity and analyzing the effectiveness of possible remedies to the capacity problem. This report is intended to provide the basis for the development of a FAO global plan of action. In the domestic sphere, NMFS has sponsored vessel and permit buyout programs in New England, Texas, and the Pacific Northwest. The agency has been working with both the Pacific (West coast groundfish) and North Pacific Fishery Management (Alaska Crab fishery) Councils to review the first industry funded buyout proposals developed under new authority for fishing capacity reduction under the Magnuson-Stevens Fishery Conservation and Management Act (MSFCMA). These proposals have been initiated by the industry and are under review by the appropriate Councils. In addition to buyouts, the Councils continue to have the authority to design fishery management programs and amendments on a case-by-case basis. This allows Councils to recommend appropriate harvesting regimes that meet the individual needs of specific fisheries. Obviously, actions that remove and/or reduce excess harvest capacity at the least economic and social costs are the most desirable. We believe that the Councils provide an appropriate mechanism for evaluating the best ways to maximize the benefits to the industry while minimizing any potential costs and/or social impacts from capacity reduction efforts.
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    Now, let me address the issue before the Committee today. The Committee has expressed its interest in the Department's evaluating of the Americanization of the fisheries off the coasts of the United States. The term ''Americanization'' can be characterized as actions taken over the last two decades to ensure that the benefits derived from the use of Exclusive Economic Zone (EEZ) resources are effectively channeled to U.S. enterprises and, generally, to U.S. citizens. This effort began in earnest with the passage of the original Fishery Conservation and Management Act (FCMA) in 1976. The goals of the FCMA were to phase out foreign fishing off U.S. coasts and expand domestic capacity, optimize domestic benefits, achieve and maintain optimum yield from each fishery on a continuing basis, and enhance economic and employment opportunities. In addition to establishing the 200-mile Exclusive Economic Zone, the FCMA directed the Secretary of Commerce, through the development of fishery management plans, to provide the domestic fishing industry priority access to the fishery resources in the EEZ.
    In 1979, the Department undertook a major effort to study the production potential and development patterns for underutilized species, the social costs and benefits of developing policy to accelerate utilization of fishery resources in the EEZ, and the export market opportunities for underutilized species. Based on these findings, the White House established a fisheries development policy that found that significant opportunities for industry expansion existed, that a partnership between the Federal Government, state and local governments, and the fishing industry was needed; that each region had different problems to be addressed; and that development for all sectors of the U.S. industry should be considered.
    This policy led to the enactment of American Fisheries Promotion Act of 1980 (AFPA) which was directed towards expanding commercial and recreational fishing efforts in underutilized fisheries. The amendments specifically authorized financial assistance to industry through a competitive grant program (the Saltonstall/Kennedy grants program); supported the development or expansion of market opportunities for U.S. fishery products; and allowed foreign access to fishery resources in exchange for ''chips,'' including trade concessions; harvesting technology transfers, foreign investment in U.S. processing facilities, and over-the-side-sales of U.S.-harvested fish (joint ventures). The ''Processor Preference Amendment'' to the MSFCMA was enacted in 1982 to give U.S. processors preference over joint venture processors for fishing allocations. This had the effect of accelerating the phase-out of joint venture processing and boosting investment in U.S. harvesting and processing capacity. Finally, the 1987 Anti-Reflagging Act (ARA) sought to tighten domestic ownership requirements by increasing the minimum domestic share to 51 percent. During the period covered above, foreign fishing operations in the U.S. EEZ were progressively reduced and finally eliminated, and the harvesting sector was—at least apparently—fully Americanized by the end of the last decade.
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    The most straightforward way of determining whether the goal of Americanizing the U.S. fishing fleet has been achieved is to review the level of foreign fishing in the EEZ under General International Fisheries Agreements (GIFAs). GIFAs provide a mechanism by which a foreign nation can petition the U.S. for access to stocks for which U.S. harvesting effort is expected to take less than the total allowable harvest for that year. Participation in a GIFA is the only way foreign fishing vessels can participate in U.S. fisheries.
    With the largest EEZ of any country in the world, the United States historically shared significant quantities of its fisheries resources with GIFA partners. The United States has negotiated GIFAs with many countries under authority of Section 201 (c) of the MSFCMA. GIFAs' set forth the terms and conditions under which foreign fishing activity may be permitted within the U.S. EEZ. I say ''foreign fishing activity'' because the MSFCMA broadly defines the word ''fishing'' so as to include, for example, at-sea processing. The United States currently has GIFAs in force, or is taking steps to extend GIFAs, with Estonia, Latvia, Lithuania, China, Poland, and Russia. In addition, the United States has had GIFAs with Bulgaria, Cuba, Denmark, European Union, German Democratic Republic, Iceland, Japan, Korea, Mexico, Norway, Portugal, Romania, Spain, and Taiwan.
    GIFA partners were also permitted to send processing vessels into U.S. waters to receive U.S.-harvested fish under joint venture arrangements, but these activities dwindled in the early l990s. At present, the only foreign fishing activity occurring within U.S. jurisdiction is joint venture processing of U.S.-harvested fish off the northeast coast. We have permitted joint venture processing for Atlantic mackerel and herring by two processing vessels from Estonia and two others from Lithuania. Russia is preparing an application for one additional vessel. The total amount of fish available for these activities is 15,000 metric tons of mackerel and 40,000 metric tons of herring.
    Activities in the Northeast under these permits provide a small but important outlet for U.S. fishermen who are coping with our rebuilding programs for the groundfish stocks. They have enabled four U.S. vessels from the States of Massachusetts and New Jersey to harvest almost 2,000 metric tons of mackerel and almost 500 metric tons of herring worth $375,000 and $30,000, respectively. Our rebuilding programs are headed in the right direction, and, in the meantime, delivering product to foreign processing vessels has allowed U.S. fishermen to continue to earn income during the rebuilding period for the major U.S. stocks.
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    We have also issued transshipment permits under Section 204(d) of the Magnuson-Stevens Act to one vessel each from Cambodia, Russia, and Panama to receive and transport processed mackerel from these operations. In addition, last year we issued transshipment permits to 14 Canadian herring transport vessels operating in the Gulf of Maine, as provided for under Section 105(e) of the Sustainable Fisheries Act.
    While the Department can state that the Americanization of the U.S. fleet has been achieved, based on the relatively low level of GIFA-related fishing activity, it cannot provide the Committee with a clear picture of the ownership structures of the U.S. fishing fleet. The 1987 Anti-Reflagging Act sought to tighten domestic ownership requirements by increasing the minimum domestic ownership share to 51 percent but only for vessels documented after the date of enactment. However, it is clear that significant foreign participation remains because our maritime and cabotage laws enable foreign firms to retain and even increase ownership shares in some segments of the U.S. fishing fleet. While Commerce is not responsible for administering the ARA, welfare committed to working closely with the U.S.C.G. to ensure that all U.S. fishing vessels are properly documented before being allowed to participate in federally managed fisheries. However, fishing vessels documented prior to enactment of the ARA are exempt from the ownership requirements of that statute, resulting in approximately 25,000 U.S. fishing vessels for which there is a lack of knowledge about ownership. This lack of information constrains our ability to provide an analysis of the financial characteristics of the U.S. fishing fleet.
    The Department applauds the Committee for its efforts to deal with national policy on the issues of excess harvesting capacity and Americanization. However, our fisheries are highly diverse and vary substantially in the nature of the fishing vessels deployed in different regions and in fisheries taking different species. In addition, our limited knowledge suggests that levels of foreign investment and ownership differ markedly from region to region. We need to be sensitive to the differing needs in various fisheries. While it would be appropriate for Congress to continue with the established trend of prospectively Americanizing U.S. fisheries, including increasing the U.S. ownership requirement, I would urge Congress to carefully examine any retroactive application of the ownership requirement. Such a measure could have possible unintended impacts on the financial foundation of those sectors of the fishing industry currently exempt from ownership requirements and who currently rely on foreign investment. The retroactive application of ownership requirements could also give rise to questions concerning compliance with U.S. obligations to foreign investors under certain international agreements.
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    The National Marine Fisheries Service is prepared to work with the Councils, the various fishery constituencies, and the Congress to determine the most appropriate course of action for our Nation's fishermen and fisheries. It is the Department's desire to reduce levels of harvesting capacity among all classes of fishing vessels to levels that are sustainable and provide the greatest economic benefit to the fishing industry and our Nation.
    Mr. Chairman, this concludes my remarks and I am prepared to respond to questions from Members of the Committee.
   

STATEMENT OF REAR ADMIRAL ROBERT C. NORTH, U.S. COAST GUARD, DEPARTMENT OF TRANSPORTATION
    Good morning, Mr. Chairman. I am pleased to represent the Coast Guard before this Committee's oversight hearing on Americanization of the U.S. fishing fleet. The Coast Guard is the agency responsible for implementing the provisions of the Commercial Fishing Industry Vessel Anti-Reflagging Act of 1987 (Public Law 100-239), commonly known as the Anti-Reflagging Act.
    The primary purpose of the Anti-Reflagging Act was to prohibit the reflagging of foreign built processing vessels under the Magnuson Fisheries Conservation and Management Act. The Anti-Reflagging Act harmonized fisheries and maritime laws. It did this by imposing similar requirements regarding the documentation, ownership, manning, and construction of vessels engaged in the fisheries trade as are imposed on vessels engaged in coastwise trade. The Act also broadened the definition of fisheries to include activities previously excluded. This harmonization was accomplished by modifying the U.S. documentation laws so that only U.S. built vessels are admitted into fishery related activities, and vessels lose fisheries privileges if rebuilt in a foreign country.
    Prior to enactment of the Anti-Reflagging Act, vessels engaged in fish processing activities were not required to be documented with a fisheries endorsement. As a result, it was possible to use foreign-built vessels for fish processing activities. Following enactment of the Anti-Reflagging Act, documentation with a fisheries endorsement is required for fish processing.
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    The Anti-Reflagging Act amended the ownership requirements for vessels in the fisheries trades. Prior to enactment of the Anti-Reflagging Act, it was possible for corporations organized under U.S. laws and meeting citizenship criteria for the corporate president, chairman of the board, and control of the board of directors, to document vessels for use in U.S. fisheries; even if 100 percent of the stock was owned by foreign citizens. Today, U.S. citizens must own 51 percent of the stock, except for a vessel that is grandfathered from the American control provisions of the Anti-Reflagging Act.
    The Anti-Reflagging Act also addressed the past practice of using foreign crew and officers on commercial fishing industry vessels. Today, the citizenship requirements for fishing industry vessels are identical to the requirements for other commercial vessels in the Exclusive Economic Zone; except when fishing exclusively for highly migratory species.
    To carry out its responsibilities under the Anti-Reflagging Act, the Coast Guard has amended its regulations in Title 46 Code of Federal Regulations. These regulations are enforced in the Coast Guard's daily regulatory activities and in our compliance and enforcement boarding activities.
    Two portions of the Anti-Reflagging Act proved problematic. These were the provisions intended to protect the interests of investors already committed to the U.S. fisheries. These provisions dealt with foreign rebuilding and ownership. I will address each separately, because each has had a different impact on the Americanization of the U.S. fishing industry.
    Prior to the Anti-Reflagging Act, fish harvesting vessels had to be built in the U.S., but could be rebuilt abroad. Section 3 of the Anti-Reflagging Act, among other things, amended 46 U.S.C. 12108 by prohibiting vessels seeking fishery endorsements from being rebuilt in foreign shipyards. Section 4 of the Anti-Reflagging Act made new 46 U.S.C. 12108(a)(3) inapplicable to a vessel which (1) was built in the United States before July 28, 1987 and (2) was rebuilt in a foreign country under a contract entered into before July 11, 1988, and (3) was purchased or contracted to be purchased before July 28, 1987 with the intent to use the vessel in the fisheries. This rebuilding savings clause, or grandfather provision, also required that a vessel rebuilt under the above circumstances had to be redelivered to the owner before July 28, 1990. Because the window of eligibility for this exemption has long passed, no additional vessels may be rebuilt outside of the U.S. and enter or reenter the U.S. fisheries. Furthermore, no additional foreign built vessels may be documented for use as fish processors.
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    Section 7 of the Anti-Reflagging Act, among other things, amended 46 U.S.C. 12102 by requiring a majority of voting shares in a corporation owning a fishing vessel to be owned by U.S. citizens. Section 7 of the Act also provided a savings clause, or grandfather provision. Under this grandfather provision, the ''American control'' provision requiring 51 percent U.S. ownership does not apply if before July 28, 1987 the vessel was (1) documented and operating as a fishing vessel in the EEZ; or (2) was contracted for purchase for use as a fishing vessel in the U.S. fisheries. The Coast Guard, following careful examination of the provision of the Anti-Reflagging Act grandfathering vessels from the American control provision, concluded that the grandfathered provision ran with the vessel. Although this was seemingly contrary to the purpose of the law, grandfather provisions by their very nature run contrary to the overall purpose of a statute. The Coast Guard was aware there were many persons who believed the ownership grandfather provision should terminate on sale or transfer of the vessel. However, after deliberating this issue, the Coast Guard concluded the plain language of the statute did not allow the Coast Guard to adopt a rule that the ownership grandfather provision's protection terminates when there is a change of ownership or control. As a result, almost 28,000 vessels currently documented for the fisheries are eligible for the ownership grandfather. This means that they can be sold and still retain full fisheries privileges, without having to meet the 51 percent U.S. citizen ownership provisions. Furthermore, those vessels can be rebuilt in the U.S. into much larger vessels, and still be employed in the fisheries by foreign controlled corporations.
    Recently, the Senate began consideration of the American Fisheries Act of 1998 (S. 1221), a bill which, among other things, directly addresses the problems that arose from the ownership and rebuild grandfather provisions of the Anti-Reflagging Act.
    First, S. 1221 would repeal the ownership grandfather effective 18 months after enactment. In addition, it would increase the American control provisions for entities owning fishing vessels from 51 to 75 percent. Entities currently owning documented fishing vessels and which meet the majority American control provisions of the Anti-Reflagging Act would have 18 months to conform to the new standard. The proposed ownership standard would place fisheries on a par with the ownership standard for coastwise trade.
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    Additionally, S. 1221 would also provide for the orderly phase out of larger vessels, including all of the processing vessels known to have been deemed grandfathered from the rebuild prohibition of the Anti-Reflagging Act. This would remove the remaining 20 vessels which were rebuilt foreign under the grandfather provision of the Anti-Reflagging Act.
    The Coast Guard appreciates the opportunity to testify about this important matter and stands ready to work with the Congress on this issue. I would be happy to answer any questions you may have.
   

STATEMENT OF JIM GILMORE, AT-SEA PROCESSORS ASSOCIATION
    Thank you, Mr. Chairman and Members of the Committee for the opportunity to testify before the Subcommittee on issues relating to the conduct of the North Pacific fisheries, including the relative contributions of various sectors of the fishing and fish processing industry to the domestic economy. I am Jim Gilmore, Director of Public Affairs, for the At-sea Processors Association (APA).
    APA represents companies that operate twenty-four U.S.-flag at-sea fish processing vessels. APA's catcher/processors are principally engaged in the Bering Sea pollock fishery and the West Coast whiting fishery. By volume, these two fisheries account for almost 30 percent of all fish landed in the U.S. Over 90 percent of the fleet's revenues are derived from its participation in these two fisheries. Pollock and whiting are harvested using trawl nets, cone-shaped fishing nets towed behind the vessel in the middle of the water column. These two fisheries are widely recognized as two of the cleanest fisheries in the world, that is, the target species comprise about 98 percent of the catch.
    In the context of this hearing on the status Americanization, it is important to emphasize that the fleet is entirely composed of American-flag vessels operated by U.S. corporations. The fleet substantially exceeds Federal requirements that at least 75 percent of the crewmembers on board U.S. fishing and fish processing vessels be American citizens or qualified U.S. residents. APA estimates that over 90 percent of the workforce in the pollock catcher/processor fleet consists of American citizens or permanent U.S. residents. The at-sea pollock processing fleet alone directly employs about 4,000 American workers. A majority of the workers live in Washington state, but Alaska, Oregon, California and Idaho residents are also strongly represented.
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    American catcher/processor vessels supply substantially more of their products to the domestic consumer market than their competitors. Our principal competitors in the pollock fishery are onshore processors located at, or near, Unalaska on the Aleutian Islands chain. Two Japanese multinational seafood companies, Nippon Suisan and Maruha, own or control roughly 70 percent of the Bering Sea onshore pollock processing capacity. Under current allocations, the North Pacific Fishery Management Council reserves more than one-third of the Bering Sea pollock harvest for an onshore processing sector that is dominated by Nippon Suisan and Maruha.
    Unlike the at-sea processing sector, there is no U.S. hire requirement applied to onshore processors. A study commissioned by the National Bank of Alaska reports that onshore processors employ a high percentage of Third World foreign guest workers who live in company bunkhouses and send home most of their wages. Virtually all of the onshore pollock production is made into surimi, most of which is exported to Japan for valued-added secondary processing and distribution.
    The balance of APA's testimony focuses on the following four issues:

1. The U.S.-flag pollock catcher/processor fleet provides greater national benefits than competing industry sectors. The U.S.-flag fleet provides family wage jobs for approximately 4,000 workers. A recent State of Alaska study reported wages in the at-sea sector are two and one-half times higher than wages paid to workers in onshore processing plants. At-sea processors also provide a significantly higher percentage of pollock products to the domestic market than onshore competitors, thus creating jobs and wealth in the U.S. through value-added activities. Because fish are processed within hours of being caught in the at-sea sector, higher quality is also achieved; therefore, export earnings are maximized on pollock products that are shipped to overseas markets.
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2. Twenty-three U.S. vessels were rebuilt abroad in the 1980's in accordance with requirements of the Commercial Fishing Industry Vessel Anti-Reflagging Act of 1987 (the Anti-Reflagging Act) and documented as vessels of the United States with fisheries endorsements. The vessels received U.S. Coast Guard letter rulings approving their conversion to catcher/processors. Seventeen of these vessels currently participate in the Bering Sea pollock fishery, comprise more than half the pollock catcher/processor fleet, and enhance U.S. competitiveness in the seafood industry. The right of these vessels to continue to participate in the fishery should not be in question.
3. All sectors of the Bering Sea pollock fishing industry are responsible for the overcapitalization that has occurred in the harvesting and processing sectors. Congress ought not to legislate certain participants out of business for the benefit of companies seeking preferential access to fishery resources, including Tyson Foods which is a recent and apparently unsuccessful entrant into the fishery. Competing interests should work together to resolve the problem of overcapitalization in a manner fair and equitable to all participants.
4. APA supports eliminating the ownership grandfather contained in the Anti-Reflagging Act, thus requiring at least 51 percent or more of the stock in U.S. corporations owning fishing and fish processing vessels be held by U.S. citizens.

1. The At-sea Processing Sector Provides the Greatest Benefits to the Nation.

    The Magnuson-Stevens Fishery Conservation and Management Act (the Magnuson-Stevens Act) was amended in 1978 to emphasize the need ''for a national program for the development of fisheries which are underutilized or not utilized by the United States fishing industry, including bottom fish off Alaska. . .'' At that time, the enormous and healthy North Pacific groundfish fishery was dominated by foreign-flag fishing and fish processing vessels because the U.S. industry lacked sufficient harvesting and processing capacity.
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    APA represents the U.S.-flag catcher/processor fleet that contributed substantially to achieving Americanization of the fisheries. The association's member vessels cover the spectrum from vessels with little or no foreign investment to vessels in which foreign investment is substantial. We also represent vessels that were built or rebuilt exclusively in the U.S. and those U.S.-built vessels that were converted overseas in the 1980's in conformance with the Anti-Reflagging Act. One thing that all of the vessels have in common is that they participate in the sector of the Bering Sea pollock industry that produces the greatest benefits to the U.S.

a. U.S.-flag Catcher/Processors Provide Family Wage Jobs for Americans.

    As stated above, Federal law mandates that U.S. residents comprise 75 percent of the crew on board U.S.-flag at-sea fish processing and fishing vessels. There is no similar requirement for the three large companies operating onshore Bering Sea pollock processing plants. As noted above, a report prepared for the National Bank of Alaska found that foreign guest workers account for a significant percentage of the work force in shoreside plants. A recent survey conducted by the Alaska Department of Community and Regional Affairs discusses the wage disparity between the onshore and at-sea processing sectors. Wages for crew members on catcher/processors are about two and one-half times higher than for employees holding comparable jobs onshore.

b. Catcher/Processors Maximize the Value of U.S. Fishery Resources.

    Surimi and fillets are the primary products made from pollock. In the pollock ''A'' season, valuable roe products are produced, the flesh of the pollock is then processed into fillet and surimi products. With respect to the principal processed products, surimi accounts for about 60 percent of the catcher/processor fleet production; fillet-type products account for 40 percent. The product mix for the Japanese-dominated onshore processing sector is about 90 percent surimi and 10 percent fillets.
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    Most surimi is exported to Asian markets, principally Japan, where Nippon Suisan's and Maruha's secondary processing plants and distribution networks capture the added value. In short, Nippon Suisan's and Maruha's U.S. subsidiaries are geared towards capturing America's pollock resource primarily to support parent company operations in Japan.
    In testimony provided to the Senate Commerce Committee in March, major domestic seafood buyers, Long John Silver's, Gorton's Seafoods, and LD Foods stated that the Japanese owned plants produce surimi regardless of how low surimi prices might drop or fillet prices might rise. Domestic seafood buyers are placed at a significant disadvantage in attempting to purchase pollock products from onshore processors because production by the Japanese-owned plants is dedicated almost entirely to feeding the home market of these vertically integrated multinationals.
    The U.S.-flag catcher/processor fleet's sales of pollock fillets to the domestic market provide additional evidence of how the at-sea sector provides greater national benefits than its onshore competitors. By relying on the domestic market for 40 percent of our sales, jobs and value are created not only at the secondary processing stage but throughout the distribution chain to retail and food service outlets. The benefits are not inconsequential since last year the catcher/processor fleet produced 100 million pounds of pollock fillet-type products.
    In addition to the issue of product mix, quality issues affect value. The National Marine Fisheries Service's (NMFS') testimony to the Senate Commerce Committee on S. 1221 confirmed that at-sea processed pollock products are generally of higher quality and consequently command a higher price in the marketplace. Thus, in the surimi market, U.S. export earnings are maximized by at-sea processing of pollock. Because we earn higher prices for our products, catcher/processors that supplement their own harvests by purchasing fish from catcher vessels provide the ancillary benefit of paying higher prices to fishermen than our shoreside competitors.
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    Catcher/processor production of fillet products reduces U.S. dependence on the Japanese market for seafood sales. Currently, the troubled Japanese economy, and the accompanying decline in the value of the yen, means U.S. producers are facing near record low prices for surimi products. Meanwhile, the domestic pollock fillet market is quite strong. Maintaining a viable and diverse catcher/processor fleet that adjusts its product mix in response to market conditions will enable the U.S. to realize greater national benefits from fishery resources.

c. Catcher/Processors Offers Greater Opportunities for Fishing Communities.

    Recent changes to the Magnuson-Stevens Act require consideration of the needs of fishing communities. The at-sea fish processing sector, particularly the catcher/processor fleet, makes vital contributions to Northwest fishing communities by providing direct and indirect employment for thousands of fishermen, processors and support industry personnel. The importance of the fleet to the maritime economy should not be overlooked. The U.S.-flag catcher/processor fleet spends $15-20 million annually in Northwest and Alaska shipyards. This economic activity combined with the other substantial contributions of the fleet to local communities prompted the Washington State Labor Council and the AFL–CIO's Maritime Trades Department to oppose proposals to revoke fisheries endorsements for vessels in the fleet.
    The catcher/processor fleet also makes important economic contributions to the Alaskan economy. In 1991, the catcher/processor fleet initiated training and hiring programs for residents of Western Alaska native communities, a precursor to the Community Development Quota (CDQ) program. The CDQ program implemented a year later formalized efforts to create jobs and economic opportunities for more than 50 Western Alaska native communities. Catcher/processor companies became partners in the six CDQ groups that formed. Two of the CDQ groups have invested in at-sea processing vessels or in companies that operate such vessels. Further consolidation or shrinking of the fleet, particularly by legislative fiat, threatens those investments. It could also reduce the value of the 200 million pound annual CDQ pollock apportionments since fewer companies would be left to bid on contracts.
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    It is also important to note that in addition to providing an important market for pollock fishermen, catcher/processors provide alternative marketing opportunities in Alaska's salmon fishery. Some catcher/processors also operate solely as motherships in the Pacific whiting fishery taking deliveries from smaller Northwest trawl fishing vessels.
    This situation contrasts with the onshore pollock processing plants that are located in only two Alaska communities, Unalaska and Akutan. No doubt, the onshore Bering Sea pollock plants make important economic contributions in the area, but perhaps less so than one might think. For example, the local tribal council in Akutan wrote that ''few local residents have elected to work at the (Trident Seafoods) plant because of the conditions related to processing line jobs: very long hours at minimum wages.'' With a high percentage of foreign guest workers employed onshore, operating in areas remote from other Western Alaska communities, and producing primary processed products for overseas parent companies, Congress should carefully consider the effects of proposals that harm U.S.-flag catcher/processors.

2. The Growth of the Catcher/Processor Fleet, While Rapid, Was Anticipated. The Fleet, Including Vessels Re-built Overseas in the 1980's, Enhances U.S. Competitiveness.

    In 1987, most of the Bering Sea pollock harvest was being harvested by U.S.-flag fishing vessels, but was being processed on board foreign-flag processing vessels operating in the U.S. 200-mile zone. The U.S. fishing industry was slowly making progress to develop domestic processing capability, principally by building catcher/processor vessels. The priority accorded U.S. processors under the Magnuson Stevens Act over foreign processors was helpful, but there were many hurdles to overcome, including acquiring state-of-the-art technology, gaining market access in Japan, and perhaps most challenging, obtaining financing and willing investors.
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    Congress recognized that one circumstance could preclude development of domestic processing capability—the right of foreign-built, foreign-flag processing ships to simply re-flag U.S. To prevent the reflagging of these vessels, which were fully amortized and would make development of a U.S.-flag catcher/processor fleet problematic, Congress acted to bar the reflagging of foreign built processing vessels to U.S.-flag.
    Testimony provided in mid-1987 at Congressional hearings on legislation to bar reflagging affirmed U.S. fishing companies intent on harvesting and processing pollock were purchasing U.S. vessel hulls for the purpose of rebuilding them overseas into catcher/processors. It was already common knowledge that U.S. hull vessels were being sought for these planned conversions. In January 1987, the Maritime Administration even placed advertisements in fishery trade publications offering for sale offshore oil industry vessels that had been repossessed by the agency, vessels which were ''suitable for conversion to a number of fishing applications.''
    Foreign rebuilding of U.S.-built vessels for the purpose of operating in U.S. fisheries was permitted prior to enactment of the Anti-Reflagging Act. The decision to take these projects abroad was not surprising; after all, foreign shipyards had been building catcher/processors since the 1950's. U.S. shipyards had no experience in constructing fishing vessels that included state-of-the-art processing facilities on board the vessel. It was clear that conversions would entail significant rebuilding since accommodating an onboard surimi processing plant, quarters for a crew of 100 or more, adequate galley facilities, and other non-fishing functions is virtually impossible to fit into a vessel smaller than 275 feet in length. Bob Morgan of Oceantrawl, a company that rebuilt overseas three of the largest vessels in the Bering Sea pollock fishery, described the scope of the vessel projects in testimony before the Senate Commerce Committee.
    Lists of vessel projects were circulated in Congress and dozens of overseas rebuild projects were identified. Identifying potential business. some U.S. shipyards lobbied Congress to expand the scope of the legislation beyond simply barring the reflagging of foreign built processing vessels. The yards sought to limit foreign rebuilding of U.S. vessels as well. Congress acted to address shipyard interests while protecting investments made by those already engaged in overseas conversion projects. On July 28, 1987 the House Merchant Marine and Fisheries Committee ''marked-up'' anti-reflagging legislation that provided a rebuild ''grandfather'' to U.S. vessels being converted overseas to catcher/processors as long as the vessel was contracted for purchase by the bill's date of enactment.
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    In other words, the Committee created a window for new projects beyond those projects already in the pipeline on the date of the Committee ''mark-up.'' By July 28th, twenty-four vessels had already received Coast Guard rulings approving the planned overseas conversions as consistent with existing law. A total of 36 vessel projects had been identified by the date of the ''mark-up.'' A list circulated by Marco Shipyard on August 3, 1987, just one week after the ''mark-up'' claimed that more than 100 foreign rebuild projects were planned. With this information in hand, the rebuild provision was tightened significantly during House floor consideration of the anti-reflagging legislation in November, 1987. A retroactive provision was added providing that only vessels contracted for purchase by July 28, 1987—the date of the House ''mark-up,'' not the date of enactment—were eligible for the rebuild grandfather. The bill even included language to make eligible for rebuilding abroad one vessel project that did not meet the revised, stricter standards included in the final version of the Act.
    Since 1987, Congress has not held a single hearing, nor has legislation been introduced, that evidenced concern about the number of rebuilt catcher/processors qualified to participate in U.S. fisheries under the rebuild ''grandfather'' provisions of the Anti-Reflagging Act. There was an unsuccessful court challenge to the Coast Guard's interpretation of the ownership grandfather. In a unanimous opinion the Court of Appeals for the District of Columbia ruled that the plain language of the statute required the Coast Guard to interpret the statute as it had.
    A 1990 General Accounting Office report found that passage of the Anti-Reflagging Act effectively limited the rebuilding of U.S. vessels abroad. No foreign rebuilt vessels, or any other pollock catcher/processors for that matter have entered the fishery since 1990. The Anti-Reflagging Act has been amended once since 1987. The 1989 Coast Guard authorization bill contained a provision providing an exemption from the Anti-Reflagging statute to allow a foreign built vessel to be reflagged and to enter the Bering Sea pollock fishery as a mothership vessel. In short, two years after enacting legislation to bar the reflagging of foreign vessels as U.S. processors and to limit foreign conversions of U.S.-built vessels, Congress made a special exception to allow a foreign built vessel to enter the fishery. Ironically, this late entrant into the fishery, which is controlled by Maruha, will not lose its fisheries endorsement under Senate legislation that eliminates certain U.S.-built, foreign rebuilt catcher/processors.
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3. All Sectors of the Bering Sea Pollock Fishery Are Responsible for Overcapitalization and Should Work Cooperatively on a Solution.

    Overcapitalization in the Bering Sea pollock fishery is a serious concern. The fishery management regime, which rewards those who catch fish the fastest, creates an incentive for continued capitalization by participants. Fishermen and processors alike have obliged. Neither the current moratorium on new vessel entry into the fishery, nor the approved license limitation program developed by the North Pacific Fishery Management Council, address the issue of overcapitalization because neither management measure stops the ''race for fish.'' As a result, virtually all participants in the pollock industry—onshore plants, catcher vessels, and at-sea processors—contribute equally and substantially to overcapitalization.
    The economic pressures sparked by overcapacity that face the fishing industry have led many industry members to seek a rational management regime that focuses on ending the race for fish. Others, such as Tyson Foods, which bought into the fishing industry in 1992, and Trident Seafoods, are seeking to legislate competitors out of business. Their preferred vehicle is S. 1221, the Senate bill which revokes fishery endorsements for certain U.S. vessels rebuilt overseas in the 1980's. Their proposal to remove fishing rights from 18 U.S.-flag catcher/processors valued at approximately $400 million raises numerous issues of policy and law, including assertions that the revocation of fisheries endorsements constitutes a ''takings.'' Of course, it will be left to the courts to determine the constitutionality of any such action, but it is clear that serious equity issues are raised by proposals to revoke fishing rights for vessels that have participated lawfully and responsibly in the Bering Sea pollock fishery since 1990 and earlier. Regardless of the legal avenue available to vessel owners, revocation of fishing rights for vessels will lead to substantial economic and social hardship for affected workers, disruptions to the market place, and other significant adverse impacts.
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    Even if the group of vessels targeted by S. 1221, or any other group, is excluded by law from the North Pacific groundfish fishery, overcapitalization would remain a problem. NMFS concluded in its Senate Commerce Committee testimony on S. 1221 that arbitrarily revoking fishing privileges for certain vessels is not an effective method of addressing overcapitalization. The agency stated that capacity removed from the pollock fishery without ending the race for fish would be replaced within one to two years.
    It is important to remember that despite concerns about overcapitalization, North Pacific fish stocks in general, and the pollock resource in particular, are healthy and well managed. Despite the relatively long-standing presence of excess harvesting and processing capacity in the pollock fishery, fishery managers continue to set the allowable biological catch (ABC) level at or below the safe harvest level as determined by Federal, state and university scientists. Catches are closely monitored and recorded by Federal fishery observers onboard all vessels longer than 125 feet. Electronic reporting of catch data ensures that harvest amounts are calculated on a real time basis so the quotas are not exceeded.

a. Overcapitalization in the Onshore Pollock Processing Sector.

    In 1992, the Federal Shoreside Processor Preference rule was imposed requiring that 35 percent of the annual Bering Sea pollock harvest be delivered onshore for processing. Three large seafood companies, Nippon Suisan, Maruha and Trident Seafoods are the principal beneficiaries of this fishery management regulation. Onshore production, which increased significantly from 1987 to 1991, has remained relatively stable during the 1990's. While production levels remain relatively constant, the length of the onshore fishing season has declined from about 150 days a year when the 1992 Shoreside Preference rule was implemented to 75 days in 1997. According to the Department of Commerce's 1990 report on the Anti-Reflagging Act, onshore pollock processing capacity was 290,000 metric tons during the year round fishery in 1988; onshore capacity in 1998 is at least 1 million metric tons, or three times the annual onshore production levels.
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    In sum, onshore processors do not compete against catcher/processors in a race for the fish. They compete only against one another. After years of expanding their plants, upgrading processing equipment, and financing and purchasing catcher vessels with increased fishing power and capacity, onshore processors are suffering the consequences of overcapitalization. The onshore processors are currently seeking a change in the Shoreside Preference rule that would give them an increased percentage of the annual pollock harvest. Because overcapitalization onshore is a self-inflicted problem, their case for gaining an increased share of the pollock harvest is weak. To increase their chances of acquiring a greater onshore pollock allocation, the onshore processors' benefit from legislating catcher/processors out of business and demanding their share of the harvest.

b. Both Catcher Vessels and Catcher/Processors Have Contributed to Overcapitalization in the Harvesting Sector.

    Some claim that the development of the U.S. catcher/processor fleet preempted opportunities for catcher vessel operators. Those making that claim point to catch totals from the mid-1980's when only a half dozen U.S.-flag catcher/processors were operating. At that time, virtually all of the harvest was taken by catcher vessels operating in joint venture operations, that is, they were delivering their catch to foreign-flag processing vessels operating within the U.S. 200-mile zone. A number of catcher vessel operators, taking advantage of U.S. processor preference provisions in the Magnuson-Stevens Act, embarked on projects to build U.S. catcher/processors. Thus, much of the harvest taken by the catcher vessel sector in the mid-1980's and then by the catcher/processor sector by 1990 went to the same individuals or companies; they had simply made the transition to a more Americanized fishing industry.
    Interestingly, since 1991 the catcher vessel sector has increased its share of the annual pollock harvest from 35 percent to just over 50 percent. The catcher/processor sector share of the catch has declined from 65 percent to just under 50 percent. The number of catcher boats and the fleet horsepower have increased by more than 40 percent, the tank capacity is up by one-third, and the catch per day has grown by nearly 70 percent. These figures demonstrate dramatically that overcapitalization in the catcher vessel sector continued unabated.
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    To be sure, the catcher/processor sector continued to add capacity as well to try to stay competitive in the race for fish. The solution to overcapitalization lies in adopting a rational fishery management system that ends the race for fish and that is a position advocated by the catcher/processor fleet (and the catcher vessel fleet) throughout the decade. The solution is not to have Congress select allocation winners and losers by summarily revoking fishing rights for some long-term participants for the short-term benefit of a few.

4. APA Supports Eliminating the Anti-Reflagging Act Ownership Grandfather.

    The principal purpose of the Anti-Reflagging Act, as indicated by its title, was to prevent the reflagging of foreign-built processing vessels from foreign to U.S.-flag status. After considerable debate and negotiation in Congress, an ownership provision was included. Prior to passage of the Anti-Reflagging Act, there was no limit on how much, or how little, interest foreign nationals could own in a U.S. corporation operating fishing or fish processing vessels. The Anti-Reflagging Act imposed a requirement that a minimum 51 percent interest in a corporation owning a fishing or fish processing vessel must be held by U.S. citizens.
    A ''grandfather''provision was included and that right attached to an existing qualified fishing vessel. There is no reference in the statute to the ''grandfather'' right applying to the vessel owner and, therefore, almost 30,000 fishing vessels enjoy ''grandfather'' rights under the Act. Some assert that this result was not Congress intent, but the legislative history of the Anti-Reflagging Act indicates otherwise. It is replete with statements opposing limits on foreign investment in U.S. corporations operating fishing and fish processing vessels. It is not at all surprising that in the ''give and take'' of the legislative process that compromise language would impose a prospective ownership standard, but that existing vessels and vessel projects would be ''grandfathered.'' The significance, of course, of ''grandfather'' rights running with the vessel, and not the owner of the vessel, is that the ''grandfather'' does not expire when a transfer of ownership in the vessel takes place.
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    The Coast Guard, relying on a plain reading of the statute, issued a rule confirming that the ownership ''grandfather'' attached to the vessel. The agency's interpretation was challenged in court. The U.S. District Court of Appeals unanimously upheld the Coast Guard's interpretation. Thus the situation today that most fishing vessels remain ''grandfathered'' under the Act and are not subject to the 51 percent U.S. ownership standard adopted in 1987.
    APA supports eliminating the ownership ''grandfather'' while providing for a scheduled phase-in of U.S. ownership in corporations operating fishing and fish processing vessels, at or perhaps above, the 51 percent level. If Congress acts to eliminate the ownership ''grandfather,'' APA suggests that the following points be considered. First, companies should be granted sufficient time to come into compliance with new ownership requirements. We suggest that Congress establish a three-year time period. Second, preserve the competitiveness of U.S. seafood companies in the world marketplace. If Congress acts to increase the level of U.S. citizen ownership and control in American corporations operating fish and fish processing vessels, care should be given not to preclude, or impede, domestic seafood companies from signing long-term marketing agreements with foreign buyers or arranging for financing from abroad. Third, protect the interests of U.S. shareholders in corporations required to restructure their ownership because of a change in the law. The Senate bill, S. 1221, imposes a 75 percent U.S. ownership and control standard. Failure to meet that new standard would result in revocation of a vessel's fisheries endorsement, rendering the vessel valueless for use in U.S. fisheries. This provision raises a possibility that foreign investors holding more than 25 percent ownership interest in vessels might refuse to sell their share to their American partners. Faced with a loss of fishing rights in the U.S., American partners could be leveraged into selling their vessel (or buying out their foreign partner) on unfavorable terms.
    Domestic ownership raises another important issue. Serious consideration should be given to the effects of foreign control of the Bering Sea onshore pollock processing sector given the dominance of Nippon Suisan and Maruha in the Japanese surimi market. If Congress believes that limiting foreign investment in the fisheries is necessary to increase national benefits, then perhaps similar ownership limitations should be applied to the onshore processing sector. A recent annual report issued by Maruha boasts that the conglomerate controls 100,000 metric tons of surimi annually, or one-quarter of the annual Japanese consumption. Nippon Suisan is a similar sized company. Without extending limits on ownership to the foreign-dominated plants, fishermen will continue to receive less than 9 cents per pound for pollock while Nippon Suisan and Maruha realize all of the economic benefits of value-added activities from primary processing through sale to the Japanese consumer. These rules are at least as important to a truly Americanized fishery as proposals requiring foreign divestment of ownership in the catcher/processor fleet.
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    Once again, thank you for the opportunity to appear here today. I am pleased to answer any questions that you might have.
   

STATEMENT OF MICHAEL W. KIRK, PARTNER, COOPER, CARVIN & ROSENTHAL, PLLC, COUNSEL FOR THE AMERICAN FISHERIES ACT COALITION
    Mr. Chairman, members of the Committee, I appreciate the opportunity to be here today. I represent the American Fisheries Act Coalition, an association of domestic fishing vessel owners and operators. My purpose today is to lay to rest an extremely tenuous argument made by some opponents of the Senate bill that the legislation would work a taking of private property without providing just compensation in violation of the Takings Clause of the Fifth Amendment to the United States Constitution.
    Briefly, the American Fisheries Act is designed both to further the long-standing congressional policy to ''Americanize'' United States fisheries and to address the problem of over-capacity in those fisheries. The bill would accomplish these objectives by (1) establishing a new ''corporate control'' standard for the owners of fishing vessels seeking fishery endorsements; (2) closing certain loopholes in the citizen control and foreign rebuild provisions of the Commercial Fishing Industry Vessel Anti-reflagging Act of 1987 that have allowed foreign-controlled and foreign-rebuilt fishing vessels to obtain fishery endorsements; and (3) prohibiting the issuance of new fishery endorsements for large fishing vessels and requiring that the fishery endorsements for certain such vessels be permanently surrendered.
    Enactment of the bill will result in the loss of fishery endorsements for certain United States flag fishing vessels currently operating within the Exclusive Economic Zone (''E.E.Z.''), including vessels that were purchased, built, or rebuilt in reliance upon the loopholes in existing law making such vessels eligible for fishery endorsements.
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    My partners Charles Cooper, Vincent Colatriano, and I have analyzed the claim that the bill could effect a taking of private property in some detail, and I summarize our conclusions today. At the most fundamental level, the Senate bill regulates access to the fish in the sea, and no one asserts a property right to the fish.
    As an initial matter, we have concluded that no reasonable claim can be made that the Senate bill would result in a physical taking of the vessels, for the bill neither directly appropriates the vessels, nor ousts the owner of possession of the vessels, nor requires the owner to acquiesce in a physical invasion or occupation of the vessels. Indeed, the bill's opponents do not claim that a physical taking would occur. Any takings challenge, therefore, must allege that the bill effects a ''regulatory taking'' of the vessels. Analysis under either of the two broad conceptual approaches to regulatory takings yields the inescapable conclusion that the bill does not effect a regulatory taking of fishing vessels.
    Opponents argue that, under the Supreme Court's decision in Lucas v. South Carolina Coastal Commission, 505 U.S. 1003 (1992), the bill effects a taking of vessels because it somehow denies the owners ''all economically beneficial use'' of those vessels which no longer qualify for fishery endorsements. For several reasons, the Lucas analysis is inapplicable to the bill.
    The Lucas decision contains language suggesting that the ''deprivation of all economically beneficial use'' analysis is limited to real property. It is unlikely, therefore, that the Lucas test would even apply to governmental regulation of property other than land. But even if the Lucas test applies to regulation of personal property, it is unlikely that the value of affected fishing vessels will be so significantly diminished by the bill that the bill can be said to deprive vessel owners of all economically beneficial use of their vessels. The ''all economically beneficial use'' test, according to court decisions applying it, means upwards of 90 percent of the fair market value of the property in question. If the bill does in fact result in some loss in value, the loss could not possibly amount to such a high proportion of total value. For example, as to vessels failing the bill's new corporate control test, the bill merely requires domestic control which presumably could be effected by a sale either of the vessel itself or of an interest in the vessel-owning entity. Since any such sale would presumably take place at a price at or approaching fair market value, any loss in value would certainly constitute far less than all economically beneficial use. Even vessels that are forced to surrender their fishery endorsements would continue to be able to fish in waters outside the E.E.Z. Finally, any vessels that lose their ability to fish in the E.E.Z. could be converted to economically beneficial uses other than fishing. Many of the vessels in question, after all, were converted from non-fishing uses in the first place. In fact, I understand that at least one has actually been converted into a seismic research vessel, and a number of vessels have been put to use in foreign waters. The analyses put forward by the bill's opponents ignore these alternatives.
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    Those who argue that the bill would effect a taking similarly ignore an even more fundamental point. Since at least 1976, the Federal Government has maintained plenary authority to regulate access to the E.E.Z. A fishery endorsement merely allows fishing in the E.E.Z. subject to the government's authority to regulate. A fishery endorsement does not give the holder the assurance of use. To the contrary, fishing quotas in the E.E.Z. can be reduced to zero. Moreover, an endorsement holder has no right to exclude others from a given fishery—all who meet statutory requirements are entitled to receive an endorsement. Endorsement holders pay essentially nothing for the endorsement itself. These features of the endorsements confirm that a fishery endorsement is not private property; its revocation is not a taking. Rather, the endorsement is merely a permit to fish in waters over which the government retains complete authority.
    A long line of cases considering the revocation of permits to perform activities—building, grazing, prospecting, mining, traversing, and fishing—on public land and government regulated waters holds that such revocations cannot rise to the level of a Fifth Amendment taking. In one such case, the United States Court of Appeals for the Eleventh Circuit noted that ''both Federal and other state cases stand for the proposition that permits to perform activities on public land—whether the activity be building, grazing, prospecting, mining or traversing—are mere licenses whose revocation cannot rise to the level of a Fifth Amendment taking.'' Marine One, Inc. v. Manatee County, 898 F.2d 1490, 1492-93 (11th Cir. 1990) (emphasis in original); see United States v. Locke, 471 U.S. 84, 104-05 (1985) (''The United States, as owner of the underlying fee title to the public domain, maintains broad powers over the terms and conditions upon which the public lands can be used, leased, and acquired. . . . Claimants thus must take their mineral interests with the knowledge that the Government retains substantial regulatory power over those interests.''); United States v. Chicago, Milwaukee, St. Paul & Pac. R.R. Co., 312 U.S. 592, 596 (1941); Acton v. United States, 401 F.2d 896, 899-900 (9th Cir. 1968), cert. denied, 395 U.S. 945 (1969); Osborne v. United States, 145 F.2d 892, 896 n.5 (9th Cir. 1944); Burns Harbor Fish Co. v. Ralston, 800 F. Supp. 722, 727 (S.D. Ind. 1992); Organized Fishermen of Florida v. Watt, 590 F. Supp. 805, 815-816 (S.D.Fl. 1984), aff'd sub nom. Organized Fishermen of Florida v. Hodel, 775 F.2d 1544 (11th Cir. 1985), cert. denied, 476 U.S. 1169 (1986). In Acton, the Ninth Circuit held that a government license to mine uranium on public land was not property which, when canceled, entitled the licensee to compensation. Noting that the plaintiff had made large expenditures in reliance on the expectation that mining would be permitted to take place, the court made clear that the value of government permits and licenses does not transform a government privilege into property protected by the Takings Clause. Relying on an early Supreme Court decision involving grazing permits, the court reasoned:
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Unquestionably, the grazing permits were of value to the ranchers. They were an integral part of the ranching unit—indeed, the fee lands are practically worthless without them. But, 'the existence of value alone does not generate interests protected by the Constitution against diminution by the government, however unreasonable its action may be.' Reichelderfer v. Quinn, 287 U.S. 315, 319, 53 S. Ct. 177, 178, 77 L.Ed. 331.
Acton, 401 F.2d at 900.
    Particularly instructive is Organized Fishermen of Florida, which considered whether the National Park Service's cancellation of permits to engage in commercial fishing, as a preference to sport fishermen, in waters enclosed by Everglades National Park constituted a taking of private property. 590 F. Supp. at 815-816. The court held that despite the long-standing practice of allowing commercial fishing in the area in question, ''the annual permits are merely a license to conduct commercial fishing activity, . . . [are] a privilege granted by the Park Service, and [are] . . . by [their] very nature, revocable.'' Id. at 815. Comparing the commercial fishing permit to the grazing licenses considered in Acton, that held:

[A] permit for grazing has been considered ''a privilege which is withdrawable at any time for any use by the sovereign without payment of compensation.'' Similarly, plaintiffs in the instant case have no Fifth Amendment taking claim.
Id. at 816 (citations omitted).
    In sum, given that the Federal Government has plenary authority over fishing in the E.E.Z. and that a fishery endorsement merely grants to the holder the nonexclusive privilege to engage in commercial fishing in the E.E.Z., the revocation of a fishery endorsement—like the revocation of a grazing permit—does not trigger a claim for compensation. Accordingly, any resulting loss of value in a fishing vessel is also not compensable.
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    The same result is yielded under the ad hoc regulatory taking test announced by the Supreme Court in Penn Central Transportation Co. v. New York, 438 U.S. 104 (1978). This test calls for inquiry into (1) the character of the governmental action, (2) the economic impact of the action on a claimant, and (3) the action's interference with the claimant's reasonable ''investment-backed'' expectations.'' See id. at 124; Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1005 (1984).
    For many of the same reasons that the bill would not, under Lucas, deprive vessel owners of all economically beneficial use of their fishing vessels, it is doubtful that the ''economic impact'' of the bill, under the Penn Central test, would be considered particularly severe. These fishing vessels could be sold for fair market value, or if not sold, would still be able to fish in waters outside the E.E.Z., and, under certain conditions, in waters within the E.E.Z. Moreover, they can be converted to non-fishing uses.
    The inquiry into the ''character of the governmental action'' also weighs heavily against a finding that the bill effects a regulatory taking. The bill merely seeks to refine standards for vessel documentation and endorsement, and to redefine the conditions under which foreign interests will be allowed to fish in United States sovereign waters. Both of these areas are well within the Federal Government's plenary and long-standing authority. The bill thus hardly represents an initial Federal foray into a new area; nor is it a dramatic departure from past regulatory practice.
    These same considerations also defeat a claim that the bill unduly interferes with the reasonable investment-backed expectations of vessel owners. No provision of current law regarding the standards for issuing fishery endorsements can be read to provide some sort of governmental guarantee, contractual or otherwise, that those standards were permanent. Any such claim would amount to the assertion that whenever Congress tightens the standards for eligibility for Federal licenses or permits, it must compensate the adversely affected licensees. Such a rule would have the practical effect of handcuffing Congress from ever increasing the standards or requirements for Federal licenses or other privileges, and there is no principle of takings law that supports such a far-reaching proposition. Moreover, as under the Lucas analysis, the fundamental proposition that fishery endorsements, like other governmental licenses, do not create property interests in the licensees defeats any claim that the endorsements could form the basis for some type of reasonable investment-backed expectation that an endorsement, once obtained, would never be lost.
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    Our analysis, moreover, is unchanged by the United States Court of Federal Claims' recent decision in Maritrans Inc. v. United States, 1998 WL 214268, No. 96-483C (Fed. Cl. Apr. 24, 1998), cited by some in support of their arguments against the bill. In Maritrans, owners of single hulled oil barges are claiming that Federal regulation which phases out the use of single hulled oil vessels, in preference for double hulled vessels for environmental reasons, constitutes a taking of the single hulled barges. I should first note that the decision of the court does not decide whether the phasing out of single hulled tankers effects a taking. The opinion merely rejects two of the arguments presented by the government that would have barred a claim. But even if the court ultimately does order that compensation must be paid, the case is easily distinguished from the line of cases I described earlier concerning permits to use government land or waters. That the bill's opponents have even cited Maritrans suggests the difficulty they face fashioning a case that the bill takes private property.
    In summary, whatever policy considerations may guide the members of this Committee as you deliberate over the merits of this legislation, the potential that the Federal Government will be compelled to pay compensation to the owners of affected fishing vessels can safely be dismissed. Thank you.
   

STATEMENT OF DON GILES, PRESIDENT, ICICLE SEAFOODS, INC.
    Thank you, Mr. Chairman, for the opportunity to provide a statement for the record concerning Icicle Seafood's views on legislation to Americanize the United States flag fishing fleet.
    By way of introduction, Icicle Seafoods started in 1965 when a group of local fishermen and businessmen purchased a salmon cannery in Petersburg, Alaska. Today our seafood processing company continues to be 100 percent American owned, with a majority of our ownership held by Alaskan fishermen and employees. Icicle employs, at peak, over 2500 workers at our processing facilities in Alaska and Washington. As one of the largest American seafood processing companies, we have concentrated our business on all species of crab, fresh/frozen/canned salmon, fresh and frozen halibut, herring, sablefish, and surimi analog products. This year we are the crab processing partner for four of the six CDQ groups in western Alaska.
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    Icicle supports the goals of S. 1221, introduced by Senators Stevens, Breaux, Murkowski, Hollings, and Wyden. We believe that legislation should be enacted to Americanize our fisheries by ''establishing a meaningful and enforceable standard of U.S. citizen ownership and control for U.S. flag vessels employed in the fisheries.'' Icicle also strongly supports the revocation of the fishery endorsements of foreign owned and foreign controlled factory trawlers that entered our fisheries contrary to the intent of Congress. However, we do have some concerns about the bill, which are explained below.

Americanization

    As one of the few truly American seafood companies and one of the only major independent Alaskan processors left, we strongly support the full Americanization of our fishing industry. Because we are one of the very few independents within the seafood industry, we have no multi-national partners pressuring us to pursue specific agendas, actions or policies. We are concerned that S. 1221 may not be tough enough in terms of preventing foreign owned companies from controlling fishing and processing vessels. Today we have reason to believe there are highly integrated foreign-owned corporations that control fishing and processing vessels, as well as halibut and sablefish ITQ's, contrary to the intent of the law. In this regard Icicle would like to encourage the Subcommittee to consider strict and enforceable standards, such as those found in section 2 of the Shipping Act, 1916, to ensure that U.S. fishing and fish processing vessels are truly controlled by U.S. citizens.

Removal of Foreign Owned/Controlled Factory Trawlers

    As a matter of fairness, we support the removal of the seventeen or so foreign owned or controlled factory trawlers that sneaked into our fisheries through a misinterpretation of the law by the U.S. Coast Guard. During the debate on the Commercial Fishing Industry Vessel Anti-Reflagging Act of 1987, Icicle and two other American companies seriously looked into the design, construction, and proforma of a new U.S. built factory trawler. We collectively spent over $150,000 in securing bids from four major American shipyards. However, we ultimately came to the conclusion that it was not a prudent investment, considering the amount of over-capitalization that was pouring into the pollock fishery from foreign owned and foreign built factory trawlers that jumped through the loopholes of the 1987 Act. We believe our project was precisely the type of investment that Congress intended to encourage through the establishment of the American preference policy that provides priority access to our fishery resources to American fishermen and American processors. Icicle's plans to participate in the Alaska groundfish fisheries were preempted by foreign-owned and foreign built factory trawlers and we see no reason that these vessels should be allowed to continue to thwart the policies of the Congress.
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Market Consolidation/Unintended Consequences

    Icicle is concerned that if S. 1221 or similar legislation is enacted into law, it could have the unintended consequence of creating greater market concentration or excessive control of the fisheries within the hands of a few huge domestic and foreign controlled seafood companies. If pollock that had been previously harvested and processed by the vessels eliminated from the fishery through enactment of a new law now becomes available to only the remaining pollock participants, the effects will be detrimental. Under such a situation, their power will increase as a result of a windfall profit and increased impacts on the market. Some of these companies are vertically integrated and/or are already dominant players, therefore they would now become even more powerful. Such an outcome could stifle competition within the industry and would not be beneficial to United States fishermen or independent shoreside processors like Icicle. Even though Icicle is not in the business of harvesting or processing pollock, we could be harmed by these unintended spillover effects of S. 1221 or similar legislation.
    One way to address this issue is to add a provision to the legislation that would cap at current levels the amount of quota any large seafood company/entity could control. The term large seafood entity could be defined as any vessel owner or corporation that controlled X percent or more of the pollock landings over the previous three year period. We believe NMFS and the Council have this vessel landing history readily available. In determining who controls the quota NMFS should apply criteria similar to those used to determine control under section 2 of the Shipping Act, 1916, rather than the less rigorous review used today in the halibut/sablefish fishery. Such a provision would ensure that small vessels and processing companies benefit from removing foreign owned or controlled factory trawlers. Under this scenario, we would envision increased competition to purchase, process, and sell pollock end-products.
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    Another way to address corporate consolidation or excessive control within the fishery is to take a portion of the unallocated quota (quota made available as a result of removing foreign owned or controlled factory trawlers) and make it available to traditional American companies that were preempted from entering the fishery by the foreign owned and built factory trawlers. We think this approach would be good for the industry and are confident that specific fair criteria could be developed to guide this reallocation of quota to bona fide American companies. These criteria could include a company's history and investment in all fisheries, local employment, history of processing in the Bering Sea area, ownership structure, participation in community development programs and evidence of specific plans or projects that did not go forward because they were preempted by the foreign owned and built factory trawlers.

Conclusion

    Icicle hopes that our comments will be useful to you as the Subcommittee considers legislation to continue the Americanization of the fishery that began with the Magnuson-Stevens Act. We support S. 1221 or similar legislation, and encourage the Subcommittee to include measures to address the concerns we have raised. If this were done, it would make the bill much stronger, and we urge your prompt action on such a bill. The long term health of the fishing industry makes it critical that Congress act soon to fully Americanize our fisheries and ensure that they are not dominated by huge corporations.
   

STATEMENT OF TCW SPECIAL CREDITS, LOS ANGELES, CALIFORNIA
Introduction

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    TCW Special Credits submits this statement to provide comments with respect to the general subject of United States ownership of fishing vessels and S. 1221, the American Fisheries Act, and requests that this statement be made a part of the June 4, 1998, hearing record.
    TCW Special Credits is an affiliate of The TCW Group, Inc., a Los Angeles based investment management group that includes Trust Company of the West, a California trust company and bank. The TCW Group entities manage over $50 billion of assets on behalf of public and private pension and retirement plans, educational and college endowments, charitable foundations, and, to a lesser extent, certain mutual funds. TCW Special Credits is a California general partnership which serves as investment manager of specific funds, trusts and separate accounts under the TCW umbrella. As such, TCW Special Credits is a registered investment adviser regulated by the U.S. Securities and Exchange Commission pursuant to the Investment Advisers Act of 1940, and is a Qualified Pension Asset Manager regulated by the U.S. Department of Labor pursuant to the Employees Retirement Income Security Act of 1994.
    Total assets under management by TCW Special Credits are approximately $1.5 billion today. Investors in these funds and accounts, like the clients of Trust Company of the West generally, consist mostly of large public and corporate pension plans, charitable and educational trusts, as well as some individual investors. Among the investors in the funds managed by TCW Special Credits are pension funds of nine states and municipalities, the endowments of 18 colleges and universities as well as 14 charitable foundations, and the retirement plans of 12 of Fortune's top 200 companies.
    TCW Special Credits, as agent and nominee of the above-described funds and accounts, is the holder of record of a first preferred ship mortgage on the factory fishing vessel ARCTIC FJORD (Official No. 940866). The ship mortgage secures a term loan made to Arctic Fjord, Inc., the owner of the vessel, in the amount of $17 million.
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    As currently drafted, S. 1221 could substantially impair the security interest of TCW Special Credits in the ARCTIC FJORD. For the reasons set forth in this statement, TCW Special Credits requests that the Subcommittee make changes in this bill to avoid penalizing TCW Special Credits, which is a U.S. investor in a company that is now wholly owned by U.S. citizens, including the Bristol Bay Economic Development Corporation.

Background of the Bill

    S. 1221 would amend the vessel documentation laws of the United States to establish a new rule of citizenship control for vessels engaged in the fisheries of the United States. To operate as a U.S. flag vessel in the navigable waters and 200-mile exclusive economic zone, a fishing vessel must be properly documented under Title 46 of the United States Code and owned by certain qualifying entities. In 1976, when fisheries jurisdiction was extended to 200 nautical miles in the Magnuson Fishery Conservation and Management Act (now called the ''Magnuson-Stevens Act''), Congress rejected an amendment that would have established a vessel citizenship/ownership requirement similar to that required for vessels operating in the coastwise trade. Instead, the less restrictive rule of allowing foreign nationals to be equity investors (of up to 100 percent) in vessel-owning companies was continued. Douglas v. Seacoast Products, 431 U.S. 265 (1977). It is clear that this investment rule assisted the fairly rapid development of a large fleet of U.S. factory trawlers sufficient in capacity to exclude entirely the foreign fishing fleets that had dominated fish harvests off the U.S. coast prior to 1974.
    By the end of the 1980s, Congress became concerned about the growth of the U.S. fishing fleet and the practice of reflagging foreign-built and foreign-converted fishing/fish processing vessels and enacted the Commercial Fishing Industry Vessel Anti-Reflagging Act of 1987 (''Anti-Reflagging Act''). Although justified in part by the purported need to conserve the affected fish resources, support for this legislation primarily emanated from competitive and allocation pressures between and among various sectors of the fishing industry, primarily in the Pacific Northwest. Moreover, for many years, domestic fishing industry interests have been concerned about foreign investment generally, due to the fact that overseas investors play such a large role because of strong foreign demand for U.S. seafood products, in particular salmon, herring, crab, and groundfish from Alaska. Congress clearly believed that policies should be established that reduced foreign involvement in U.S. fisheries and, concomitantly, that benefited U.S. citizens.
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    The Anti-Reflagging Act was intended to limit foreign ownership of U.S. flag fishing vessels and cut off the ability to ''rebuild'' fishing vessels in foreign shipyards. Southeast Shipyard Ass'n v. U.S., 979 F.2d 1541 (D.C.Cir.1992). Under that law, specifically 46 U.S.C. §12102(c)(1), a vessel-owning corporation or partnership had to be owned at least 51 percent by U.S. citizens to document new vessels for the fisheries. However, if a vessel, prior to July 28, 1987, had been documented under U.S. flag or had been contracted for purchase to be used in the U.S. fisheries, foreign citizens could still own a controlling interest in the owning entity, so long as the corporation's president, chairman of the board of directors, and a majority of the board were U.S. citizens. This ownership ''grandfather'' clause was confirmed by the D.C. Court of Appeals in the Southeast Shipyard case.
    In addition, prior to the Anti-Reflagging Act, fishing vessels could undergo substantial reconstruction in foreign shipyards and not lose their eligibility to operate in the U.S. fisheries. The Anti-Reflagging Act ended that practice. Again, however, Congress provided a saving ''grandfather'' clause to allow vessels that met certain pre-existing conditions to be rebuilt overseas notwithstanding the change in law.

History of the ARCTIC FJORD

    The factory fishing vessel ARCTIC FJORD began as the BRAE SEA, an offshore supply vessel built in Seattle, Washington at Todd Shipyard Corp. and delivered in 1975. The vessel was later purchased by Orion Trawlers, Inc. (''Orion''), a U.S. documentation citizen under 46 U.S.C. §12102(a)(4), for conversion to a factory trawler. However, during the relevant time period, the stock of Orion was owned by non-citizens. This purchase was agreed to in a contract entered into before July 28, 1987. The vessel was rebuilt in a Norwegian shipyard pursuant to a contract also entered into before July 28, 1987. Upon its conversion to a factory fishing vessel, it was renamed the MICHELLE IRENE.
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    Upon delivery following reconstruction, ownership in the vessel was transferred to three Washington State corporations as tenants in common: WestcodII, Inc. (50 percent), Simonson Enterprises V, Inc. (25 percent), and BTI, Inc. (25 percent). Westcod II, Inc. was a documentation citizen but the controlling interest in the company was not held by U.S. citizens consistent with the new test in 46 U.S.C. §12102(c)(1). The other two companies were controlled by U.S. citizens. Thus, the same entity that purchased or contracted for, and entered into the rebuilding contract, was not the same entity that owned or controlled the vessel upon documentation at redelivery.
    All these transactions complied with the requirements of the Anti-Reflagging Act. The U.S. Coast Guard, the agency responsible for overseeing compliance with the documentation laws, confirmed in writing that this particular vessel qualified for both the citizenship and rebuild grandfather clauses under the Anti-Reflagging Act and that the transactions did not result in loss of fishing privileges.
    In 1993, the owners came into difficulty with their lender, Christiana Bank og Kreditkasse, and foreclosure action was taken against the MICHELLE IRENE, then named the PACIFIC ORION. In 1994, the vessel was sold to Arctic Fjord, Inc. and renamed ARCTIC FJORD. Shortly thereafter, TCW Special Credits purchased the loan on the vessel from Christiana Bank.
    The vessel was owned entirely by Arctic Fjord, Inc. until 1995, when an ownership agreement was entered into with the Bristol Bay Economic Development Corporation (''Bristol Bay'') to carry out the purposes of the Community Development Quota program. As a result of that agreement, Bristol Bay purchased 20 percent of the stock in Arctic Fjord, Inc. The ARCTIC FJORD is currently owned and managed in accordance with that agreement. The ownership structure involves only U.S. citizens.

Effect of S. 1221 on ARCTIC FJORD
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    In his introductory statement, Senator Ted Stevens (A-Alaska) said that the rebuilding provisions of the Anti-Reflagging Act were misinterpreted by the Coast Guard and abused by speculators, resulting in 14 factory trawlers entering the fisheries off Alaska that should have been prohibited by the Anti-Reflagging Act. Based on the fact that the vessel was subject to the ownership and rebuild grandfather clauses of the Anti-Reflagging Act, the ARCTIC FJORD is one of those vessels. In addition, because the same entity did not own the vessel upon redelivery after its foreign conversion, Sec. 201 (b)(3)(D) of the bill applies to the vessel. Under that provision of S. 1221, if the controlling interest in a vessel such as the ARCTIC FJORD materially changes, regardless of who now owns the vessel or security interests in it, the vessel must permanently lose its fishery endorsement unless another active vessel of comparable size and capacity surrenders its endorsement. S. 1221; Sec. 201(b). This intent is confirmed in Senator Stevens' introductory comments.
    Although the bill is unclear as to every material change in ownership that brings about this draconian result, we presume that a foreclosure of TCW Special Credits' ship mortgage and resulting sale of the vessel is in fact such a material change. Moreover, other sales of interests in the vessel could be material, such as the sale of the vessel to another company, a reorganization of Arctic Fjord, Inc., a change in the current ownership arrangement with Bristol Bay, or even the death of a partner in part of the ownership structure. Consequently, it is quite possible, if the bill is enacted in its current form, that the value of the ARCTIC FJORD could be far less than the $17 million face value of the mortgage it secures because it will not be allowed thereafter to engage in the fisheries of the U.S. TCW Special Credits has also been advised that it would be immensely difficult, if not impossible, to operate the vessel in any other world fishery. Such a result would be a severe blow to TCW Special Credits' investment in this loan and its primary security for the loan, which is the vessel itself.
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    Furthermore, as a lender, TCW Special Credits is concerned about the size and capacity restrictions set forth in Sec. 301(a) of the bill that extinguish a vessel's fishery endorsement if the length, tonnage, and horsepower of that vessel is increased after September 25, 1997. We understand that changes in tonnage could occur inadvertently because of the way tonnage is calculated. In addition, every minor alteration of the vessel, routinely done during drydock repairs, would create uncertainty into the future.
    Overall, S. 1221, as presently drafted, is very ominous for TCW Special Credits' investment in the Pacific Northwest fishing industry. It is difficult to fully understand why a U.S. lender, representing U.S. investors and contracting with U.S. citizen borrowers, should face the substantial impairment of its investment in this arbitrary manner. No warning about this significant change in policy was ever given.

Summary and Conclusion

    If enacted in its present form, S. 1221 could result in the loss of fishing privileges for the ARCTIC FJORD, a vessel owned by U.S. citizens including an Alaska native corporation and significantly impair the security in the vessel held by TCW Special Credits, also a U.S. citizen. Whatever the policy goals of the bill, this result is clearly unfair with respect to this vessel unless it is changed to exclude a vessel such as the ARCTIC FJORD that is owned 75 percent by U.S. citizens at the present time. TCW Special Credits understands that all vessels currently operating in U.S. fisheries are subject to rationally-based management policies that assure the sustainability of the nation's fishery resources. TCW Special Credits also understands that one of the sponsors' goals is to reserve these resources for U.S. citizens. But in the case of the ARCTIC FJORD, S. 1221 will punish U.S. citizens for having acquired interests in the vessel simply because of its history of prior foreign involvement, contrary to the espoused policy of supporting U.S. investments in the U.S. fishing industry. It is important to emphasize that nothing in the previous history of the ARCTIC FJORD indicates that it was not in compliance, at any time, with all vessel documentation laws then in effect.
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    TCW Special Credits respectfully requests this Subcommittee to consider these views and keep them in mind if any legislation comes before the Subcommittee for action.

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