```

[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]

 
   REAUTHORIZATION OF THE MAGNUSON-STEVENS FISHERY CONSERVATION AND 
                            MANAGEMENT ACT

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

                           OVERSIGHT HEARING

                               before the

      SUBCOMMITTEE ON FISHERIES CONSERVATION, WILDLIFE AND OCEANS

                                 of the

                         COMMITTEE ON RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              May 10, 2001

                               __________

                           Serial No. 107-26

                               __________

           Printed for the use of the Committee on Resources

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

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                         COMMITTEE ON RESOURCES

                    JAMES V. HANSEN, Utah, Chairman
       NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska,                   George Miller, California
  Vice Chairman                      Edward J. Markey, Massachusetts
W.J. ``Billy'' Tauzin, Louisiana     Dale E. Kildee, Michigan
Jim Saxton, New Jersey               Peter A. DeFazio, Oregon
Elton Gallegly, California           Eni F.H. Faleomavaega, American 
John J. Duncan, Jr., Tennessee           Samoa
Joel Hefley, Colorado                Neil Abercrombie, Hawaii
Wayne T. Gilchrest, Maryland         Solomon P. Ortiz, Texas
Ken Calvert, California              Frank Pallone, Jr., New Jersey
Scott McInnis, Colorado              Calvin M. Dooley, California
Richard W. Pombo, California         Robert A. Underwood, Guam
Barbara Cubin, Wyoming               Adam Smith, Washington
George Radanovich, California        Donna M. Christensen, Virgin 
Walter B. Jones, Jr., North              Islands
    Carolina                         Ron Kind, Wisconsin
Mac Thornberry, Texas                Jay Inslee, Washington
Chris Cannon, Utah                   Grace F. Napolitano, California
John E. Peterson, Pennsylvania       Tom Udall, New Mexico
Bob Schaffer, Colorado               Mark Udall, Colorado
Jim Gibbons, Nevada                  Rush D. Holt, New Jersey
Mark E. Souder, Indiana              James P. McGovern, Massachusetts
Greg Walden, Oregon                  Anibal Acevedo-Vila, Puerto Rico
Michael K. Simpson, Idaho            Hilda L. Solis, California
Thomas G. Tancredo, Colorado         Brad Carson, Oklahoma
J.D. Hayworth, Arizona               Betty McCollum, Minnesota
C.L. ``Butch'' Otter, Idaho
Tom Osborne, Nebraska
Jeff Flake, Arizona
Dennis R. Rehberg, Montana

                   Allen D. Freemyer, Chief of Staff
                      Lisa Pittman, Chief Counsel
                    Michael S. Twinchek, Chief Clerk
                 James H. Zoia, Democrat Staff Director
                  Jeff Petrich, Democrat Chief Counsel
                                 ------                                

       SUBCOMMITTE ON FISHERIES CONSERVATION, WILDLIFE AND OCEANS

                 WAYNE T. GILCHREST, Maryland, Chairman
           ROBERT A. UNDERWOOD, Guam, Ranking Democrat Member

Don Young, Alaska                    Eni F.H. Faleomavaega, American 
W.J. ``Billy'' Tauzin, Louisiana         Samoa
Jim Saxton, New Jersey,              Neil Abercrombie, Hawaii
  Vice Chairman                      Solomon P. Ortiz, Texas
Richard W. Pombo, California         Frank Pallone, Jr., New Jersey
Walter B. Jones, Jr., North 
    Carolina

                                 ------                                
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on May 10, 2001.....................................     1

Statement of Members:
    Gilchrest, Hon. Wayne, a Representative in Congress from the 
      State of Maryland..........................................     1
        Prepared statement of....................................     2
        Report entitled ``Pacific Groundfish Buy-Back Program'' 
          by Peter Leipzig submitted for the record..............     7
    Underwood, Hon. Robert, a Delegate to Congress from Guam, 
      Prepared statement of......................................    47

Statement of Witnesses:
    Blue, Gordon, President, Crab Rationalization and Buyback 
      (C.R.A.B.) Group...........................................    63
        Prepared statement of....................................    64
    Burns, William Scott, Director, Endangered Seas Campaign, 
      World Wildlife Fund........................................    57
        Prepared statement of....................................    59
    Dunnigan, John H., Executive Director, Atlantic States Marine 
      Fisheries Commission.......................................    29
        Prepared statement of....................................    31
    Grader, W.F. ``Zeke'' Jr., Executive Director, Pacific Coast 
      Federation of Fishermen's Associations.....................    78
        Prepared statement of....................................    79
    Hill, Barry T., Director, Natural Resources and Environment, 
      U.S. General Accounting Office.............................    40
        Prepared statement of....................................    41
    Hogarth, Dr. William T., Acting Assistant Administrator for 
      Fisheries, National Marine Fisheries Service, U.S. 
      Department of Commerce.....................................    20
        Prepared statement of....................................    22
        Response to questions submitted for the record...........    27
        Letter of clarification to Chairman Gilchrest............    52
    Kirkley, Dr. James E., Chairman, Department of Coastal and 
      Ocean Policy, Virginia Institute of Marine Sciences........    84
        Prepared statement of....................................    87
    Nussman, Mike, Vice President, American Sportfishing 
      Association................................................    90
        Prepared statement of....................................    91
    West, Ambassador Mary Beth, Deputy Assistant Secretary for 
      Oceans and Fisheries, Bureau of Ocean and International 
      Environmental and Scientific Affairs, U.S. Department of 
      State, Prepared statement of...............................     3

 CAPACITY REDUCTION PROGRAMS, FEDERAL INVESTMENTS IN FISHERIES AND THE 
   REAUTHORIZATION OF THE MAGNUSON-STEVENS FISHERY CONSERVATION AND 
                             MANAGEMENT ACT

                              ----------                              

                         Thursday, May 10, 2001

                     U.S. House of Representatives

      Subcommittee on Fisheries Conservation, Wildlife and Oceans

                         Committee on Resources

                             Washington, DC

                              ----------                              

    The Subcommittee met, pursuant to notice, at 9:40 a.m. in 
Room 1324, Longworth House Office Building, Hon. Wayne 
Gilchrest [Chairman of the Subcommittee] presiding.

STATEMENT OF THE HONORABLE WAYNE GILCHREST, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MARYLAND

    Mr. Gilchrest. Good morning, everyone. The Subcommittee on 
Oceans, Fish and Wildlife and a myriad of other things will 
come to order.
    I would like to welcome our witnesses to the second of what 
I hope will be a number of hearings on the important topic of 
reauthorization of the Magnuson-Stevens Fishery Conservation 
and Management Act.
    This hearing will focus on two interesting issues of 
fisheries management. The first is the issue of Federal 
investments in the fishing industry. These were well-
intentioned programs intended to help the domestic fishing 
industry at the time they were created but it may be time for 
Congress to take another look at them.
    To further this discussion, Congress asked the National 
Marine Fisheries Service to report back on the levels of 
Federal investments in the fishing industry and how these 
investment programs have affected capacity in our fishing. I 
think this report has helped spark a debate about whether these 
programs are still effective and/or whether they have 
encouraged overcapacity in some of our domestic fisheries. I 
think this debate is healthy and I suspect today's hearing will 
continue the debate.
    The second issue is that of capacity reduction or buyback 
programs. The General Accounting Office reports that since 1976 
the Federal Government has created and funded a number of 
programs to reduce the capacity in several of our fisheries. In 
addition, a number of proposals for additional buyouts are 
either on the drawing board or have already been presented to 
the Federal Government for consideration.
    As the Federal Government moves forward with new buyout 
programs, we need to review the previous programs to see how we 
can make any future buyouts more effective. I think the report 
also points out that there may be a number of different goals 
for buyout programs and any new program should be designed to 
achieve those goals.
    While I know there may be a temptation this morning to talk 
extensively about IFQs, individual fishing quotas, I hope we 
can leave that for a future hearing and certainly for future 
meetings in our offices. I understand some of you have 
mentioned IFQs in the context of capacity reduction options and 
that certainly will be another piece of this incredibly complex 
puzzle and we will not take the Magnuson Act in isolation, 
whether it is buyouts or IFQs or whatever aspect of the act is 
going to help manage the fisheries, but take them all in 
context and then spread them across the web of management.
    But this morning I am not telling you you cannot mention 
IFQs as a management tool because it will be a significant part 
of our discussion on how to manage the fisheries and the 
independence of each management council but this morning I hope 
to focus this hearing on the history and the effectiveness of 
Federal buyouts and how we can improve the current 
authorization, which is found in Section 312 of the Magnuson-
Stevens Act.
    [The prepared statement of Mr. Gilchrest follows:]

 Statement of The Honorable Wayne Gilchrest, Chairman, Subcommittee on 
              Fisheries Conservation, Wildlife and Oceans

    I would like to welcome our witnesses to the second of what I hope 
will be a number of hearings on the important topic of the 
reauthorization of the Magnuson-Stevens Fishery Conservation and 
Management Act.
    This hearing will focus on two interesting issues of fisheries 
management. The first is the issue of Federal investments in the 
fishing industry. These were well-intentioned programs intended to help 
the domestic fishing industry at the time they were created, but it may 
now be time for Congress to take another look at them.
    To further this discussion, Congress asked the National Marine 
Fisheries Service (NMFS) to report back on the levels of Federal 
investments in the fishing industry and how these investment programs 
have affected capacity in our fisheries.
    I think this report has helped spark a debate about whether these 
programs are still effective and/or whether they have encouraged 
overcapacity in some of our domestic fisheries. I think that this 
debate is healthy and I suspect today's hearing will continue the 
debate.
    The second issue is that of capacity reduction or buyback programs. 
The General Accounting Office reports that since 1976 the Federal 
Government has created and funded a number of programs to reduce the 
capacity in several of our fisheries. In addition, a number of 
proposals for additional buyouts are either on the drawing board or 
have already been presented to the Federal Government for 
consideration.
    As the Federal Government moves forward with new buyout programs, 
we need to review the previous programs to see how we can make any 
future buyouts more effective. I think the report also points out that 
there may be a number of different goals for buyout programs and any 
new programs should be designed to achieve those goals.
    While I know there may be a temptation by some of our witnesses to 
turn this hearing into a debate on the merits of Individual Fishing 
Quotas on rationalizing our fisheries, I hope we can leave that for a 
future hearing. I understand some of you have mentioned IFQs in the 
context of capacity reduction options, but I hope we can focus this 
hearing on the history and effectiveness of Federal buyouts and how we 
can improve the current authorization which is found in Section 312 of 
the Magnuson-Stevens Act.
    I look forward to hearing from our witnesses.
                                 ______
                                 
    Mr. Gilchrest. I will recognize Mr. Underwood when he 
arrives and he will be here momentarily but at this point I ask 
unanimous consent that the statement and attachments from 
Ambassador Mary Beth West of the U.S. State Department be 
included in the record of today's hearing and I ask unanimous 
consent that the information supplied by Mr. Pete Leipzig of 
the Fishermen's Marketing Association on the proposal for a 
Pacific groundfish buyback be submitted for the record.
    [The prepared statement of Ambassador West follows:]

Statement of Ambassador Mary Beth West, Deputy Assistant Secretary for 
Oceans and Fisheries, Bureau of Oceans and International Environmental 
            and Scientific Affairs, U.S. Department of State

    Mr. Chairman and members of the Subcommittee:
    Thank you for this opportunity to provide to the Subcommittee an 
update on international activities of the United States in support of 
capacity reduction programs and assessments of the effects of 
government subsidies on the fishing industry. In the view of the 
Department of State, continuing to push hard for international progress 
in both of these areas will promote U.S. interests in the field of 
international fisheries. We appreciate the interest of the Committee in 
these issues. We have also greatly appreciated the involvement and 
assistance of staff from the House Resources Committee in our 
preparations for, and as a part of our delegations to, international 
meetings concerning these subjects.
Current Status of World Fisheries--Why Action is Needed
    The problem of overcapacity in fishing fleets is one that has 
developed over many years. As we contemplate ways to address the 
problem, it is useful to take stock of the current situation. According 
to the UN Food and Agriculture Organization (FAO), more than two-thirds 
of the world's fisheries have been fished to or beyond their capacity 
to sustain themselves, and an additional ten percent of stocks have 
already been depleted. Although the total catch in fisheries worldwide 
has remained relatively stable over the last decade at approximately 90 
million metric tons annually, overcapitalized fleets have been able to 
maintain this production only by harvesting species fishers once 
disdained, such as monkfish, skate, and dogfish. Recoveries of once 
plentiful stocks that declined under the pressure of overfishing--such 
as cod in the Northwest Atlantic and Eastern Atlantic bluefin tuna--
have not yet materialized.
    The stakes are high for food security and for the economic well 
being of communities dependent on revenues from fishing activities. 
Nearly 1 billion people depend on fish as their primary source of 
protein. In its 1998 report on the state of the world's fisheries, the 
FAO forecast that world demand for seafood in 2010 will be 105-110 
million tons, while capture fishery supplies will total only 95-100 
million tons--a 10-million-ton shortfall. FAO estimates that worldwide, 
about 36 million people are employed in both the primary capture 
fisheries and aquaculture production sectors, comprising about 15 
million full-time, 13 million part time and 8 million occasional 
workers. Policymakers will need to find ways to ensure that the level 
of effort, in both technological and human terms, is in line with the 
sustainable take of fish stocks. As the collapse of North Atlantic cod 
stocks shows, it is much less expensive and disruptive to people to 
manage a resource sustainably before depletion than to face the 
decimation of local communities dependent on such a resource.
    The international community has noted the alarming trends in world 
fisheries and moved to negotiate agreements to promote sustainable 
fisheries. The 1995 UN Straddling Fish Stocks Agreement and the 1993 
FAO Compliance Agreement are the most notable examples. The United 
States has become party to these agreements and has made concerted 
efforts to urge others to ratify them. The agreements are close to 
entry into force. Pending their entry into force however, the United 
States and likeminded nations have worked creatively to begin 
implementation of some of the elements and also to achieve progress in 
fisheries management through other mechanisms. We can report to you 
today that we have made progress in creating a widely accepted 
framework of international action plans to promote sustainable 
fisheries.

Developing Criteria for Fishing Capacity
    As stated above, the international community under U.S. leadership 
has recognized the trends of overcapacity in fisheries and begun to 
take action to correct the problem. In 1997, the FAO initiated the 
negotiation of an International Plan of Action on fishing capacity 
(IPOA-Capacity). This IPOA-Capacity was adopted by the 23rd meeting of 
the FAO Committee on Fisheries (COFI) meeting in Rome in 1999. It sets 
forth a voluntary plan of action containing steps States should take to 
define and measure capacity of their fishing fleets, and to eliminate 
overcapacity determined to be detrimental to sustainability of fish 
stocks.
    The IPOA-Capacity builds upon the FAO Code of Conduct for 
Responsible Fisheries Article 2(d), which all FAO member States have 
already undertaken to implement. The goal of the IPOA is to achieve by 
2005 the efficient, equitable and transparent management of fishing 
capacity. The IPOA provides, among other things, that States and 
regional fisheries organizations confronted with an overcapacity 
problem, where capacity is undermining achievement of long-term 
sustainability outcomes, should endeavor initially to limit at present 
level and progressively reduce the fishing capacity applied to affected 
fisheries. Where long-term sustainability outcomes are being achieved, 
States and regional fisheries organizations nevertheless need to ensure 
that any growth in capacity does not undermine long-term sustainability 
objectives. These objectives are to be implemented through four major 
strategies:
     LThe conduct of national, regional and global assessments 
of capacity, including improvement of monitoring capabilities.
     LThe preparation and implementation of national plans 
(NPOAs) to effectively manage fishing capacity and of immediate actions 
for domestic fisheries requiring urgent measures.
     LStrengthen the ability of regional fisheries 
organizations to deal with capacity issues.
     LImmediate actions for major transboundary, straddling, 
highly migratory and high seas fisheries requiring urgent measures.
    The National Marine Fisheries Service (NMFS), in consultation with 
other interested agencies, will prepare a U.S. NPOA by the end of 2002. 
Major world fishing states like Japan and the European Union reported 
significant progress on their NPOA development at the recent meeting of 
the FAO Committee on Fisheries. The United States is continuing to urge 
others to do so as well. Canada and Korea have recently approached the 
United States for advice on implementing various aspects of the IPOA-
Capacity. The Department of State is engaged with NMFS, as well as with 
international and regional organizations such as the FAO and the Asia 
Pacific Economic Cooperation Forum (APEC) in providing technical and 
other assistance to other countries in their NPOA development processes 
to ensure that we do not undertake this significant effort alone. In 
particular, it will be important to ensure that emerging fishing States 
such as China and Vietnam address capacity issues with regard to their 
own fleets.
    Because the FAO is the UN agency with the global expertise and 
political clout to deal with fisheries issues, its active participation 
in assisting developing countries in NPOA development and 
implementation is essential. However, its efforts are to some degree 
hampered by ongoing budget pressures within FAO, where the Fisheries 
Department, despite increasing demands from member countries, has 
extremely limited resources. In the two years since the adoption of the 
IPOA-Capacity, we note that the FAO has not been able to provide as 
much support for developing countries to implement national plans of 
action on capacity as originally envisioned.
    The nations working on this issue through the FAO have recently 
reached agreement on definitions of the terms ``capacity'' and 
``overcapacity.'' The effort to do so has revealed a host of complex 
technical--and political--issues. While many think that overcapacity 
means too many boats in the water, it can also mean use of 
sophisticated harvesting technology that has outpaced the ability of 
stocks to replenish themselves. The definitional issue has been 
approached through the establishment of criteria for determining 
capacity. Consultations in 1998 in La Jolla and 1999 in Mexico City 
established the criteria to be used in defining capacity and the 
processes by which the definitions will be determined. After 
considerable debate, both meetings adopted the U.S. approach to 
definitions for capacity.
    Capacity can be measured in two ways. The first involves input-
based measurements, in which analysts look at the minimum set of inputs 
needed to produce a given level of output. For example, to achieve an 
output of a thousand pounds of shrimp produced, one would need to know 
how much fuel, how many person-hours, how many boats in the given 
fleet, etc., were needed. Although this approach was initially favored 
by the majority in the international community, the United States 
successfully argued that this approach relied on detailed data that is 
collected almost nowhere in the world today, rendering implementation a 
monumental undertaking. Instead, the United States successfully argued 
for an output-based measurement.
    Output-based measurements assume a specific level of input and then 
determine the difference between the output actually produced and the 
output that could be produced if restrictions such as trip limits were 
lifted. This theoretical statistical approach is much more achievable 
with current data gathering practices. For example, overcapacity in a 
fleet would be determined as follows. Assume that a tuna fleet is shown 
to have the potential to harvest 300% of the catch it is currently 
taking. A fleet reduction of two-thirds would therefore be necessary to 
ensure that the potential catch in the fishery matches the actual catch 
in the fishery. The Mexico City meeting adopted this method, with some 
minor caveats, as the internationally accepted method for measuring 
capacity.
    The United States hopes to continue its leadership role by co-
chairing an FAO technical consultation in February 2002 on managing 
fishing capacity. This consultation will review a variety of measures 
States could take to reduce overcapacity in fishery operations with the 
goals of providing recommendations. Examples of the measures being 
adopted by some or all fishing states include vessel buybacks, fishing 
moratoria, and rights-based fisheries. After this technical 
consultation, the information will be made available to member States 
for their use in the development of their NPOAs on capacity.

Assessing the Effects of Subsidies on the Fishing Industry
    The IPOA on Capacity also addresses the topic of subsidies. The 
IPOA declares that ``when developing their national plans for the 
management of fishing capacity, States should assess the possible 
impact of all factors, including subsidies, contributing to 
overcapacity.'' It further states that ``States should reduce and 
progressively eliminate all factors, including subsidies and economic 
incentives and other factors which contribute, directly or indirectly, 
to the build-up of excessive fishing capacity.
    The United States has taken the position that the FAO is an 
appropriate institution to analyze and address the affects of subsidies 
on fisheries, and in particular the sustainability of stocks. We have 
also argued, however, that any actual measures regarding subsidies 
would have to be dealt with in the trade context through the World 
Trade Organization (WTO). As the body with trade expertise, the WTO is 
the organization to identify environmentally harmful and economically 
distortive fish subsidies and develop appropriate disciplines for them. 
Other fora are also involved and contributing actively to the 
analytical and technical work that is needed to identify and determine 
the true effects of subsidies. These include the Organization of 
Economic Cooperation and Development (OECD) Committee on Fisheries, the 
APEC fisheries working group, and the UN Environment Programme. For 
example, the OECD has recently published an important study of the 
effects of government financial transfers on fisheries that will 
contribute to the overall policy debate. Across the range of active 
fora, the United States has worked closely on subsidies with a group of 
countries that has come to be known as the ``Friends of Fish,'' 
including Argentina, Australia, Chile, Iceland, New Zealand, and 
Norway.
    Subsidies that promote unsustainable fishing contribute to the 
overcapacity problem. In principle, fishing beyond the point of maximum 
sustainable yield should ultimately drive a number of vessels out of 
fisheries as their efforts became unprofitable. Unfortunately, 
subsidies programs have the effect of underwriting unsustainable 
fishing practices, to the detriment of sound conservation. Current 
debate has focused on two key areas. First, widespread agreement exists 
among experts, including within the USG, that the management context in 
which a subsidy occurs will have a substantial impact on the effect 
that subsidy has both on trade and on sustainability of stocks. How to 
quantify that role and how to capture it in a manageable trade regime 
are difficult issues. Second, the identification of ``good'' and 
``bad'' environmental effects of subsidies is to a large extent 
informed by the discussion of the role of management in subsidies. For 
fisheries that are regulated as a common property resource, different 
types of subsidies schemes can have vastly different effects on 
sustainability. For example in one management context a subsidy may 
provide incentives for overfishing and the depletion of a stock, while 
in another management context, the exact same subsidy can lead to 
decreased fishing and greater conservation of the stock.
    The United States remains heavily engaged on the subsidies issue in 
numerous international fora. In order to promote more effective 
consideration of the issues, at the last FAO COFI meeting, the United 
States led a successful initiative to bring the Secretariats of the 
various inter-governmental organizations, such as WTO, FAO, OECD, and 
APEC, together in a coordination process. Finally, the Department of 
State will support USTR in its efforts, as appropriate, to push action 
on detrimental fisheries subsidies in the WTO.

Deterring Illegal, Unregulated and Unreported Fishing
    Another recent initiative has been our successful effort to adopt 
in the FAO an IPOA to deter and eliminate illegal, unregulated and 
unreported (IUU) fishing. This agreement, negotiated in Rome in a 
series of meetings culminating in the 24th meeting of FAO COFI in March 
2001, provides States with a tool box for actions to deter and 
eliminate IUU fishing both in their exclusive economic zones and on the 
high seas. Measures more readily available to States as a result of 
this IPOA include:
     LPort State measures to deter IUU fishing products being 
transshipped or unloaded.
     LFlag State measures to get at the flag of convenience 
problem.
     LMarket measures that can be adopted multilaterally, for 
example to deter IUU fishing in the area of competence of regional 
fisheries management organizations.
     LStrengthened measures for monitoring control and 
surveillance of fishing fleet activities.
    We intend to use this IPOA in every way possible to crack down on 
illegal fishing, particularly by vessels flying ``flags of 
convenience.'' IUU fishing contributes to overcapacity. It undercuts 
effective data collection by making it impossible to determine which 
vessels are fishing, where they are fishing, and how much they are 
catching. It also undercuts the management measures established by 
regional fisheries management organizations. In short, the IUU IPOA 
negotiated this year forms an important complement to our efforts on 
capacity.
    Mr. Chairman, with this testimony, we are submitting to the 
Committee copies of the two IPOA's I have discussed. As is evident, 
further work will be necessary before these IPOA's can be implemented. 
We believe it is important that international standards such as these 
to achieve sustainable fisheries be set and followed. The United States 
has been at the forefront of this effort not only because we care about 
sustainable fisheries, but also because such rules help level the 
playing field for the U.S. fishing industry. We look forward to 
continuing to work with the Committee on these matters.
    Thank you Mr. Chairman. I apologize for my inability to attend 
today. Should you wish further information on these matters, we would 
be pleased to provide it.
                                 ______
                                 

    [The report entitled ``Pacific Groundfish Buy-Back 
Program'' by Peter Leipzig submitted for the record follows:]

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    Mr. Gilchrest. I want to welcome all the witnesses here 
this morning and I appreciate your attendance and your 
testimony and we will get started with Dr. Hogarth.

   STATEMENT OF WILLIAM T. HOGARTH, PH.D., ACTING ASSISTANT 
 ADMINISTRATOR FOR FISHERIES, NATIONAL MARINE FISHERIES SERVICE

    Dr. Hogarth. Thank you, Mr. Chairman. It is always an honor 
to come before this Committee and discuss fishery issues and 
ways that we can do a better job of ensuring we have a viable 
fishery for our citizens for the future.
    I thank you for inviting me today to testify on the 
government programs to reduce fishing capacity and the 
implications of subsidies in the fisheries sector. I am Bill 
Hogarth, the Acting Assistant Administrator for Fisheries in 
the Department of Commerce.
    Let me begin by saying the two subjects of this hearing are 
matters of serious concern to NOAA fisheries. On April 4 I 
testified on the Magnuson-Stevens Fishery Conservation and 
Management Act and I stated that I believe that matching 
harvesting capacity with available resources is one of the 
agency's highest priority concerns. The capacity reduction 
programs, in particular vessel buybacks and subsidies, are two 
issues among others that we must examine to manage capacity 
effectively.
    I understand that this hearing will focus on two recent 
reports, one by GAO on buybacks and another mandated by the 
Sustainable Fisheries Act on subsidies. To place the findings 
and recommendations of these two reports in a more meaningful 
context, I would like to say a few words about the history of 
these two issues. I will then comment on the main points of 
these reports.
    I do not think that anyone doubts the fact that there is 
overcapacity today in the harvesting sector of the U.S. fishing 
industry. As we examine the evolution of government policies 
from the establishment of our 200-mile fishery conservation 
zone in 1977 it is clear that the U.S. government's policies 
promoted increases in harvesting capacity for roughly the first 
10 years or so after the extended jurisdiction. Growth in 
harvesting capacity was actively and consciously promoted by 
law, fishery management and trade policies and by industry 
assistance programs and programs administered by NOAA Fisheries 
and by other Federal agencies, including units of the 
Department of Commerce and the Department of Agriculture, among 
others.
    For the sake of accuracy, I would like to point out that 
these policies were successful, extremely successful. We came 
from a nation that was about seventh or eighth in harvesting to 
approximately third or fourth. We have increased our harvest 
capacity very well and we have done a great job doing that. Our 
200-mile exclusive economic zone was almost entirely 
Americanized by the late 1980's. Domestic harvests were up, 
U.S. exports were up. We are number one or number two in 
exports, particularly to Japan. Within about a decade, the 
United States joined the ranks of the top fishing powers.
    However, about the same time, evidence appeared that 
harvesting capacity was excessive for some major species. NOAA 
Fisheries, the Regional Fishery Management Councils, industry 
representatives, and the environmental organizations began to 
question the need for assistance programs and gradually a 
change in policy began to take shape.
    Today we are dealing with overcapacity in many of our 
Federally managed fisheries in a number of ways. Essentially we 
have four broadly defined tools to address this issue: vessel 
and permit buybacks, limited entry systems, rights-based 
management systems and laws governing the location of 
construction, U.S. citizenship ownership and the physical size 
of U.S.-documented fishing vessels.
    With respect to subsidies, there is a parallel story. 
Federal policies and programs have helped to promote harvesting 
capacity. In many cases capacity-enhancing subsidies, such as 
loans and grants to the fishing industry, have been reduced or 
modified in a manner not to further encourage additional 
harvesting capacity. More emphasis has been placed in recent 
years on programs and policies that help reduce capacity.
    The two reports the Subcommittee is focussing on today deal 
in different ways with the government's role. First, promoting 
the expansion of capacity and second, reducing capacity to more 
sustainable levels. Basically, NOAA Fisheries agrees with the 
main findings of these reports and we believe both were well 
prepared and reasonably argued. Clearly the Federal Government 
has to ensure that public funds appropriated by Congress for 
buybacks of fishing permits and vessels must be wisely used to 
achieve the intended results. Equally important is the need to 
review fishery assistance programs continually to ensure that 
these programs effectively serve the needs of today's fisheries 
policies.
    One basic point I would like to make today is that to do 
these jobs we need a better and more precise understanding of 
some key concepts. On the capacity side we must define and 
measure capacity and overcapacity better than we have in the 
past. On the subsidy side we need a more accurate updated 
inventory of Federal subsidies provided to the fishing sector, 
including the implications of subsidies for levels of effort 
and capacity in Federally mandated fisheries.
    Today I can report that we are making progress in these 
areas. NOAA Fisheries formed an internal working group two 
years ago to examine definitions and measurements of capacity 
in fisheries, and this group has completed a technical report 
on this topic and just issued another report that assesses 
capacity qualitatively in the majority of Federally managed 
fisheries. Our next job is to develop a quantitative report 
that will further examine overcapacity in U.S. fisheries.
    As for subsidies, NOAA Fisheries has participated or will 
participate in a number of international studies conducted by 
the Organization for Economic Cooperation and Development, the 
Asia Pacific Economic Cooperation Forum, the United Nations 
Food and Agriculture Organization, and the World Trade 
Organization, all of which looked at this issue from the 
international perspective.
    We now have a much better idea of how to measure harvesting 
capacity and a more comprehensive and technically precise 
appreciation of the effects of fishing sector subsidies in the 
U.S. and abroad. With improved analytical tools, our ultimate 
goal is to manage capacity and administer assistance programs 
in ways that support sustainable fisheries.
    Mr. Chairman, this concludes my testimony and I will be 
happy to answer any questions you or other members of the 
Committee may have. Thank you.
    [The prepared statement of Mr. Hogarth follows:]

Statement of William T. Hogarth, Ph.D., Acting Assistant Administrator 
 for Fisheries, National Marine Fisheries Service, U.S. Department of 
                                Commerce

    Mr. Chairman and Members of the Subcommittee, thank you for 
inviting me to this hearing on capacity reduction programs and 
subsidies in the fisheries sector. I am William T. Hogarth, the Acting 
Assistant Administrator for Fisheries in the National Oceanic and 
Atmospheric Administration/Department of Commerce.
    The subjects of this hearing are two related issues: fishing 
capacity reduction and the subsidies provided by the Federal Government 
to the fishing industry, in particular subsidies that influence levels 
of capacity. More specifically, this hearing will address two recently 
completed reports. The first report, issued by the General Accounting 
Office almost a year ago, assesses Government programs to reduce 
overcapacity through publicly funded buyouts. The second report was 
mandated in the 1996 Sustainable Fisheries Act amendments to the 
Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-
Stevens Act) to examine the influence of subsidies and other Federal 
programs in both the expansion and contraction of fishing capacity. One 
theme that appears in both reports is the use of public funds, or 
subsidies, to achieve reductions of overcapacity in the fish harvesting 
sector.

NMFS POLICES ON MANAGING CAPACITY AND PROVIDING SUBSIDIES: THE HISTORIC 
        VIEW
    Before I discuss these two reports and comment on their findings, I 
thought it would be helpful to the Subcommittee to review briefly the 
larger context. Accordingly, I would like to spend a few moments on the 
Federal Government's historic role in, first, promoting and managing 
capacity, and, second, providing publicly funded economic assistance to 
the fisheries sector. The key point is that these roles have evolved 
considerably over the last two decades, and, once we understand those 
changes, we can address these two reports.
    When the Magnuson-Stevens Act was passed 25 years ago, the U.S. 
fishing industry lacked the capacity to harvest all the resources in 
our 200-mile Exclusive Economic Zone (EEZ). Congress, NMFS and the 
industry embarked on a program to promote domestic capacity. Now, we 
are confronted with a situation in which there is overcapacity in many 
Federally managed fisheries.
    Viewed historically, it is apparent that Federal laws, programs and 
policies to promote the development of the U.S. fishing industry from 
1977 to roughly 1990 are among the reasons we are now dealing with 
overcapacity. To place these issues in a more meaningful context, I 
thought it would be helpful to review briefly how ``undercapacity'' 
became ``overcapacity.'' When the United States established a 200-mile 
fishery conservation zone in 1976, the Fishery Conservation and 
Management Act (FCMA), and the American Fisheries Promotion Act (1980) 
launched a broadly supported Congressional and Administration policy of 
promoting growth in domestic harvesting capacity and Americanization of 
the zone. As a result, in the years up to about 1990, foreign 
operations were gradually phased out and domestic landings, revenues, 
and exports increased.
    U.S. Government policy fostered this growth in harvesting capacity 
in many ways. Domestic fishermen were encouraged to engage in fisheries 
that had previously been dominated by foreign vessels, including 
fisheries for species that were considered ``underutilized'' in the 
U.S. market. Investment tax credit provisions in the IRS code until 
1986 stimulated spending on new vessel construction. Federal loans, 
loan guarantees, and tax deferral programs stimulated the purchase, 
repair, and refitting of fishing vessels. Direct grant programs, such 
as the Saltonstall-Kennedy Fishery Development Grants program, provided 
seed money for new product development and other projects. Foreign 
allocations and trade policies were linked through the so-called ``Fish 
and Chips'' initiative to promote foreign market opportunities for U.S. 
producers.
    I think it is important to point out that these policies were 
successful in achieving full domestic use of the EEZ resources in a 
relatively short period of time. By the end of the 1980s, the U.S. EEZ 
was, for all practical purposes, fully Americanized, with no directed 
foreign fishing and only modest levels of foreign participation in 
``over-the-side'' joint ventures. The United States became a major 
fishing power, and one of the top few seafood exporters in the world. 
However, it soon became clear that at least some key segments of the 
harvesting sector had developed excessive production capacity. 
Traditional fisheries stocks suffered major declines in parts of the 
U.S. EEZ. User conflicts among domestic groups of fishermen multiplied. 
By the end of the 1980s, everyone involved, including the Congress, 
NMFS, the Regional Fishery Management Councils (Councils) and industry 
became increasingly interested in ways to constrain harvesting capacity 
to more sustainable levels.
    NMFS and the Councils began to explore various forms of limited 
entry in many Federally managed fisheries; direct grants for research 
and development declined and various other domestic and international 
market promotion activities were curtailed or terminated. Congress 
passed the Commercial Fishing Vessel Anti-Reflagging Act of 1987 that 
placed more restrictive limits on foreign investments in U.S.-
documented and -flagged fishing vessels.

FROM PROMOTING TO MANAGING CAPACITY
    Nevertheless, it was clear by the early 1990s that the overcapacity 
problem persisted and was extremely serious in certain fisheries. In 
the Northeast groundfish fisheries, for example, the resources were 
declining and could not support existing levels of effort and capacity. 
In the North Pacific fisheries for Alaska pollock and other bottomfish 
species, the race to invest in both at-sea and shoreside facilities, 
spurred by domestic policies, foreign investments, and attractive 
export opportunities, created a major user conflict during practically 
the entire decade.
    Now I would like to review briefly the major programmatic and legal 
tools that have capacity-constraining implications:
 Buybacks
    The most obvious and explicit means of addressing overcapacity is 
to buy out surplus vessels and/or permits. For almost a decade, 
Congress, NMFS and various industry groups moved toward more direct and 
aggressive interventions in the capacity problem. Starting in 1994, the 
Federal Government began to purchase redundant vessels and/or permits 
in selected fisheries. Initially, publicly funded vessel/permit 
buybacks were conducted in the Northeast groundfish and Pacific 
Northwest salmon fisheries. From 1994 to 1999, a total of almost $56 
million was appropriated under various statutes to fund seven separate 
buybacks in the Northeast multispecies, Gulf of Mexico fisheries, 
Northwest salmon, and Alaska pollock and crab fisheries.
    The 1996 amendments (SFA) to the Magnuson-Stevens Act authorized a 
new type of buyback, in which public and private resources could be 
used to fund the removal of redundant vessels. The SFA's Section 312 
(b)-(e), Fishing Capacity Reduction Program, stipulated that buybacks 
conducted under this provision must ``prevent the replacement of 
fishing capacity removed by the program,'' be ``cost-effective,'' and 
``obtain the maximum sustained reduction in fishing capacity at the 
least cost.'' Funding could be provided from a variety of public 
sources and from ``an industry fee system.'' NMFS has expended 
considerable effort in the last few years to develop rules to implement 
these public/private partnerships.
    The 1998 American Fisheries Act (AFA) legislated a buyback of nine 
at-sea Alaska pollock vessels with a direct Federal payment and a 
Federal loan that pollock fishermen will repay with assessments levied 
on their future first sales. Technically, the AFA buyback was achieved 
through direct legislation rather than under Section 312 of the 
Magnuson-Stevens Act, but the key point is the public/private 
partnership in paying its costs.
 Limited Entry
    Limited entry provisions have a long history in domestic fisheries, 
and often serve as a first step toward more restrictive measures. In 
U.S. Federally managed fisheries, the Councils and NMFS paid 
increasingly serious attention to this category of regulations, and 
introduced limited entry in most FMPs. At the present time, practically 
all Federally managed fisheries have at least some form of limited 
entry from a control date to a moratorium on new entrants. Generally, 
limited entry, in particular its stronger forms, constrain or prevent 
new entrants but do not effectively limit the capacity of existing 
participants in a fishery. Nevertheless, limited entry may be a first 
step in a program of restricting participation in fisheries.
 Systems Based on Allocations to Individuals or Specific Groups
    During the early 1990s, some of the Councils also began to consider 
management systems based on allocations to individuals or specific 
groups as a means to enhance the effectiveness of the management 
process, improve the industry's economic performance, and reduce 
overcapacity. One example is Individual Fishery Quotas (IFQs), in which 
an allocation or share of the catch is assigned to an individual 
participant/vessel in the fishery. IFQs were introduced in the surf 
clam/ocean quahog and wreckfish fisheries in the Atlantic and in the 
sablefish/halibut fishery in the North Pacific during the 1990s, and 
all three IFQs have, according to the 1999 National Academy of Sciences 
report mandated by the SFA, had some capacity-constraining effects in 
those fisheries.
    These systems include a variety of arrangements, not all of which 
assign quotas to individual participants. Community development quotas 
(CDQs), which were established in the 1990s for western Alaska native 
communities, are another form of such a system. Fisheries cooperatives, 
although not harvest rights-based systems in the strict sense, may 
function like IFQs. The 1998 American Fisheries Act created various 
cooperatives of Alaska pollock producers. More recently, another 
cooperative of fishermen in the Alaska sea scallop fishery was formed.
    IFQs, CDQs, and the Alaska Bering Sea pollock cooperatives have had 
discernible capacity mitigating effects, and generally have yielded 
appreciable levels of economic and conservation benefits. In the two 
Atlantic IFQs for surf clam/ocean quahog and wreckfish, in which quotas 
shares are highly transferable, the decline in participation has been 
most dramatic.
 Statutory Regulations on Vessel Construction, Ownership and 
        Size
    Although maritime laws generally are not categorized as instruments 
that manage capacity, these statutes do have implications for levels of 
harvesting capacity. Recently, U.S. laws that govern these matters have 
become more restrictive, first in 1987, with the passage of the 
Commercial Fishing Vessel Anti-Reflagging Act, and then in 1998, with 
the AFA. Under U.S. law, fishing vessels, to be documented by the U.S. 
Coast Guard, must be constructed in domestic shipyards and U.S. citizen 
ownership shares must be 75 percent. In addition, the 1998 AFA 
restricted, with certain specific exemptions, the eligibility for 
fishery endorsements of vessels greater than 165 feet in registered 
length, more than 750 gross registered tons, and with engines capable 
of producing more than 3,000 shaft horsepower. These documentation 
requirements prevent foreign-built and foreign-controlled vessels from 
participating in Federally managed fisheries and limit the eligibility 
of extremely large vessels. Available data and studies do not support 
any firm conclusions about the net effects of these statutes on fishing 
capacity.

NMFS INITIATIVES ON THE FISHING CAPACITY ISSUE
    During the last several years, NMFS has pursued a number of 
voluntary initiatives dealing with fishing capacity in both the 
international and domestic spheres.
    In the international arena, NMFS, working with the Department of 
State, dedicated considerable efforts to technical consultations and 
negotiations leading to the 1999 agreement in the United Nations Food 
and Agriculture Organization (FAO) of an international plan of action 
on the management of fishing capacity (IPOA/capacity). The IPOA/
capacity is a voluntary and not a binding agreement, but we feel that 
it represents a potentially important step in the right direction in 
our efforts to deal cooperatively with other nations on this difficult 
issue. Most notably, all FAO members who agreed to the IPOA/capacity 
must produce national plans of action to better manage capacity levels 
in their domestic fisheries by the end of 2002, and to ``reduce and 
progressively eliminate all factors, including subsidies and economic 
incentives ... which contribute to the build-up of excessive fishing 
capacity.'' An important and fundamental point about the FAO agreement 
is that international cooperation on this issue should yield benefits 
for U.S. fishermen and Federally managed fisheries, in particular those 
fisheries in which there is both U.S. and foreign participation.
    In the domestic arena, NMFS established a performance measure under 
its strategic plan that explicitly addresses this issue. Several years 
ago, under the planning element, Build Sustainable Fisheries, we agreed 
to an objective ``to reduce the number of overcapitalized fisheries by 
20 percent by 2005.''
    In 1998, NMFS established a working group of agency economists and 
other fisheries specialists to develop definitions and measures of 
capacity and overcapacity. This group has worked for more than two 
years on these complicated issues. Recently, the internal working group 
issued a report that identifies capacity in most Federally managed 
fisheries based on qualitative indicators. The working group will soon 
issue another report on technical and economic definitions and measures 
of capacity. We continue to work on assessments of quantitative 
measures of capacity, and convened a meeting of experts two weeks ago 
to review the progress we have made thus far on these measures. This 
recent meeting concluded with an agreement on methodologies that can be 
used to measure capacity in fisheries from several different 
perspectives.
    With these metrics, I hope that NMFS will be able to prepare 
quantitative assessments of capacity levels in all, or nearly all, 
Federally managed fisheries, just as we do for the status of stocks. I 
believe that this technical work is extremely important, because it 
will enable us, first, to develop plans and monitor progress in dealing 
with overcapacity, and, second, to assess the effectiveness of 
government actions, such as buybacks, to deal with this problem. 
Finally, NMFS has agreed in the FAO IPOA/capacity to reduce domestic 
subsidies that promote overcapacity, and this brings us to the second 
broad theme of this hearing. As we did with the capacity issue, it 
would be helpful to review briefly the evolution of NMFS'' thinking on 
the subsidies issue.

SUBSIDIES IN THE FISHERIES SECTOR
    Subsidies is a term of trade law that has traditionally been 
applied to a category of government measures that confer unfair and, 
under certain conditions, actionable adverse effects in international 
markets. Indeed, the single binding international agreement that 
disciplines subsidies, including subsidies in fisheries, is the 1994 
World Trade Organization's (WTO) Agreement on Subsidies and 
Countervailing Measures. During the last decade, however, as concerns 
intensified about overfishing and overcapacity in world fisheries, 
international organizations, national governments and private groups 
became increasingly interested in the environmental, as well as trade, 
effects of subsidies. In the fisheries sector, the connection that 
received the greatest attention was the relationship between, on the 
one hand, subsidies provided to fishermen, and, on the other, 
unacceptably high levels of overfishing and overcapacity.
    In the context of this broader debate, some governments and experts 
made the point that certain government payments that qualify as 
subsidies under the 1994 WTO subsidies agreement may have positive 
environmental effects. As an example, publicly funded buybacks of 
redundant fishing vessels and/or permits may be a subsidy, but, because 
they reduce excess capacity, don't promote production or increase 
trade, are also environmentally beneficial or at least benign, and are 
therefore ``good'' subsidies.
    The recent domestic and international debate on subsidies in the 
fisheries sector has placed considerable emphasis on the distinction 
between ``good'' and ``bad'' subsidies, i.e., between subsidies that 
constrain capacity or enhance resources, and other subsidies that 
promote excessive levels of effort and capacity. Seen in this context, 
U.S. practice has evolved significantly during the last few decades. 
During the first decade or so after the FCMA, the United States 
Government funded a number of subsidies that did, explicitly or 
implicitly, promote higher levels of fishing effort and capacity. Some 
of these effort- and capacity- enhancing subsidies, such as loan 
guarantees, tax deferral programs, and fishery development grants, were 
administered by NMFS, while other subsidies were implemented by other 
Federal agencies, such as the Department of Agriculture.
    During the last decade, NMFS has scaled back and redirected a 
number of these effort- and capacity-enhancing subsidies, placing 
relatively more emphasis on programs that reduce effort and capacity 
and that support sustainable resources. Publicly funded buybacks of 
surplus fishing vessels and/or their permits are the best example of 
this.
    Finally, during the last several years, NOAA joined the Office of 
the United States Trade Representative in developing and promoting an 
international initiative on subsidies. Under this proposal, during the 
next global round of multilateral trade negotiations, World Trade 
Organization members will agree to phase out trade-distorting and 
environmentally harmful subsidies in fisheries. Such a global 
agreement, combined with improvements in management, would ultimately 
have a capacity-constraining effect. To promote this international 
initiative, NMFS has also played an active role in recent years in the 
preparation of various international studies of fisheries sector 
subsidies, for example, in FAO, the Organization for Economic 
Cooperation and Development and the Asia Pacific Economic Cooperation 
Forum.

GAO AND SFA-MANDATED REPORTS
    With this background in mind, I would like to turn now to the two 
reports that are the subjects of this hearing: (1) the report issued 
last year by GAO on vessel buybacks, and (2) the 1999 Magnuson-Stevens 
Act-mandated report on the implications of subsidies and other Federal 
programs for the expansion and contraction of capacity in Federally 
managed fisheries.
 THE GAO REPORT ON CAPACITY REDUCTION
    The first of these is the GAO report, Entry of Fishermen Limits 
Benefits of Buyback Programs, which was issued in June 2000. 
Essentially, this report assesses three buyback programs in (1) New 
England groundfish, (2) Bering Sea pollock, and (3) Washington State 
salmon fisheries. These programs were funded under different laws, 
included a mix of grants and loans, and involved aggregate public costs 
of $130 to $140 million from 1995 to 2000. GAO's key finding is that 
the effectiveness of buybacks in fisheries can be hampered by:
     Lthe entry of bought-out fishermen into other fisheries;
     Lthe activation of latent permits in bought-out fisheries; 
and
     Lcapital (input) stuffing, i.e., increased efforts and 
investments by fishermen who remain in bought-out fisheries.
    The GAO report concluded that the buybacks administered in the New 
England groundfish fleet were less effective than the vessel and permit 
buybacks in the Alaska Bering Sea pollock and Washington State salmon 
fisheries. In summary, these three vessel and permit buyback programs 
had a mixed record as publicly funded measures to achieve reductions in 
fishing capacity. To improve the effectiveness of capacity reduction 
programs, GAO made a number of recommendations, of which we believe the 
most important were that:
     LNMFS should make greater effort to measure harvesting 
capacity in more fisheries;
     Lthe effectiveness of buyouts should be more 
systematically evaluated;
     Lbuybacks must be somehow tailored to prevent post-buyback 
entry into other fisheries; and
     Lcapacity reduction programs should be accompanied by 
management measures, such as cooperatives and other systems based on 
allocations to individuals or specific groups, that will address the 
``race to fish.''

NMFS RESPONSE TO THE GAO REPORT
    NMFS has already provided technical comments on the GAO report, 
which were appended (with GAO's responses to the NMFS comments) to the 
June 2000 report. In addition, the agency published in the Federal 
Register, on May 18, 2000, an interim final rule implementing Section 
312 (b-e) (Fishing Capacity Reduction Program) of the Magnuson-Stevens 
Act, which explains in detail the agency's views on how to implement 
buybacks funded from both public and private sources. In this hearing, 
therefore, I would like to confine my comments to what are the most 
fundamental issues.
    First, NMFS agrees that we need better definitions and measures of 
capacity and overcapacity in fisheries.
    We also agree that NMFS should, to the degree that is practical, 
regularly monitor and assess the effects of completed buybacks. On this 
score, we point out that the NMFS Northeast Fisheries Science Center 
conducts such an annual report on the New England buybacks; that the 
pollock cooperatives issue reports with this type of information, to 
the North Pacific Fishery Management Council; and that Washington State 
reports on the salmon permit buybacks to the Washington State Fish and 
Wildlife Commission.
    In addition, NMFS agrees that buybacks should be administered in 
ways that prevent the entry of bought-out boats in other fisheries. 
This is a complicated and technical issue. The circumstances of each 
buyback fishery would have to be examined separately. For example, the 
potential entry of bought-out vessels depends significantly on whether 
the buyback targets vessels, permits, or both.
    Finally, we agree that, ideally, vessel and permit buybacks should 
be accompanied by changes in the basic management system that will lead 
to a better harmonization of fishing capacity with available resources. 
At the same time, we are compelled to note that such an approach to 
capacity reduction may require a time-consuming and politically 
contentious process.
    As a general comment, NMFS welcomes the GAO report and agrees with 
most of its major findings, but also notes that buybacks are designed 
to provide timely assistance in a wide variety of different 
circumstances in distressed fisheries. Therefore, while we agree with 
GAO on most of its major points, we are also compelled to deal with 
these situations on a case-by-case basis.
 THE MSA-MANDATED REPORT ON SUBSIDIES AND CAPACITY
    Among the many reports mandated by the Sustainable Fisheries Act 
amendments was the Federal Fisheries Investment Task Force Report, 
issued in July 1999. Essentially, the report was completed by a task 
force of 22 non-Government experts, representing all geographic regions 
and perspectives. It examined broadly the Federal role, through 
subsidies and other Government programs, in the expansion and 
contraction of harvesting capacity in Federally managed fisheries.
    The task force looked at this issue historically, from the 
introduction of extended jurisdiction in 1977 to the present, and 
included a number of case studies on capacity levels in specific 
fisheries. Just as important, the task force did not confine its study 
to NMFS subsidies and programs, but also examined the role of a wide 
variety of activities of other Federal agencies. Taking this broad view 
of the problem, the task force studied in some detail a number of 
issues that had not received much scrutiny, such as the roles of the 
U.S. Department of Agriculture lending programs in fisheries, the 
policies of the Small Business Administration, the effects on fisheries 
habitat of U.S. Army Corps of Engineer projects in the Mississippi 
delta and in the Florida Everglades, and the implications for fisheries 
investments of the Investment Tax Credit until its reform in 1986.
    The task force paid considerable attention to NMFS programs, in 
particular the Fisheries Obligation Guarantee (FOG) and the Capital 
Construction Fund (CCF), which, among programs administered by NMFS, 
had the best documented effects on capacity levels in Federally managed 
fisheries. As a general observation, the task force report concluded 
that the FOG and CCF programs, in conjunction with other economic 
assistance measures and development policies administered by NMFS and 
other Federal agencies, had some capacity-enhancing implications for 
some U.S. fisheries in certain periods, but that these effects are 
difficult to measure precisely.
    The FOG, which was transformed in 1996 into a direct loan program, 
no longer finances new harvesting capacity additions. However, the CCF 
does promote additions to capacity levels. It is noteworthy that the 
task force report includes a lengthy discussion of various ways in 
which the CCF program could be amended to solve this problem e.g., by 
permitting withdrawals from CCF accounts for purposes other than 
building new and refitting existing vessels; however, the task force 
did not agree on any specific reform proposal.

NMFS RESPONSE TO THE TASK FORCE REPORT
    NMFS generally agrees with the findings and recommendations of the 
task force report. The report's historical focus, the treatment of 
programs implemented by all Federal agencies, the case study approach, 
and the discussion of subsidies to sectors other than fisheries 
(riverine navigation, land development, and hydroelectric power) were 
all interesting and welcome.
    In addition, the chapters in the task force report on the concepts 
of capacity and subsidies incorporated recent work on these issues, 
including efforts supported by NMFS, and presented these themes in an 
engaging and thought-provoking manner.
    Generally NMFS has, as much as its discretionary authority allows, 
dramatically reduced the scope of subsidies and other programs that 
enhance fishing capacity, and placed progressively much greater 
emphasis on subsidies and other programs that reduce capacity. Since 
1997, NOAA has been working with the USTR on an international World 
Trade Organization initiative to reform trade-distorting and 
environmentally harmful subsidies.
    The only major capacity enhancing NMFS-administered subsidy is the 
tax deferral program, the CCF. NMFS is willing to engage interested 
parties in a dialogue on the future of the CCF.
    In conclusion, I believe that there must be a strong program to 
tailor fishing capacity to the availability resources if we are to 
maintain sustainable fisheries, the economic viability of the industry 
and the safety of the fleet.
    Mr. Chairman, I appreciate the opportunity to testify before the 
Committee today and am prepared to respond to questions from Members.
                                 ______
                                 

   NMFS RESPONSES TO FOLLOW-UP QUESTIONS FROM MAY 10, 2001 MAGNUSON-
STEVENS ACT REAUTHORIZATION HEARING ON CAPACITY REDUCTION PROGRAMS AND 
                         SUBSIDIES ON FISHERIES

Questions submitted by Representative Jennifer Dunn

    (1) Why does the Financial Services Program within the 
Department of Commerce continue to underwrite loans and 
generate guaranteed notes for each approved transaction when 
these loans can be made at no cost to the taxpayers by private 
institutions?
    The Fisheries Finance Program (FFP) neither underwrites 
loans nor generates guaranteed notes. The FFP is a direct loan 
program. The FFP borrows its lending capital from the U.S. 
Treasury at an interest cost identical to the Treasury's cost 
of borrowing public funds. The FFP then uses this lending 
capital to make loans to the fishing industry for authorized 
purposes. The fishing industry pays the FFP an interest rate 
equal to the Treasury rate plus 2%.
    Although the previous Administration's budgets estimated 
that the FFP had a Federal Credit Reform Act (FCRA) cost equal 
to 1% of the principal amount of FFP loans, this 
Administration's budget for fiscal year 2002 more accurately 
estimates that the FFP's FCRA cost is a negative 15.66%. The 
latter estimate accurately reflects the FFP's historical 
performance.
    (2) In 1996, the Financial Services program began making 
loans to individuals for Halibut/Sablefish Quota shares in the 
Alaska Fishery. As I understand it, transactions are funded 
directly from the U.S. Treasury at rates 2% above the like 
Treasury Instruments. This 2% is to cover Financial Services 
operating costs. Since private brokers and banks could work up 
the details and handle term financing with the U.S. 
Government's guarantee, why does the Department of Commerce 
need to be involved?
    The FFP is the lender. The FFP, as noted above, borrows its 
loan capital from the U.S. Treasury. The FFP is a direct lender 
and does not guarantee private loans.
    However, prior to the Sustainable Fisheries Act's (SFA) 
amendment of the FFP's authorizing legislation, effective 
October 11, 1996, the FFP generated its lending capital in the 
private institutional investment market (IIM) rather than 
borrowing its lending capital from the U.S. Treasury. The FFP 
did so by selling the fishing industry's promissory notes, with 
a 100% Federal repayment guarantee, in the IIM. Since the IIM 
does not assess commercial credit risks and the FFP bore 100% 
of the credit loss risk, the pre-SFA FFP necessarily assessed 
all fisheries credits whose repayment it guaranteed. The IIM is 
the same market from which the U.S. Treasury borrows public 
funds, and the pre-SFA arrangement functionally resulted in the 
FFP performing a function that the Treasury provides at less 
cost to the Government. The SFA amendment recognized this by 
requiring the FFP to borrow its lending capital from the 
Treasury rather than from the IIM. This resulted in a 1% 
reduction in the cost of borrowing public funds for fisheries 
lending purposes, and allowed the SFA to increase the FFP's 
lending spread from 1% to 2% without any additional interest 
expense to the FFP's fisheries borrowers.
    (3) How is the Financial Services Program currently 
audited? Are these audits conducted under Federal Lending 
Regulations? If not, why not? Do you believe there needs to be 
third- party reviewing policies in place to make sure that the 
consumer and taxpayers are protected?
    A nationally known private accounting firm annually audits 
all National Oceanic and Atmospheric Administration (NOAA) 
functions, including the FFP, pursuant to the Chief Financial 
Officer's Act of 1991. The audits conform to (1) Office of 
Management and Budget guidelines, (2) Department of Commerce 
guidelines, and (3) NOAA accounting policies. Every audit has, 
with respect to the FFP, been unqualified.
    We believe the FFP's accounting and auditing practices 
fully protect consumers and taxpayers.
                                ------                                

    Mr. Gilchrest. Thank you very much, Dr. Hogarth.
    Mr. John Dunnigan, welcome.

  STATEMENT OF JOHN H. DUNNIGAN, EXECUTIVE DIRECTOR, ATLANTIC 
               STATES MARINE FISHERIES COMMISSION

    Mr. Dunnigan. Thank you, Mr. Chairman. It is a pleasure to 
be back before the Committee again.
    I come to you today in a little bit different capacity than 
I usually do. I am the executive director of the Atlantic 
States Marine Fisheries Commission. The report I am here to 
talk about today is not a commission work product. Rather, when 
the Sustainable Fisheries Act was passed, the National Marine 
Fisheries Service contracted with our commission to provide 
staff services to support a number of the tasks that were 
required for the implementation of the new law and one of those 
tasks was to provide the staff support to the Federal Fisheries 
Investment Task Force that was mandated by Section 116(b) of 
the Sustainable Fisheries Act.
    In looking at the law and deciding how to put this 
together, there were a couple of questions. The law is very 
broad in the way it set forth the job that needed to be done. 
The task force members, for example, asked themselves are we 
expected to make recommendations? And they concluded that given 
the nature of their charge and the investment that the Service 
had made in putting this group together that if they could find 
areas where they could make recommendations they really ought 
to do that.
    That was one of the issues that they had to decide, just 
how broad a scope were they supposed to take to this problem 
and they chose, because of the importance of it, to try to be 
as broad as possible and provide the guidance that Congress 
would need.
    There was also a question about the make-up of the panel. 
The statute only referred to interested parties and the Service 
decided that it wanted to have first of all, non-Federal people 
so that there would not be any question of bias from the 
National Marine Fisheries Service coming into the conclusions 
and recommendations, and secondly, that it needed to broadly 
represent fisheries' constituencies from across the country in 
all of the major constituency groups.
    So we ended up with commercial fishermen, we ended up with 
recreational fishermen, we had representatives from the 
environmental community, we had lawyers, we had accountants, 
and we even had economists, which I think made a lot of sense 
for this task. But I think the point is it was a very broadly 
based group from all across the country that spent a lot of 
time in 1998 coming up with these recommendations.
    Three of the members of the task force I believe are on the 
next panel--Gordon Blue, Scott Burns and Jim Kirkley--and they 
are among the people that put an awful lot of work into coming 
up with this document.
    I think the task force report speaks for itself. We tried 
to make it readable. I would commend it to all of you. It is a 
very good summary and picture of the breadth of issues that are 
going to be involved when the Congress tries to deal with the 
question of Federal investment in the fisheries.
    The report breaks down into two major areas. First of all, 
there is a discussion of concepts and one of the things that 
the task force found was that the basic conceptual 
underpinnings for this inquiry are not very well understood. We 
talk all the time about too many boats chasing too few fish and 
although that is an easy mantra to roll off your tongue, it is 
very hard to take that down and start doing some serious 
analysis about how that happens and what the implications of it 
really are.
    We talk an awful lot about overcapitalization in the 
fisheries and, as a matter of fact, what we think we are 
probably talking about more often than not is overcapacity, and 
they are very different ideas. You need to look not only at the 
question of what is capacity but what is the effective 
utilization of the capacity that is available because just 
because capacity is there, that does not necessarily mean that 
it is going to be used all the time; that depends on a whole 
range of individual factors.
    After dealing with these concepts, the report then goes in 
to look at a number of very specific programs. Just to 
highlight some of the significant ones, the Capital 
Construction Fund program is one that the task force probably 
spent most of its time on. I can tell you from what we heard 
from public hearings around the country that the existence of 
Capital Construction Funds and wondering where all this money 
is going to go is a significant worry within the commercial 
fishing industry and is something that needs to be addressed.
    The task force looked at the Fisheries Obligation Guarantee 
program. It looked at the investment task credits that were 
available back in the early 1980's and there was a lot of 
sentiment, although the quantitative data was not really there 
to make this analysis, but there was a lot of sentiment on the 
task force, I think, that the availability of the investment 
tax credit and other tax programs that are no longer available 
were one of the great stimuli that really led to the build-up 
of the U.S. fishing industry in the 1980's.
    We also talked about buyouts and let me just emphasize 
there that the task force really believed that it is important 
when Congress is dealing with buyout programs to focus on what 
it is you are trying to do. You need to have very clear and 
understandable objectives.
    Mr. Chairman, the number one problem that the task force 
found in its analysis was that it is very difficult to do it 
because of the lack of data, the lack of quantified information 
for analysts to use in trying to come to some conclusions about 
how these things happen and what the impacts are. Most programs 
do not operate from the beginning with a sense of trying to 
understand what the impacts on fishing capacity are going to be 
and one of the things that we know we all need to build into 
these programs is a better sense of what the impacts are while 
they are being considered by the Congress.
    The last point I am going to make, Mr. Chairman, is this 
task force worked very hard. None of them received a dime for 
the time that they put in on it. Twenty-two people made a major 
effort during 1998. I think they are proud of their work. I am 
proud that I was able to help them and I am glad that I was 
able to be here today to bring this report to your attention. I 
would be glad to try to answer any questions. Thank you very 
much.
    [The prepared statement of Mr. Dunnigan follows:]

  Statement of John H. Dunnigan, Executive Director, Atlantic States 
                      Marine Fisheries Commission

    MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE:
    Good Morning. I am John H. Dunnigan, Executive Director of the 
Atlantic States Marine Fisheries Commission. Today, however, I come 
before you in a slightly different capacity. From 1997 to 1999, the 
Commission was contracted by the National Oceanic and Atmospheric 
Administration to complete a number of specific tasks required in 
connection with the implementation of the Sustainable Fisheries Act. 
One of these tasks was to provide staff support to the Federal 
Fisheries Investment Task Force that the Secretary of Commerce was 
required to establish under Section 116 (b) of that Act (codified as a 
note to Section 312 of the Magnuson-Stevens Fishery Conservation and 
Management Act, 16 U.S.C. 1861). Under this contract it was my 
privilege to serve as the facilitator for the Task Force as it carried 
out its business in 1998. And so I come to you to today to represent 
the Task Force and the work that it did in response to Congress's 
concern for this very important, complex and difficult issue. For the 
most part, the Task Force's report speaks for itself, and I 
wholeheartedly commend it to you. In preparing for this hearing I have 
taken the opportunity to go back over the report, and I believe that 
its perspectives are largely as valid today as when the report was 
issued two years ago.
    Let me say at the outset that the Federal Fisheries Investment Task 
Force did not set out to assign blame, to find a ``smoking gun,'' or to 
sound any alarms. It found that there are a lot of things that 
government does that affect investment in marine fisheries. These may 
be either good or bad, depending on one's perspective. But it is clear 
that the fishing investment implications of these decisions are not 
often well-understood or even considered ahead of time. In the end, I 
believe that all of the task force members would agree that we need a 
more complete and consistent consideration of the impacts of virtually 
all government policy on investment in fisheries.

STATUTORY PROVISIONS OF THE SUSTAINABLE FISHERIES ACT; FORMATION OF THE 
        TASK FORCE
    In 1996 the Congress enacted the Sustainable Fisheries Act (P.L. 
104-297), which contained the most sweeping revision of Federal 
fisheries law since 1976. During the debates leading to passage of the 
Act, a common catchphrase referred to ``too many fishermen chasing too 
few fish.'' Complicating the ``too many fishermen'' issue is the oft-
made allegation that government programs have over the years 
contributed to overcapacity in marine fisheries. Thus, the Act, in 
addition to all of its many conservation and procedural provisions, 
included a provision for a Task Force to study the role of the Federal 
Government in investment decisions in fisheries managed under the 
Magnuson-Stevens Fishery Conservation and Management Act.

        STUDY OF FEDERAL INVESTMENT.--The Secretary of Commerce shall 
        establish a task force comprised of interested parties to study 
        and report to the Committee on Commerce, Science and 
        Transportation of the Senate and the Committee on Resources of 
        the House of Representatives within two years of the date of 
        enactment of this Act on the role of the Federal Government in
        (1) Lsubsidizing the expansion and contraction of fishing 
        capacity in fishing fleets under the Magnuson Fishery 
        Conservation and Management Act (16 U.S.C. 1801 et seq.); and
        (2) Lotherwise influencing the aggregate capital investments in 
        fisheries.
        (Sustainable Fisheries Act, Section 116(b))

    The language of the Act gave little guidance regarding the size or 
make-up of the task force, how the Congress expected it should operate, 
or what its final report should address. Officials at the National 
Marine Fisheries Service believed that the task force's work should 
proceed independent from the efforts of the agency in this area, in 
order to keep any agency biases from coloring the analysis and 
conclusions. They wanted the report truly to be the task force's work 
product. NMFS also believed that the task force should broadly 
represent the various marine fisheries constituencies across the entire 
country. After a national solicitation of interest, NMFS created a task 
force that consisted of twenty-two extremely knowledgeable and 
experienced individuals. Task force members came from every region of 
the country, including the Western Pacific. It included individuals 
from commercial fisheries, recreational fisheries, Regional Fishery 
Management Councils, and the academic community. It included fishermen, 
economists, lawyers and an accountant. Throughout the deliberations, 
all of the task force members stayed engaged and contributed 
significantly to the final product. The members of the task force are 
listed in Appendix I to my testimony.
    The task force decided to operate proactively, with task force 
members contributing significantly to its work. Rather than organize 
itself with a chair, the task force decided to rely on the staff for 
support, and asked me to facilitate the meetings. The task force 
operated primarily through a series of six meetings, held throughout 
the country between January and October, 1998. Public hearings were 
conducted in connection with four of the meetings.

CONCEPTUAL ISSUES: CAPACITY, CAPITALIZATION AND SUBSIDY
    The task force noted from the outset that many of the basic 
concepts that are involved in any inquiry into the role of government 
in affecting fishing capacity and capital investments are still not 
well-understood; and at the same time are conceded to be very difficult 
to measure. ``Capacity'' can be looked at in two ways: 1. the potential 
level of landings that a given vessel or fleet is capable of producing; 
or 2. the potential level of landings that is consistent with some 
economic or social goal or objective. ``Capacity utilization'' relates 
the landings in a fishery to either the maximum potential output or an 
optimum output based on societal goals. ``Capitalization'' refers to 
the investments that have been made in capital stock over time. Each of 
these concepts is relevant to the concern for investment in marine 
fisheries, but each is different from the others and carries its own 
implications for policy. The problem is that the public discussion 
tends not to distinguish these concepts, and this muddies the debate. 
We often hear about ``overcapitalization,'' when the problem being 
discussed relates more to problems of capacity or capacity utilization. 
The problems presented by this type of analysis are particularly vexing 
with regard to recreational fisheries, which are very hard to study 
from a capacity standpoint, but which obviously have important impacts 
on conservation.
    The task force found a similar problem when addressing subsidies. 
It is not always clear or commonly accepted what constitutes a subsidy. 
The task force believed that since it had a very broad charge from 
Congress, it should take a broad look at the question of subsidies. It 
therefore defined a subsidy, for the task force's purposes, as any 
government action (or inaction) that potentially modifies (by 
increasing or decreasing) the potential profits earned in the short-, 
medium-, or long-term. The task force developed a comprehensive 
categorization of subsidy types, recognizing that many of these do not 
exist in the United States. This is included as Appendix II to this 
testimony. The task force took the view that not all subsidies should 
be viewed per se as bad. Whether a particular subsidy is good or bad is 
a societal, political judgment. However, in evaluating each subsidy 
separately, all of the costs, benefits and impacts of the subsidy must 
be clearly understood.
    In general, members of the task force believed that measuring and 
evaluating the circumstances that affect investment in marine fisheries 
are very complex, little understood, and even more difficult to 
quantify. Public debate of these issues requires a more complete grasp 
of the fundamental concepts that are at play here; and also requires a 
much better way of measuring the various factors that influence the 
analysis.

ROLES OF GOVERNMENT INFLUENCING INVESTMENT
    The task force looked into a number of government programs that 
influence investment in marine fisheries. Underlying its broad approach 
to these was its analysis of the role of government in influencing 
fisheries habitat. When government makes decisions that allow for the 
degradation of fisheries habitat, the capacity in the affected 
fisheries becomes unusable. Pacific Northwest salmon, the Florida 
Everglades, and Louisiana's coastal wetlands were cases that were 
studies for their effects on investment in fisheries.
    Perhaps the most animated discussions the task force had related to 
the Capital Construction Fund. Under CCF, fishermen can defer taxes on 
profits from fishing if they are saved for a specific purpose--to 
purchase or reconstruct a fishing vessel. The program has a dual 
purpose--to support the U.S. shipbuilding industry, and to provide for 
the accumulation of capital that would allow U.S. fishing fleets to 
become and continue to be modern and competitive. There is a clear 
perception in the fishing industry that existing CCF account balances 
are a major problem today, creating too much pressure to make new 
capital investments in fisheries at a time when they are perceived not 
to be necessary. The task force came to a number of conclusions and 
recommendation about the CCF program, although they were not supported 
by all task force members. These are included as Appendix III to this 
testimony.
    The task force also extensively considered other tax policies that 
affected growth in fishing capacity in the 1970s and 1980s, most 
notably the investment tax credit. Many of these, including the ITC, 
were repealed by the 1986 tax reform legislation. Thus, while the Task 
Force members believed that these policies were a major contributor to 
the inflows of capital to many fisheries, if not the single most 
important factor in overcapacity, it appears that there is little that 
anyone could or should do today in response to these programs.
    The task force studied the Fisheries Obligation Guarantee program. 
Under this program, the United States guarantees a loan for a fishing 
vessel, which improves the credit terms for the fisherman. The program 
is now known as the Fisheries Financing Program. The conclusions of the 
task force for this program are included as Appendix IV.
    In the past few years there have been a number of governmental 
efforts to remove capital from the fishing industry through buyback 
programs. The task force concluded that these programs, while 
promising, must be carefully designed and implemented. The efficacy of 
buyback programs needs to be looked at in the context of the current 
fisheries policies for the affected fisheries. Major problems in all 
buybacks are latent effort and leakage (i.e., vessels who sell back 
their permits in a fishery simply have their effort diverted to other 
fisheries). Policy makers should also be concerned about the effect 
these programs have even while they are being discussed and developed. 
What is essential is that buyback programs be designed carefully with 
clear objectives, and understanding the likely responses of the fishing 
firms that will be affected. This is true whether the program is funded 
by government, by industry, or by some combination of the two.
    The task force considered the Wallop-Breaux program and its effects 
on recreational fisheries. Although the program involves no net cost to 
the Federal Government, by improving recreational fisheries, their 
habitat, and access to them, the Wallop-Breaux program intends to make 
recreational fishing more attractive. Unfortunately even basic concepts 
of fishing capacity and what it means to recreational fisheries are not 
very well understood. The Task Force recommended that NMFS and USFWS 
place greater emphasis on studies of recreational fisheries, including 
capital, capacity and fishing effort; and encouraged state fish and 
wildlife agencies to use their Wallop-Breaux funds to study these 
matters as they are reflected within the states.
    The task force also considered a number of other programs but 
concluded that they were of lesser importance in influencing aggregate 
capital investment in the fisheries. These included: disaster relief, 
Small Business Administration, Economic Development Administration, the 
farm credit system, fisheries development programs (including marketing 
and promotion), the Saltonstall-Kennedy Act program, USDA food 
programs, the USDA school lunch program, the Foreign Agriculture 
Service, the former National Fish and Seafood Promotion Council, and 
the Sea Grant College Program. The Task Force concluded that Federal 
investment in fisheries development, marketing and promotion programs 
have had a direct role in the build up of capital and capacity in some 
U.S. fisheries. This impact, however, is impossible to quantify in any 
exact way. The task force members believed that the Federal Government 
should limit the funding of such programs consistent with the 
conservation oriented national policy goals. In particular, priorities 
for S-K grant funding and other Federal marketing, research, and 
development programs should be set to avoid exacerbating the current 
overcapacity problem now facing the nation's fisheries.

CONCLUSION
    As I said at the beginning, Mr. Chairman, the task force did not 
set out to resolve questions relating to the government's involvement 
in influencing capital investment in marine fisheries; but rather to 
clarify and explicate these issues. Resolution of many of these issues 
is properly within the policy discretion of the Congress and the 
Administration. These will be difficult issues to consider and make 
decisions upon. The task force was mostly concerned that the fisheries 
investment issues get proper and well-informed consideration.
    One issue deserves special attention. Throughout its proceedings 
and running as a theme throughout its report, the task force constantly 
came up against data limitations. The available data are simply not 
adequate to permit proper empirical analysis of the various government 
programs that affect capacity in the fishing industry. The task force 
recommended that, whenever legislation is passed to establish or fund 
programs affecting the fishing industry, part of the mandate and budget 
authorization should place proper emphasis on the generation of 
adequate data to permit the quantitative evaluation of the capacity and 
subsidy effects of the program.
    It was a personal pleasure for me to work with the members of the 
Federal Fisheries Investment Task Force. They were knowledgeable and 
diligent, and made great personal sacrifice to contribute to the work 
that Congress asked be done. The task force's relationships with the 
National Marine Fisheries Service were on the whole excellent. The 
important thing about the task force's report is not so much the 
questions it answers, but the issues it explores. It contains much food 
for thought, and lays out a blueprint for analyzing the public policy 
implications of the Federal Government's role in investment in the 
marine fisheries. It is a complex issue, and I know I speak for all of 
the members of the task force in thanking the Congress for creating 
this study; and in urging you consider this report thoughtfully.
    Mr. Chairman, thank you for the opportunity to be here today. I 
would be pleased to try to answer any questions.
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    Mr. Gilchrest. Thank you very much, Mr. Dunnigan. They may 
not have received a dime but we will make good use of that 
information and hope that that is some minimal reward.
    Mr. Barry Hill, welcome, sir.

  STATEMENT OF BARRY T. HILL, DIRECTOR, NATURAL RESOURCES AND 
          ENVIRONMENT, U.S. GENERAL ACCOUNTING OFFICE

    Mr. Hill. Thank you, Mr. Chairman. I am pleased to be here 
today to discuss the October 1999 and June 2000 reports that we 
prepared for this Committee on the costs and effectiveness of 
the recent fishing buyback programs and if I may, I will just 
briefly summarize my prepared statement and submit the full 
statement for the record.
    As the Subcommittee is well aware, fish populations in many 
commercial fisheries are declining, resulting in a growing 
imbalance between the number of vessels in fishing fleets and 
the number of fish available to catch. Federally funded fishery 
buyback programs are one tool available for managers to bring 
the number of vessels and the number of fish back into balance.
    Our reports focussed on the 10 principal buyback programs 
that have taken place in the United States commercial fishing 
waters since 1976. These buybacks were expected to cost a total 
of about $160 million when completed and were financed from 
Federal, state and private sources. About $140 million or 87 
percent of these costs are for buybacks implemented since 1995, 
which is an indication of the increasing use of the buybacks.
    In summary, Mr. Chairman, we found that the buyback 
programs need to be carefully designed if they are to be 
effective in helping to ensure sustainable fisheries. We 
believe recent U.S. experience demonstrates three important 
lessons that should be factored into the design of any future 
buyback program.
    First, gains from a buyback will erode unless the buyback 
is designed to restrict fishermen from using previously 
inactive vessels or permits to reenter the fishery. Our June 
2000 report examined the capacity gains from buybacks in three 
diverse fisheries: New England groundfish, Bering Sea pollock, 
and Washington State salmon. These buybacks initially removed 
from 10 to 24 percent of each fisheries' capacity. However, the 
prospects for maintaining these gains is different for each of 
these fisheries largely because of each buyback's design.
    For example, while the New England buyback initially 
removed 79 vessels from the fishery, because there was no 
provision to prevent fishermen from using inactive vessels and 
permits, 62 previously inactive vessels began catching 
groundfish after the buyback. These fishermen have begun to 
erode the capacity reductions made by the buyback, replacing 
fishing capacity by as much as two-thirds of that purchased 
through the buyback.
    In contrast, capacity removed from the Bering Sea program 
has not returned, in part because the buyback legislation 
prevented the entry of additional fishing vessels.
    The second lesson focuses on the economic forces that 
unless addressed, drive fishermen who remain after a buyback to 
increase their fishing capacity and this is commonly referred 
to as the race to fish.
    Buyback programs by themselves do not address the root 
cause of overfishing. In most fisheries fishermen have an 
incentive to increase their fishing capacity to catch fish 
before someone else does. This race to fish leads fishermen to 
invest in more fishing capacity, such as adding fishing gear, 
increasing their time at sea and number of crew, and replacing 
older vessels with bigger and more productive ones in order to 
catch as many fish as quickly as possible. Left unchecked, this 
race to fish will lead to overall higher costs and lower 
profits, economic hardship for fishermen and harm to fish 
populations and habitat.
    The Bering Sea pollock buyback addressed this issue by 
facilitating the creation of a fishing cooperative by the 
owners of the remaining trawlers. This cooperative allocated a 
specific amount of fish to each cooperative member, thereby 
allowing members to catch their individual fish allocations at 
their own pace at lower capital and operating costs and with 
increased product quality. These changes resulted in higher 
profits and longer fishing seasons for the remaining factory 
trawlers.
    The third lesson is that evaluating the results of a 
buyback should be built into the design of any future programs. 
Measuring and evaluating results can identify important lessons 
that can improve the effectiveness of future buybacks. Despite 
these benefits, the Federal Government has done little to 
evaluate whether recent buyback programs achieve their intended 
benefits.
    In June 2000 we reported that the National Marine Fisheries 
Service had made limited efforts to evaluate whether buyback 
programs had achieved their intended benefits. NMFS was 
mandated by the Interjurisdictional Fisheries Act to evaluate 
the effects of the New England buyback program; however, aside 
from this mandated effort, NMFS has not evaluated the 
effectiveness of any other buyback program.
    Prudent management suggests that buyback programs be 
evaluated to identify lessons learned that might help improve 
future programs. Planning for such evaluations, including 
developing measures to evaluate program results, should be an 
important part of the design of future programs.
    Mr. Chairman, this concludes my statement and I would be 
happy to answer any questions that you or other members may 
have.
    [The prepared statement of Mr. Hill follows:]

      Statement of Barry T. Hill, Director, Natural Resources and 
              Environment, U.S. General Accounting Office

    Mr. Chairman and Members of the Subcommittee:
    We are pleased to be here today to discuss our October 1999 and 
June 2000 reports on the costs and effectiveness of recent buyback 
programs for specific U.S. commercial fisheries. 1 As the 
Subcommittee is well aware, fish populations in many commercial 
fisheries are declining, resulting in a growing imbalance between the 
number of vessels in fishing fleets and the number of fish available to 
catch. Federally funded fishery buyback programs are one tool available 
for managers to bring the number of vessels and the number of fish back 
into balance. In response to this growing imbalance, the Federal 
Government has provided $140 million since 1995 to purchase fishing 
permits, fishing vessels, and related gear from fishermen, thereby 
reducing the capacity of fishermen to harvest fish. Generally, the 
government designed these buybacks to achieve multiple goals, such as 
reducing the capacity to harvest fish, providing economic assistance to 
fishermen, and improving the conservation of fish. Our two reports 
focused on the principal buyback programs that have taken place in U.S. 
commercial fishing waters since 1976.
---------------------------------------------------------------------------
    \1\ Commercial Fisheries: Information on Federally Funded Buyback 
Programs (GAO/RCED-00-8R, Oct. 20, 1999) and Commercial Fisheries: 
Entry of Fishermen Limits Benefits of Buyback Programs (GAO/RCED-00-
120, June 14, 2000). A fishery is one or more stock (defined as one 
species or several species in a geographical area) of fish managed as a 
group.
---------------------------------------------------------------------------
    In summary, Mr. Chairman, we found that buyback programs need to be 
carefully designed if they are to be effective in helping to ensure 
sustainable fisheries. For example, as we reported, recent U.S. 
experience shows the following:
     LIf buyback programs are not accompanied by other measures 
that reduce incentives to reenter a fishery, capacity reductions 
resulting from buybacks will erode. Unless a buyback program prevents 
it, fishermen can use previously inactive vessels or permits and 
reenter the buyback fishery.
     LBuyback programs, by themselves, do not address a root 
cause of overfishing, which is called the ``race to fish.'' In most 
fisheries, fishermen have an incentive to increase their fishing 
capacity to catch fish before someone else does or use their existing 
capacity more intensely.
     LPlans for evaluating the results of buybacks should also 
be considered when these programs are being designed. Measuring and 
evaluating results can identify important lessons that can improve the 
effectiveness of future buybacks. The Federal Government has done 
little to evaluate whether recent buyback programs have achieved their 
intended benefits.

Background
    The management of commercial fishing waters in the United States is 
divided among coastal states and the Federal Government. Coastal states 
issue permits and develop and enforce regulations for fishing in waters 
that are near their shores. In areas outside state jurisdiction, the 
National Marine Fisheries Service (NMFS), within the Department of 
Commerce, is responsible for issuing permits and developing and 
enforcing regulations for harvesting fish. NMFS works with eight 
Federally established regional councils consisting generally of 
Federal, state, and private-sector representatives to develop plans and 
propose measures that attempt to balance the economic benefits of 
fishing with the need to protect the environment.
    Commercial fishing is a major industry in this country. In 1998, 
commercial fishing vessels in U.S. marine waters landed 9.2 billion 
pounds of commercial fish in domestic ports, with an estimated value of 
$3.1 billion. However, also in 1998, the Federal Government reported 
that of the 300 species of fish for which it had data, 100 were either 
overfished or approaching an overfished condition.

U.S. Buyback Programs' Experiences
    As of our October 1999 report, the 10 buybacks implemented since 
1976 were expected to cost a total of about $160 million, when 
completed, from Federal, state, and private sources. About $140 million 
(87 percent) of these costs are for buybacks implemented since 1995, an 
indication of the increasing use of buybacks. The remaining $20 million 
were incurred during the 1970s and 1980s for programs to assist 
fishermen in the Northwest salmon industry.
    The features, costs, and objectives of the buybacks vary.
     LThe most costly buyback, involving Bering Sea pollock, 
began in 1998 under the authority of the American Fisheries Act of that 
year. The act required NMFS to purchase 9 of 30 factory trawlers 
2 working in the fishery and their associated fishing 
permits. The total cost of the buyback was $90.2 million, with $15.2 
million from Federally appropriated funds and the remaining $75 million 
from a Federal loan to Alaskan pollock fishermen to buy large fishing 
vessels. The loan is repayable over 30 years based on a fee tied to the 
amount of pollock caught by those left in the fishery.
---------------------------------------------------------------------------
    \2\ A factory trawler catches fish by dragging a large net through 
the water and then processes the fish onboard.
---------------------------------------------------------------------------
     LThe next most expensive buyback, involving New England 
groundfish, took place in two phases between June 1995 and May 1998 
under the authority of the Emergency Supplemental Appropriations Act of 
1994 and the Interjurisdictional Fisheries Act. NMFS spent $24.4 
million to remove 79 fishing vessels, the fishing permits that allowed 
these vessels to catch groundfish, and all other Federal fishing 
permits associated with these vessels. NMFS also required that the 
vessels it purchased be scrapped, sunk, or transferred to activities 
other than fishing.
     LThe longest running buyback effort began in 1976 and 
involves five separate programs since 1976 for reducing the number of 
salmon fishing vessels and fishing permits in the Northwest. Three of 
the programs, costing a total of $20.5 million, mostly in Federal 
funds, were in effect between 1976 and 1986 under the 
Interjurisdictional Fisheries Act. The remaining two programs, costing 
a total of $14 million, were implemented from 1995 through 1998 under 
this act and the Magnuson-Stevens Fishery Conservation and Management 
Act. All five of the programs were administered by the state of 
Washington, which purchased state fishing permits. One of the programs 
also purchased vessels, while another also paid some vessel owners not 
to commercially fish for salmon for 10 years.
     LOther buybacks have involved efforts to reduce the number 
of Texas state shrimp fishing permits in the Gulf of Mexico and to 
eliminate commercial crab fishing in some parts of the Glacier Bay 
National Park and Preserve in Alaska. These buybacks cost a total of 
about $10.4 million, mostly in Federal funds.

Lessons Learned From Recent Buybacks
    We believe recent U.S. experience demonstrates three important 
lessons that should be factored into the design of any future buyback 
program. The first lesson is that, unless a buyback is designed to 
restrict reentry of fishermen, gains from a buyback will erode. Our 
June 2000 report examined the capacity gains from buybacks in three 
diverse fisheries New England groundfish, Bering Sea pollock, and 
Washington State salmon. These buybacks initially removed from 10 to 24 
percent of each fishery's respective capacity. However, the prospects 
for maintaining these gains is different for each of these fisheries, 
largely because of each buyback's design. For example, while the New 
England buyback initially eliminated vessels from the fishery, 
additional vessels subsequently became active because the buyback did 
not take steps to prevent fishermen from using previously inactive 
vessels and permits. We found that the $24.4 million New England 
buyback removed 79 vessels; however, because of the number of unused 
fishing permits in the fishery, 62 previously inactive vessels began 
catching groundfish after the buyback. These fishermen have begun to 
erode the capacity reductions made by the buyback, replacing fishing 
capacity by as much as two-thirds of that purchased through the 
buyback. In contrast, capacity removed through the Bering Sea program 
has not returned, in part, because the buyback legislation prevented 
the entry of additional fishing vessels. With respect to the recent 
Washington State programs, while no steps were taken to prevent 
additional fishing vessels from entering the fishery after the buyback, 
significant declines in salmon stocks have made this impractical and 
fishing capacity has declined. In some cases, however, this capacity 
has shifted to fisheries in other states.
    The second lesson focuses on the economic forces that, unless 
addressed, drive fishermen who remain after a buyback to increase their 
fishing capacity, called the ``race to fish.'' This race leads 
fishermen to invest in more fishing capacity, such as adding fishing 
gear, increasing their time at sea and number of crew, and replacing 
older vessels with bigger and more productive ones in order to catch as 
many fish as quickly as possible in an attempt to maximize their 
individual incomes. Economists conclude that left unchecked, this race 
to fish will lead to overall higher costs and lower profits, economic 
hardship for fishermen, and harm to fish populations and habitat.
    The Bering Sea pollock buyback addressed the race to fish that had 
previously existed among factory trawlers by facilitating the creation 
of a fishing cooperative by the owners of the remaining trawlers. This 
cooperative was designed to eliminate the race to fish by assigning a 
specific amount of fish, or an allocation, to the cooperative, which 
divides the allocation among its members. Because of this allocation, 
members of the cooperative have no incentive to expand fishing capacity 
to catch the available fish before someone else does, as they have in 
another fishery. Members are able to catch their individual fish 
allocations at their own pace, at lower capital and operating costs, 
while increasing product quality. These changes resulted in higher 
profits and longer fishing seasons for the remaining factory trawlers.
    The third lesson is that evaluating the results of a planned 
buyback should be built into the design of any future programs. In June 
2000, we reported that NMFS has made limited efforts to evaluate 
whether buyback programs have achieved their intended benefits. As 
required by the Interjurisdictional Fisheries Act, NMFS evaluated the 
effects of the New England buyback program on fishing capacity. Aside 
from this congressionally mandated effort, however, NMFS has not 
evaluated how any other buyback programs have affected fishing 
capacity. Prudent management suggests that buyback programs be 
evaluated to identify lessons learned that might help improve future 
programs. Planning for such evaluations, including developing measures 
to evaluate program results, should be an important part of the design 
of future programs.

Actions Recommended in Our Previous Report
    Mr. Chairman, buyback programs can and should be designed to be 
more effective. In our June 2000 report, we recommended that the 
Secretary of Commerce direct NMFS to
     Ldesign future buyback programs to (1) restrict buyback 
participants from entering a fishery that has fishing capacity problems 
; (2) restrict the use of previously unused fishing vessels and permits 
in a buyback fishery with such problems; and (3) identify mechanisms to 
minimize the incentives to increase fishing capacity in a buyback 
fishery;
     Ldevelop performance measures for buybacks that relate to 
program goals and broader legislative goals, such as the need to better 
manage fishing capacity and sustain fish stocks; and
     Levaluate the results of future buyback programs against 
the performance measures.
    The Department of Commerce generally agrees with our 
recommendations that it should design future buyback programs to take 
into account these entry and evaluation issues. Since our report, the 
Department has continued initiatives to assess capacity levels in 
Federally-managed fisheries. For example, the Department issued a 
preliminary report in March 2001 that provides qualitative assessments 
of capacity in domestic fisheries. In addition, buyback proposals being 
developed by industry and/or NMFS are considering various approaches to 
address issues raised in our report. This week NMFS started a series of 
public meetings on its proposal for a $10 million permit buyback for 
the Northeast groundfish fishery, which includes a provision intended 
to discourage reactivation of previously inactive permits.
    This concludes our statement. We will be happy to respond to any 
questions from you or other Members of the Subcommittee.
                                 ______
                                 
    Mr. Gilchrest. Thank you very much, Mr. Hill.
    I guess I will start with you, Mr. Hill, first. The 
buyback--you mentioned two different buyback programs. I guess 
the first one was with the New England Council and the second 
one was in the North Pacific Council. The Bering Sea buyback 
apparently worked because of certain restrictions and the 
development of a co-op and the buyback program in New England 
did not work because people got back into a different fishery.
    Mr. Hill. That is correct.
    Mr. Gilchrest. Can the Bering Sea buyback program be, in 
your judgment, replicated in different areas around the country 
in different fisheries?
    Mr. Hill. I do not think there is a cookbook approach to 
any of these buybacks. I think you have to look at the 
characteristics of the fishery and the situation you are 
dealing with and you have to tailor-make these buyback programs 
based on what your particular goals are and what you are trying 
to achieve at that fishery.
    There are certain elements of the Bering Sea buyback, 
though, that I think are inherent and should definitely be 
considered and encouraged in most buyback programs and one of 
those is certainly to ensure that the capacity you are removing 
is not going to return to the fishery. I mean that is the whole 
purpose of this. You are trying to take the capacity out of the 
fishery. If you allow the fishermen to either buy other vessels 
or use latent capacity--that is unused permits that are 
existing in the fishery--to come back in and fish, you are 
basically eroding whatever benefits you have achieved through 
the buyback.
    Mr. Gilchrest. Mr. Dunnigan, I have not read your report 
yet but the early statement you made was that, and I do not 
know if I wrote this down correctly, the basic underpinnings of 
the task force were not clearly understood for an assessment of 
the investment in the buyback program. Is that a fair 
paraphrase of what you said?
    Mr. Dunnigan. The point I was trying to make, Mr. Chairman, 
was that the statute was not very specific in terms of what 
Congress was looking for out of this report. It just said that 
the task force should look into the role that the government 
has played in influencing investment, capital investment in the 
fisheries. That could be a very broad charge or it could be a 
very narrow charge.
    The task force decided that we would be better off taking 
the broader approach. What that meant was the report covers a 
lot of things. So rather than answer a lot of questions, I 
think what you find in the report more is a blueprint for how 
to go about analyzing and looking at these issues as they come 
back before the Congress.
    It is an interesting question, for example, on subsidies. 
What is it that constitutes a subsidy? Is it just when the 
government gives somebody a check for a boat loan or is it 
something broader than that? And the task force took a very 
broad approach, that anything that affects profits of an 
individual firm could be viewed as a subsidy.
    So you will find there are a lot of things in here that 
most of us would not have considered subsidies--the Wallop-
Breaux program, for example, but we felt it was important to 
take the broad approach.
    Mr. Gilchrest. In your broad approach did you come close to 
seeing the situation that Mr. Hill just described in the 
buyback program between the North Pacific and the New England 
fisheries?
    Mr. Dunnigan. When the task force was meeting the North 
Pacific buyback was not all put together.
    Mr. Gilchrest. I see.
    Mr. Dunnigan. So we really did not have an opportunity to 
consider that. We spent a lot of time looking at the buyback 
programs in the Northeast, as well as those for salmon in 
Washington and Oregon.
    I think the major conclusion that the task force members 
came to is similar to what Mr. Hill and Dr. Hogarth have both 
said and that is that it is important when you get into these 
programs to have a very clear idea of what it is you are trying 
to do.
    The Service told us, for example, that in the Northeast 
program when they first went at it they were not there to 
remove fishermen; they decided they wanted to try to remove 
vessels. Well, that has all kinds of implications for how you 
do your program and for what you expected to get out of it. And 
I think that that is one of the things that they learned, that 
it is very important to go in up front with a very clear idea 
of what it is you are trying to do.
    Mr. Gilchrest. Dr. Hogarth, do you think it is a good idea 
for us in the reauthorization vehicle to, within certain 
flexible parameters, give clear specific guidelines or build 
into the statute some way to create a buyback program and using 
the example that Mr. Hill used between the Bering Sea and New 
England, to frame that discussion about capacity, about boats, 
about quotas for fishing, and include in that, I guess, the 
root cause of the overcapacity? Would you suggest that we put 
into the reauthorization some language dealing with investment 
and buybacks?
    Dr. Hogarth. That is somewhat of a tough question. I 
personally think that there have to be some guidelines. I am 
concerned that it is so complicated that you want to look at 
each fishery. For example, the co-op worked great in the Bering 
Sea. The co-op may work great in some of the crab fisheries but 
in some of the other fisheries where you have a large number of 
vessels, different sizes and types of vessels for the same 
species, it is going to be more difficult to do a co-op.
    I think what we need to be doing and what I have talked to 
several groups about is to develop a business plan for their 
fishery and then to actually look at the different options you 
have to address capacity and do it on a fishery by fishery or 
gear by gear type thing.
    But I think we have heard, to be honest with you, since I 
have been in the job, a lot of questions and comments from the 
Hill staffers about trying to work out some type of buyout 
program that was more concentrated rather than just these 
fragments, so to speak, that we keep doing. I think we need a 
united program that has some guidelines but not so specific 
that we could not adjust from fishery to fishery.
    Mr. Gilchrest. We would certainly like your suggestion on 
those guidelines as we pursue that line of thinking.
    And then the last question is I guess none of this would be 
very effective unless we have sufficient data to understand the 
nature of that fishery in all its ecosystem parameters? So we 
would like and certainly need your suggestion on how we can 
increase the data for each management council so that they use 
the guidelines with a sense of confidence.
    Dr. Hogarth. Mr. Chairman, to that point, since the last 
hearing I was at, we have set up a group in the agency that 
will be going outside to get some academics, environmentalists 
and stakeholder input. We set up the group to look at ecosystem 
management and the central fish habitat, and to get a better 
idea of the type of data needed, the type of sampling we will 
have to do, the type of information, the type of modeling that 
will be necessary, and just get a better idea of how you do the 
Federal program and the type of data you need. So this is 
getting started immediately now and hopefully we will have some 
better information along that line.
    Mr. Gilchrest. Is there any way you can give us a 
suggestion as to the amount of money that would be needed to 
carry that program out effectively?
    Dr. Hogarth. That is what I am trying to do because I think 
it is more expensive than a lot of people think it is. To 
really get into the ecosystem you have to look at the climate; 
at environmental changes; at the habitat. There are a lot of 
things you have to do that I am not sure people have thought 
about--the big picture of ecosystem management, but I think 
this is the approach that we will be going to in the future. We 
have to make sure that we are ready and have the right 
information.
    We have to get a lot more economic data but we are in the 
process of trying to hire six economists to spread out across 
the regions to work with industry.
    Mr. Gilchrest. Thank you very much, Dr. Hogarth.
    Congressman Underwood.
    Mr. Underwood. Thank you, Mr. Chairman. I ask unanimous 
consent to enter my statement to the record.
    Mr. Gilchrest. Without objection.
    [The prepared statement of Mr. Underwood follows:]

Statement of The Honorable Robert A. Underwood, a Delegate to Congress 
                               from Guam

    Thank you, Mr. Chairman, and good morning. I want to thank you for 
holding a hearing on the very serious matter of overcapacity in our 
nation's fisheries. The issues of overcapacity, overfishing, and 
subsidies are intimately related to the reauthorization of the 
Magnuson-Stevens Act, and what we learn today will be an important part 
of that effort.
    When the Magnuson-Stevens Act initially became law twenty five 
years ago last month, it gave to America's fishermen the exclusive 
right to harvest America's resources within our waters. The foreign 
fishermen, who were harvesting as much as 70% of our fish, were phased 
out and eventually banned in order to fully develop US fishing 
capabilities.
    In many cases, however, our efforts to Americanize US fisheries may 
have been too successful as more and more Americans exercised their 
right to enter into open-access fisheries and took up where the foreign 
fishermen left off. Harvest rates actually went up after the Magnuson-
Stevens Act became law, putting further strain on fish stocks.
    Many feel the government encouraged this, with no thought to the 
sustainability of the resource, through tax incentives and financing 
programs for fishermen. At the same time, our management programs did 
not stop over-fishing when it began to occur. Now we are realizing the 
problems these programs and our lack of attention to over-fishing has 
created. Many of our stocks are seriously depressed and there is too 
much fishing capacity trying to catch the few fish that are left.
    The U.S. is not alone in facing this crisis, it is world-wide. 
Other nations and international organizations, such as the FAO, are 
actively addressing this problem and are working to solve it. The U.S. 
has a responsibility to do the same.
    Still, we must be careful when we talk about too much capacity to 
catch fish. This does not always translate directly into too many 
boats. 200 small boats in Guam for example, do not have the same 
harvesting capacity as 200 boats in the North Pacific, and may actually 
be able to harvest our fishery resources sustainably. When looking at 
this problem, it is essential that we differentiate among fisheries and 
how fishermen operate and their levels of industrialization to target 
reductions based on capacity, not just numbers of vessels.
    The time for a change in how we take care of our resources has 
come. The Magnuson-Stevens Act originally sought to do this, but has 
not been successful. New initiatives must be taken to reduce capacity 
in our fisheries and continue our efforts to prevent over-fishing. By 
meeting these challenges now, there is a chance to turn the tide on 
stock depletions and to ensure that the resources so many rely upon 
continue to be there in the future.
                                 ______
                                 
    Mr. Underwood. Thank you. And thank you for your 
testimonies. I must admit that there are a lot of things going 
on here in terms of trying to understand the whole industry; it 
is both fascinating and a little confusing to me.
    I just want to deal with first of all, a question on the 
buyback program. Perhaps Mr. Hill, did you think that the 
problems that were associated with the buyback program are 
primarily the result of lax administration or is there some 
defects in the legislation, or did you deal with that issue at 
all?
    Mr. Hill. Well, we did not directly deal with it. We 
determined what they were trying to achieve with the buyback 
programs, we analyzed how the programs were implemented and we 
looked at the results that were achieved. So we did not 
directly address the question you are addressing to me but I 
will make some comments about this.
    Here again each of these fisheries is unique. They have 
different characteristics. These programs were well-
intentioned. On the surface it seems like a prudent thing to do 
but it is kind of like squeezing a balloon. You think you are 
going to have an intended purpose and then the other end kind 
of increases as you are squeezing the one end.
    That is what happened here. Particularly I think the best 
example of that is in the New England buyback where the 
intention was to remove vessels, to remove permits from the 
fishery. The buyback pulled 79 vessels and permits out of the 
fishery. One would think that that would reduce the capacity. 
The unforeseen here and the thing that was not planned for was 
the fact that there was all this latent capacity out there, all 
these unused permits and vessels. There were not sufficient 
restrictions placed on the fishermen who participated in the 
buyback and many of those participants basically took that 
money, upgraded their vessel or bought another vessel and 
started using an unused permit and, in essence, eroded all the 
gains and the benefits that were intended by that buyback. So I 
think there is a real lesson to be learned there.
    Mr. Underwood. Dr. Hogarth, in this process was it not 
becoming clear that these latent permits were going to be used 
to work to do exactly what Mr. Hill has outlined and why did 
not the councils do anything about it?
    Dr. Hogarth. Regarding control dates and setting limited 
entry, some of the councils felt like, in talking to them, that 
they should give the fishermen the opportunity to keep the 
permits but I do not quite understand that, either. Other 
councils, such as the South Atlantic, now say that if you want 
to get back into the fishery you have to buy two permits. You 
can buy two permits but that takes one permit out of the 
fishery.
    They use different means but latent permits are a real 
problem and I think we have to go back to address it. One of 
the reasons that we went to limited entry in some of the 
fisheries was the fact that the council let everyone keep their 
permit. I think people thought that there would be a windfall 
by selling their permit, so they did not want to get rid of 
them. They looked at them as an investment. Now if we go back 
and try to take those permits, or if we say that you have to 
fish in the next five years you have to have a certain amount 
of harvest or you will lose your permit, we put more pressure 
on the fisheries. We have ourselves in sort of a box that I 
think we are going to have to work with the council to figure a 
way out. But we do need to get rid of latent permits.
    Mr. Underwood. Is that a council problem or is that a 
legislative authority problem?
    Dr. Hogarth. All the councils have the authority; I think 
they need to do it. It is a council problem.
    Mr. Underwood. It is primarily a council issue?
    Dr. Hogarth. That is correct. They all have the authority; 
they need to do it.
    Mr. Underwood. Then I would suggest that they get moving on 
this problem.
    I am trying to understand the Capital Construction Fund. 
The Capital Construction Fund, and this is Mr. Dunnigan, the 
Capital Construction Fund is designed to--what is the 
relationship between the Capital Construction Fund and the 
buyback program? They seem to be working at cross-purposes, or 
am I not seeing something correctly?
    Mr. Dunnigan. The Capital Construction Fund has been around 
for decades and has been available to fishermen to take their 
profits and invest them and not pay taxes on those profits as 
long as they are used for an approved future project, just to 
build a new vessel.
    I suppose you could say that there is some inconsistency 
between the government on the one hand trying to remove 
capacity and, on the other hand, trying to make it easier for 
fishermen to build capacity.
    The problem is right now we are not trying to remove 
capacity in every fishery necessarily and the CCF is broadly 
available to fishermen regardless of what fishery they happen 
to be in.
    So the CCF was a program that caused the greatest 
difficulty for the members of the task force to try to figure 
out what needed to be done. Clearly something has to be done. 
We do not really even know today how much money is in CCF 
accounts across the country. The National Marine Fisheries 
Service can tell us what the net deposits over net withdrawals 
is and it is about $250 million in our report. But with what 
has been happening to investments in this country over the last 
15 years, we do not really know how much those investments have 
grown and there may be tremendous amounts of money that are 
legally only able to be used to build new boats. So the task 
force members came up with a number of recommendations for 
allowing alternative uses of those funds.
    Mr. Underwood. Would this CCF program be seen as a subsidy?
    Mr. Dunnigan. Well, under the task force's definition it is 
clearly. It is something that affects the profits of the 
individual firms in the industry, so we treated it as a 
subsidy, given the broad approach that the task force took in 
looking at its charge.
    I suspect that almost under any definition, this program 
could be viewed as a subsidy in that it creates a special class 
of tax benefits that are given to particular members in the 
industry.
    Mr. Underwood. Is the participation in the program guided 
by accurate data? Is it guided by individual fishery?
    Mr. Dunnigan. The program is available to all commercial 
fishermen throughout the country to invest part of their 
profits. The data that would be available that govern the 
program really do not operate across a national level. It is 
just that the tax code provision is there if fishermen choose 
to want to use it.
    One thing that the National Marine Fisheries Service has 
not had the opportunity to do is to track this program with 
sufficient detail so that they could understand what all of its 
implications are. It is one of those programs that is important 
to them but they do not have sufficient resources. They are 
working on other things, like the Fisheries Finance Program and 
they are competing for resources within the agency and they 
just do not have enough time to do it.
    Mr. Underwood. Thank you.
    Mr. Gilchrest. We will have a second round, Mr. Underwood.
    Just a quick comment to the people standing in the back of 
the room. There are more chairs over here by the windows if 
anybody wants to sit down. You can pull some more chairs from 
the members' desks if you want to sit down because we may be 
here for a couple more hours, or you can stand. That is your 
choice. But if you want to walk over there and sit down, that 
is fine. Pull out a couple of extra chairs. We will wait till 
you pass through. There are a couple of chairs right here if 
you need to pull them over there.
    Are you okay in the back of the room there? You must be a 
fisherman.
    Mr. Saxton.
    Mr. Saxton. Thank you, Mr. Chairman.
    Mr. Hogarth, thank you for bringing me the packet of 
information this morning about the buyback-buyout bill that I 
have introduced.
    Let me start with two questions of special interest to me. 
As you know, I have been active for the last couple of years in 
trying to implement some conservation efforts for highly 
migratory species and I compliment you and your predecessor on 
your interest in conservation of highly migratory species, as 
well. And in particular, I would like to make note of the 
highly migratory closure provisions that you implemented 
through regulation along the southeastern coast of the country 
and in a couple of locations in the Gulf of Mexico. I think 
that is a step in the right direction.
    However, some of my colleagues from the southern part of 
the country now find themselves with some disadvantaged 
fishermen because of the regulations and unfortunately, we were 
unable during the last session of Congress to implement a 
compensation problem--it was a problem, believe me--a problem 
for them and for others in the Atlantic because of our 
inability to come to closure on some of the issues.
    In most fisheries the Secretary apparently has the 
authority to implement a buyout program and then request 
funding from the Congress for the financing part of that 
program but in the case of highly migratory species, apparently 
the Secretary does not have the ability to move forward. Is 
that correct, with the buyout program?
    Dr. Hogarth. That is my understanding, yes.
    Mr. Saxton. And I have language in Magnuson here in front 
of me. In Section 312, paragraph B, Fishing Capacity Reduction 
program, the specific language seems to eliminate the 
authority. It says, ``The Secretary, at the request of the 
appropriate council for fisheries under the authority of such 
council, or the governor of the state for fisheries under state 
authority, may conduct a Fishing Capacity Reduction program in 
a fishery if the Secretary determines,'' and so on.
    Now this language creates apparently a problem for you 
because it says that the Secretary must do it at the request of 
the appropriate council or the governor. Is that correct?
    Dr. Hogarth. That is my understanding.
    Mr. Saxton. And therefore since no council or no governor 
has direct authority to make that request in HMS, therefore the 
Secretary cannot implement a buyout program. Is that correct?
    Dr. Hogarth. Yes. The East Coast highly migratory is 
managed by the Secretary and not by a council.
    Mr. Saxton. And since this language says that this must 
come at the request of a council or a governor, the Secretary 
cannot move forward with a program; is that correct?
    Dr. Hogarth. Unless a governor, I guess, would come 
forward. Then we could possibly do it.

    [A letter from Dr. Hogarth clarifying his response to the 
preceding questions follows:]

[GRAPHIC] [TIFF OMITTED] T2297.038

    Mr. Saxton. Would you think it would be a good idea for us 
to look at amendatory language in this reauthorization that we 
are going to do this year to eliminate that problem so that you 
can move forward with an HMS buyout if you determine it 
appropriate to do so?
    Dr. Hogarth. Highly migratory species, in spite of a lot of 
things we do in the U.S. to regulate them, we are at the mercy 
of a lot of foreign countries that do not have the same 
conservation ethics we do and I think a buyout program for the 
highly migratory species would be--
    Mr. Saxton. Now I am not a good legal wordsmith but just 
let me suggest if we said something like this, that the 
Secretary, at the request of the appropriate council for 
fisheries under the authority of such council, or the governor 
of the state for fisheries under state authority, or at the 
discretion of the Secretary in the case of highly migratory 
species, that would solve your problem, would it not?
    Dr. Hogarth. It sounds like to me it would. I have an 
attorney sitting behind me.
    She says it would be nice to have it clarified, that we 
could possibly try to go forward without it but it is nice to 
have it clarified and that would do it, yes, sir.
    Mr. Saxton. Okay. Now let me ask you specifically about the 
southern closure and the situation there. In commenting on the 
bill which I have introduced to provide for a pelagic long-line 
buyout, you comment that the proposed legislation assumes that 
the South Atlantic buyout in particular is in place and that 
compensation would be made pursuant to that regulated closure 
and that we cannot make that assumption because there has been 
a lawsuit instituted which has the potential of negating that 
closure.
    Dr. Hogarth. That is correct.
    Mr. Saxton. My question then is do we need legislation to 
make that closure a legislated closure rather than a regulated 
closure?
    Dr. Hogarth. I think that second-guesses the courts, which 
I probably should not do, but it depends. The only reason we 
would point out now is that we do not know which way these 
court cases will go and I think there are three of them that 
affect this area. If we lose that then it would affect your 
bill because there would be no closure.
    I think it is necessary, in the long line fleet, if you try 
to save small swordfish, that is what we have done with these 
closures. There is also potentially a problem with bycatch of 
billfish and all, which is another problem.
    If you close one area and push them to another and just use 
the same number of vessels, we are not accomplishing a lot. We 
do need, in my opinion, a buyout program in the long line 
fishery to accomplish the goals of both bycatch and the 
capacity for those fisheries, yes.
    Mr. Saxton. So you are saying that a buyout program would 
be more effective--a closure would be more effective in 
conjunction with a buyout.
    Dr. Hogarth. Yes, sir.
    Mr. Saxton. Rather than a closure that stands alone, like 
the one in the South Atlantic.
    Dr. Hogarth. Yes, sir. I thought Congress was extremely 
close to a very good bill in the last session. We had a couple 
of minor problems that we noted but I thought that you all got 
close to a very good bill.
    Mr. Saxton. Actually, I thought that the House version and 
NMFS, the cooperation that I saw between the agency and members 
of the House was exemplary and I think we came to closure on 
every issue. There were some differences of opinion in the 
other body but I thought we were very close and hopefully we 
can get there again.
    I have taken the opportunity to read through the comments 
that you have made here to me in writing just as of today and I 
again do not, and I may be overlooking something but I do not 
see anything here that is going to sidetrack us. You have some 
problems with some language; you have some problems with some 
periods of time under which things happen; you have some 
problems with the definition of initial limited access permits 
and you would like to replace that term with something else and 
all that is fine. I think we can work through this.
    I also would just like to say to Mr. Hill I agree with you, 
sir, in terms of capacity of individual fishermen to catch fish 
that are remaining. We certainly have to put some kind of limit 
on their ability to expand their capacity to catch fish or the 
buyout program is just spending money and we all run in a big 
circle.
    I appreciate your comments on the legislation that I have 
introduced and I also appreciate your clarifying what you need 
to move forward with a buyout regulatorally and I think we will 
try to accommodate those changes in the language.
    Dr. Hogarth. If you need our people, we can work with you 
and I think it is something that is just wordsmithing, so to 
speak.
    Mr. Saxton. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Gilchrest. Thank you, Mr. Saxton.
    I think we will run through one more round if members have 
any other questions.
    Dr. Hogarth, can you tell us the status of the FAO plan of 
action for managing fishing capacity?
    Dr. Hogarth. I am not sure that I know the exact status. I 
know we are continuing to work through the program. It is 
somewhat of a slow process but we have had several meetings. As 
far as the implementation, I do not know but I can get back to 
you on the schedule.
    Mr. Gilchrest. Any indication that it may be successful 
from the earlier meeting?
    Dr. Hogarth. I have been told that we think it will be 
successful and it should be completed by the end of 2002.
    Mr. Gilchrest. 2002?
    Dr. Hogarth. Yes, sir.
    Mr. Gilchrest. Thank you. One other question. I understand 
that NMFS is currently working on a $10 million buyout for New 
England. Can you tell us a little bit more about that effort?
    Dr. Hogarth. That was $10 million that was put in by 
Congress and a Federal Register notice announcing that the 
money is there has gone out for public comments on how the 
program should operate.
    Mr. Gilchrest. Is that $10 million buyout program as it is 
formulated going to be different from the previous buyout 
program in New England?
    Dr. Hogarth. We hope so. Yes, sir, we hope we learn from 
the GAO report and others, that it will be better.
    By the way, we have bought back--I was looking at the data 
last night--we bought back almost 1,800 permits since 1994. Of 
course, as Mr. Hill said, we bought I think about 79 vessels, 
79 plus vessels, but quite a few of those are back in the 
fishery because they were able to use latent permits or switch 
fisheries.
    Most of our fisheries now, including the shrimp fishery in 
the Gulf, will have permit systems and control dates so I think 
we are getting to the point where it will be much more 
difficult to switch fisheries on account of control dates and 
limited entry programs.
    Mr. Gilchrest. So the buyout program in New England is in 
the status of public comment now? You have not actually 
developed a plan to--
    Dr. Hogarth. Before we develop the plan, for which we have 
the money, we announce to the public that we have this and we 
try to see who is interested, and what type of interest there 
is in the program. Then we will, based on that, put together a 
plan to go forward.
    Mr. Gilchrest. Now is this a buyout for groundfish fishery? 
The buyout is specifically oriented to that issue?
    Dr. Hogarth. Yes. Latent capacity in the groundfish 
fishery.
    Mr. Gilchrest. Are you involved at all in this, Mr. 
Dunnigan?
    Mr. Dunnigan. No. A number of our state directors are as 
members of the New England Fishery Management Council but the 
commission is not involved in it.
    Mr. Gilchrest. Are there any other buyout programs? New 
England, you mentioned the Gulf of Mexico. Anything else in the 
works?
    Dr. Hogarth. Alaska crab fishery.
    Mr. Gilchrest. We have a vote on and I do not think we will 
get through the second round before we have to leave.
    Do you have any other questions, Mr. Underwood?
    Mr. Saxton, any other questions?
    Mr. Saxton. I will pass.
    Mr. Gilchrest. We can always come back. If you do not have 
any other questions, I have one other question but I yield 
first to Mr. Underwood.
    Mr. Underwood. Just a question on subsidies. In addition to 
the financing programs, such as the CCF, there are other direct 
or indirect government subsidies. Of interest to those of us in 
the Pacific is the fact that worldwide subsidies are estimated 
to--obviously are much higher in other countries than they are 
for our own fishing. How can U.S. fishermen compete against 
foreign fishing fleets that continue to be heavily subsidized?
    Dr. Hogarth. It is very difficult. In looking at the data, 
it is probably $12 to $14 billion that is spent worldwide on 
subsidies. We have followed Japan and other nations to work 
with the Pacific nations to get fishing rights for our tuna 
fleet.
    China is the number one fishery. We do not know how much 
they spend; evidently quite a bit. We know that the EU and 
Spain in particular now are building large, large vessels. I 
mean extremely large--1,250 metric ton type things.
    It does put our fishermen sort of at a disadvantage. There 
is no doubt about it. But if they are going to fish 
internationally, versus Americanizing the U.S. fisheries within 
the 200 mile zone, I think it is two different questions 
whether we fish from an international standpoint versus where 
we are under the Magnuson-Stevens Act.
    Yes, it is a lot of money being spent. Japan paves roads, 
builds airports and tells the countries that they want their 
fishing rights while we have to go in and try to negotiate 
through the fishermen themselves.
    Mr. Underwood. Other than just acknowledging it, have we 
given some thought as to how we could deal with this in a way 
that balancing the playing field?
    Dr. Hogarth. We tried to deal with it through the new 
multilateral conference that is being developed for the Pacific 
Islands. That is one thing we are trying to work on in that 
negotiation. But overall, we work with the State Department, 
but I do not think, to be honest with you, we have a real 
program on this issue.
    Mr. Underwood. If you could address that?
    Mr. Dunnigan. Just a little bit more on that. I think the 
whole question of fishing subsidies is an important issue 
internationally and it is being dealt with by the World Trade 
Organization. Dr. Milazzo, who is in the back here from the 
National Marine Fisheries Service, knows a lot about that.
    All of the programs that the task force looked into are 
programs that have been looked at in the concept of what can be 
done and what kinds of subsidies should come off the table and 
what kinds should countries be allowed to have.
    One of the things our task force said was we do not start 
from the a priori assumption that all subsidies are bad, that 
there might be legitimate policy reasons for the Congress to do 
certain things. What is important is to understand why you are 
doing it and the effects that it is having.
    Mr. Underwood. Okay, thank you.
    Mr. Gilchrest. Thank you, Mr. Underwood.
    Just a quick follow-up, Mr. Dunnigan. Can you briefly 
describe to us the subsidies toward fishermen versus subsidies 
toward processors? Is that a consideration in any of this?
    Mr. Dunnigan. The task force, taking a broad view, we 
looked at all government programs. For example, if there is an 
Economic Development Administration program that helps to build 
a fishing pier or a dock where processors could use to catch 
fish, we looked at that as also being a subsidy. The hardest 
problem we found though was that there are not sufficient data 
that are collected by the various agencies that are doing these 
things in order to understand where these impacts are.
    Most of the programs that you will look at, the Capital 
Construction Fund program, the loan programs, are aimed more at 
the fishermen side than at the processor side.
    Mr. Gilchrest. We can talk about that later, given the time 
restraints we have right now.
    How are the horseshoe crabs doing?
    Mr. Dunnigan. I was afraid you were going to ask about the 
striped bass eating the blue crabs.
    We are continuing to work on our horseshoe crab assessment, 
Mr. Chairman, and hope to have some much better information 
about the status of that resource by the end of the year.
    Mr. Gilchrest. Thank you very much.
    Gentlemen, thank you very much. We apologize for the vote 
schedule. Thank you for coming.
    The hearing is recessed for about 15 minutes.
    [Recess.]
    Mr. Gilchrest. The Committee will come to order.
    Before we start there are plenty of seats now so if anybody 
wants to take them.
    Panel 2 will be Mr. Scott Burns, director, Marine 
Conservation Program, World Wildlife Fund; Mr. Gordon Blue, 
president, Crab Rationalization and Buyback Group. Welcome. Mr. 
Zeke Grader, executive director, Pacific Coast Federation of 
Fishermen's Associations; welcome, sir. Mr. Jim Kirkley, 
Chairman, Coastal and Ocean Policy Department, Virginia 
Institute of Marine Sciences; welcome. And Mr. Mike Nussman, 
vice president, American Sportfishing Association.
    Welcome, gentlemen. We look forward to your testimony.
    Scott, you may begin.

    STATEMENT OF SCOTT BURNS, DIRECTOR, MARINE CONSERVATION 
                  PROGRAM, WORLD WILDLIFE FUND

    Mr. Burns. Good morning, Mr. Chairman. Once again I want to 
thank you on behalf of World Wildlife Fund for inviting us to 
share our views on the problem of fishing fleet overcapacity 
and the ways in which it might be addressed as part of the next 
reauthorization of the Magnuson-Stevens Act.
    As we say in our written testimony and as other witnesses 
today have already stated, overcapacity is not only a threat to 
the biological sustainability of our fisheries; it undermines 
the economic well-being of fishermen across America and the 
fabric of coastal communities.
    Last week I had the opportunity to speak the at National 
Fisheries Institute's biannual meeting and while I was there I 
noted that overcapacity is arguably the single biggest 
challenge facing both conservationists and the seafood industry 
today. Where overcapacity exists, fishermen work harder and 
spend more to catch fewer fish. And because it produces 
increased fishing effort, overcapacity exacerbates any adverse 
ecosystem effects that may exist in a fishery. Since dealing 
with excess capacity is consistent with the best interests of 
both fishing communities and the environment, we are glad that 
this Subcommittee has chosen to focus on it today.
    Let me share one personal story with you to illustrate the 
problem. As you may know, Mr. Chairman, in the mid-1970's I 
worked as a commercial fisherman in your district back in the 
days when the blue crab fishery was in much better condition 
than it is now. The aspect of the crab fishery that I want to 
focus on today is this. For nearly a quarter century after I 
stopped crabbing fishermen in the bay caught more or less the 
same number of crabs, on average but over the same period of 
time, the number of crab pots being fished increased 
dramatically. In other words, crabbers were spending more money 
on crab pots, they were spending more time and energy fishing 
them, and there was no increase in catch. And last year this 
excess capacity caught up with us, as you know, and the catch 
declined precipitously.
    This same story is being played out all over America today. 
I know Gordon Blue, who served with me on the Federal 
Investment Task Force, is going to talk a bit about the problem 
in the context of the crab fisheries in Alaska. I think the 
list goes on and on.
    I think it is important that we carefully consider the 
options for fixing this problem as we debate possible 
amendments to Magnuson-Stevens.
    Now our written testimony suggests a number of possible 
steps we might take but I would like to emphasize a couple of 
highlights. First, we observe that while a variety of capacity 
reduction initiatives have been undertaken in recent years in 
fisheries all across America, there are a lot of 
overcapitalized fisheries that remain unaddressed and to 
correct this we suggest that developing a more systematic 
approach to identifying and remedying excess capacity ought to 
be a priority in the next reauthorization.
    Specifically, we think that a good template for such a 
system can be found in the United Nations Food and Agriculture 
Organization's plan of action for managing fishing capacity, 
the FAO plan that you mentioned earlier, Mr. Chairman. The 
United States played a lead role in crafting this plan of 
action. It calls upon nations, including the United States, to 
identify fisheries with overcapacity problems and to develop 
and implement strategies to improve the situation.
    Because the U.S. showed leadership in offering the plan of 
action, we think it is incumbent upon us to demonstrate similar 
leadership in implementing that and we think the most 
straightforward way to do that would be to incorporate the key 
provisions from the plan into Magnuson during your next 
reauthorization.
    I agree, by the way, with Bill Hogarth that we really need 
to solve the capacity puzzle on a fisheries by fisheries basis, 
but I think the framework in the plan of action provides, as I 
said, a template, a national template, for doing that.
    Secondly, we make a number of suggestions aimed at assuring 
that adequate financial resources are dedicated to downsizing 
efforts.
    I think our main point here is that we need to recognize 
that public sector dollars alone are not going to do enough to 
get the job done. We need to find ways to really stimulate 
industry, financial participation and capacity reduction.
    For a number of reasons, Congress's effort to do just that 
as embodied in Section 312 of the act does not seem to be 
working very well so we suggest a reexamination of that issue 
and of 312 to determine what incentives and other measures are 
needed to really generate private sector support for 
downsizing.
    We also strongly support the recent recommendations of GAO 
on buybacks. We need to make sure that we get our money's worth 
from the few buyback dollars that we have.
    And lastly, we recommend that the Congress look at ways 
that we can reformulate existing U.S. subsidy programs to 
support capacity reduction.
    I served on the task force that Jack Dunnigan chaired. He 
has already covered that and I will not go into it except to 
say that specifically we do recommend changes in the Capital 
Construction Fund that allow monies to be used in industry-
financed buybacks and in other downsizing initiatives. CCF was 
put in place originally, in part, to make our fleets more 
competitive. Ironically, arguably the best way to do that in a 
lot of fisheries today is to make them smaller.
    Last but not least, since we are an international 
organization, we point out that overcapacity is a global 
problem and that excess capacity in foreign fleets directly 
harms U.S. interests. This is most obvious in fisheries, in 
international fisheries that we participate in, like the tuna 
fisheries in the Western Pacific and the Eastern Pacific.
    We also note that the global overcapacity problem, as a 
number of other witnesses have mentioned, is caused, in part, 
by the extraordinarily large subsidies that exist in many 
nations for the fishing sector. These subsidies are not just 
environmentally harmful. As we have already noted, they put 
U.S. seafood producers who receive comparatively low subsidies 
at a competitive disadvantage.
    That is why the call for U.S. leadership in reducing the 
level of international fishing subsidies has come from industry 
groups like NFI, as well as organizations like WWF. And this is 
also why, I think, bipartisan support has existed for the 
effort to curb these subsidies at the World Trade Organization, 
which was mentioned earlier. We think that the upcoming WTO 
ministerial in Qatar really offers an important opportunity for 
a renewed U.S. push on the subsidies issue. We think, as I said 
before, that it would benefit both our industry and 
conservation.
    Once again, Mr. Chairman, thanks for the opportunity to 
testify today. I look forward to answering your questions.
    [The prepared statement of Mr. Burns follows:]

Statement of William Scott Burns, Director of Endangered Seas Campaign, 
                    on Behalf of World Wildlife Fund

    Mr. Chairman and Members of the Subcommittee:
    On behalf of World Wildlife Fund's 1.2 million members, thank you 
for the opportunity to testify concerning current problems with excess 
fishing capacity in U.S. fisheries, and the options for addressing this 
issue during the upcoming reauthorization of the Magnuson-Stevens 
Fishery Conservation and Management Act. Known worldwide by our panda 
logo, WWF is dedicated to protecting the world's wildlife and the rich 
biological diversity that we all need to survive. The leading privately 
supported international conservation organization in the world, WWF has 
sponsored more than 2,000 projects in 116 countries since 1961.
    Americans increasingly understand that the environmental and 
economic well being of our coastal areas depends on the sustainable 
management of our fisheries resources. When it passed the Sustainable 
Fisheries Act in 1996, Congress recognized the threat posed by 
overfishing and enacted important new measures to prevent fisheries 
depletion. Since then, over forty new rebuilding plans have been put in 
place, and progress has been made in restoring several depleted fish 
populations. While much work remains, the environmental trajectory in 
many U.S. fisheries is more promising than it was prior to the 1996 
Magnuson amendments.
    Perhaps the single biggest impediment to progress in restoring 
America's fisheries is the overcapacity of fishing fleets. Overcapacity 
undermines the economic well being of fishermen and coastal 
communities. It forces fishermen to fish harder and spend more to catch 
fewer fish and make less. It generates an economic desperation in 
fishing communities that further complicates the already difficult 
politics of fisheries management. Finally, overcapacity exacerbates the 
negative effects of fishing on ocean ecosystems - by forcing fishermen 
to fish harder, it contributes to increased bycatch and damage to 
habitat.
    For these reasons, WWF believes that addressing overcapacity should 
be a leading priority for Congress as it considers possible amendments 
to the Magnuson-Stevens Act. As we note below, the prescription for 
progress in this area should include more systematic and aggressive 
efforts by NMFS and the regional councils to craft capacity reduction 
initiatives on a fishery-by-fishery basis. In addition, we need to 
rethink current expenditures and subsidy programs that may be 
stimulating excess capacity, and reshape them into effective tools for 
fleet downsizing. Finally, it is important to recognize that America's 
interests are threatened by the uncontrolled growth of foreign fleets 
as well, and that U.S. leadership in international efforts to combat 
global overcapacity is essential.

               Reducing Excess Capacity in U.S. Fisheries
    In the past decade, a growing number of American fisheries have 
begun to grapple with the problem of excess fishing capacity. Some of 
our most economically important fisheries are confronted with the 
problem of too many boats chasing too few fish. Fleet overcapacity is 
one of the factors that drove the depletion of New England's groundfish 
stocks. It is a major issue in the rockfish fisheries of the west 
coast, the red snapper fishery in the Gulf of Mexico, and the crab 
fisheries of Alaska.
    Generally speaking, we have not given this problem the attention 
that it deserves. Our efforts to address overcapacity have been 
piecemeal, and most capacity reduction initiatives have underperformed 
as a consequence of flawed planning and poor execution. The federal 
government has spent $140 million since 1995 to fund buyback programs - 
without addressing even the tip of the iceberg of our nation's 
overcapacity problem. And according to a recent report by the General 
Accounting Office, the long-term effectiveness of most federal buyback 
initiatives has been largely undermined by the subsequent entry of new 
vessels and fishing effort.
    WWF believes that developing a more systematic and serious program 
to address excess capacity in U.S. fleets should be a priority of this 
Subcommittee as it considers revisions to the Magnuson-Stevens Act. 
Ultimately, capacity reduction efforts need to be developed on a 
fishery-by-fishery basis, and should be premised on a clear vision of 
what we want our fisheries to look like in the future, and how we want 
to distribute their benefits across society. Because each fishery is 
different, the specific objectives of capacity reduction plans and the 
choice of tools to achieve these objectives should be crafted by the 
regional councils based upon input from stakeholders. However, Congress 
must provide an effective framework for these regional endeavors that 
assures progress and accountability. It must also assure that we make 
better use of federal funds aimed at capacity reduction than we have in 
the past - and that we create new incentives for greater industry 
financial participation in fleet downsizing.

A National Framework for Managing Fishing Capacity
    Two years ago, the United States played a leadership role in the 
development of an International Plan of Action for the Management of 
Fishing Capacity (the Plan of Action) at the United Nations Food and 
Agriculture Organization. The Plan of Action notes that excessive 
fishing capacity contributes substantially to overfishing, the 
degradation of marine fisheries resources, the decline of food 
production potential, and significant economic waste. To remedy the 
current situation, it calls upon fishing nations to take several 
coordinated and cooperative steps including: (i) the assessment of 
fleet capacities in all major fisheries by the end of 2000; (ii) the 
establishment of an international record of all vessels fishing on the 
high seas; (iii) the identification by the end of 2001 of ``fisheries 
requiring urgent measures''; and (iv) the adoption of preliminary 
measures for the management of fishing capacity by the end of 2002. 
Full implementation of national plans to manage capacity should be 
completed by 2005 at the latest.
    Because timely steps to address excess capacity will benefit both 
fishermen and the environment, we urge Congress to adopt the timetable 
in the Plan of Action as a starting point for developing a national 
capacity management strategy. Specifically, WWF asks:
     LThat this Subcommittee incorporate key elements of the 
Plan of Action into a new, systematic program for assessing and 
managing fishing capacity during the upcoming reauthorization of the 
Magnuson- Stevens Act; and
     LThat the Congress communicate with NMFS concerning the 
importance of timely and effective implementation of the steps called 
for in the Plan of Action

Paying for Capacity Reduction
    As we mention above, to date federal buyback programs have invested 
approximately $140 million to reduce capacity in a mere handful of 
fisheries - with limited success. We need to learn from the mistakes of 
previous buyback programs, and make sure that future efforts make 
better use of limited federal funds. We also need to recognize that, 
absent a dramatic increase in federal expenditures, government buybacks 
alone will never provide the financial means for needed fleet 
downsizing programs. Accordingly, as part of the next Magnuson-Stevens 
reauthorization this Subcommittee should explore a range of measures 
aimed at stimulating increased private sector financial support for 
capacity reduction. Specifically, WWF suggests that:
     LThis Subcommittee urge NMFS to design future buyback 
programs in a manner consistent with the recommendations contained in 
the General Accounting Office's recent report, ``Commercial Fisheries - 
Entry of Fishermen Limits Effectiveness of Buyback Programs'', which 
WWF strongly endorses;
     LAs part of the upcoming reauthorization, Congress 
reevaluate the legislative authority for capacity reduction programs 
contained in Section 312 (b)-(e) of the Magnuson Stevens Act, to 
determine whether new incentives or other measures are needed to secure 
greater industry financial participation in downsizing efforts; and
     LCongress review the recommendations of the Federal 
Investment Task Force (on which WWF served) to identify ways in which 
current U.S. subsidy programs can be reconfigured to provide support 
for capacity reduction - and eliminate incentives for counterproductive 
fleet expansion. In particular, WWF urges the Congress to consider 
allowing monies in Capital Construction Fund accounts to be utilized in 
industry financed buybacks and other capacity reduction initiatives.

         The International Dimension of Excess Fishing Capacity
    Excess fishing capacity is a problem not only in U.S. waters, but 
also in many of the world's leading international fisheries. With 
global fishing capacity estimated at up to twice as large as it should 
be-and with 70% of the world's major commercial fisheries already 
overfished, fully exploited, depleted or slowly recovering-the problem 
of ``too many boats chasing too few fish'' has become a truly global 
one.
    In many cases, fleet overcapacity is a problem in international or 
multinational fisheries in which the U.S. has a direct interest. 
Historically, the difficult disputes between Canada and the United 
States (as well as between Canada and several other nations) over 
collapsing cod stocks on the continental shelf had their roots in badly 
bloated fleets. More contemporaneously, overcapitalization is one of 
the underlying causes of the depletion of valuable swordfish stocks in 
the Atlantic. In the Eastern Pacific, the purse seine yellow fin tuna 
fishery is facing rising capacity pressures, which threaten the 
effectiveness of regional management by the InterAmerican Tropical 
Tunas Commission. In the Western Pacific, the specter of future 
overcapacity in the world's most valuable tuna fishery has prompted new 
U.S. industry calls for limits on fishing effort. And the list could go 
on.
    The U.S. also has an interest in reducing fleet overcapacity in 
fisheries where the U.S. does not currently have a direct stake. It has 
become all too common for fishing vessels to move from stock to stock, 
from species to species, and even from ocean to ocean, exhausting one 
fishery and then simply moving on to the next-a phenomenon known as 
``serial depletion.'' In other words, today's excess capacity in a 
fishery not targeted by U.S. fishermen can quickly become tomorrow's 
excess fishing capacity in fisheries where U.S. boats are active. Some 
governments (such as the European Union) have made the export of excess 
fishing capacity an explicit element of their own capacity management 
policies. Unfortunately, these exports are not always carried out with 
sufficient attention to the impacts on overall fleet capacity and 
fisheries management.
    In short, the United States needs to be active and forward-looking 
in seeking effective capacity limits not only in our own national 
fisheries, but as part of our in participation in the management of 
regional and international fisheries around the world.
    Fortunately, the United States has already begun to play an active 
role in preliminary efforts to address the international dimensions of 
excess fishing capacity. For example the U.S. has been a leading voice 
in efforts to develop new international rules to reduce and reform 
government subsidies that drive overcapacity. Over the past several 
years, it has come to be widely recognized that subsidies to the 
fishing industry can be a significant factor in the overcapitalization 
of fleets. Current estimates put global fishing subsidies at well over 
ten billion dollars per year, and perhaps as high as twenty billion. 
According to one World Bank study, government supports to the fishing 
industry may account for up to 25% of the value of worldwide fish 
catches each year. The World Bank, the Asia Development Bank, the OECD, 
the FAO, and even the WTO itself have recognized that many fishing 
subsidies may be linked to the depletion of the world's fisheries. Two 
years ago, as governments around the world contemplated the launch of a 
new round of global trade talks under the auspices of the WTO, the 
United States was a leading voice among more than two dozen countries 
calling for the WTO to negotiate new disciplines on fishing subsidies. 
WWF was proud to be at the forefront of environmental groups supporting 
this initiative. We note that support for this initiative also came 
from significant fishing industry sources, including the National 
Fisheries Institute, which joined with WWF on several occasions to 
issue calls for action on the international fishing subsidies issue. 
This is not surprising, since high levels of fishing sector subsidies 
in foreign nations put our seafood industry (which receives 
comparatively low subsidies) at a competitive disadvantage.
    The failure of the WTO meeting in Seattle almost eighteen months 
ago interrupted the progress towards new WTO rules on fishing 
subsidies. Had the meeting in Seattle not collapsed, it looked very 
likely that negotiations towards such rules would have been formally 
included in the new round of trade talks. This would have been a very 
significant development, both for efforts to reduce harmful fishing 
subsidies and for those who wish to see the WTO pursue ``win-win'' 
scenarios for trade and the environment. As countries gear up now for 
the next WTO ministerial meeting scheduled for late November of this 
year in Qatar-the time is ripe for the U. S. to reenergize its 
leadership on this issue. Despite the near-success in Seattle, it will 
take dedication and political will to keep fishing subsidies on the WTO 
agenda, and to secure a commitment to negotiations towards new WTO 
rules.
    With regard to international efforts to reduce and reform subsidies 
that drive overfishing, WWF urges this Subcommittee to undertake the 
following specific actions:
     LCommunicate with USTR, the Department of Commerce, and 
the White House to emphasize the importance of visible U.S. leadership 
on fishing subsidies at the WTO;
     LInclude attention to fishing subsidies in congressional 
activities including hearings--related to preparations for the WTO 
meeting in Qatar;
     LUrge USTR to seek improved implementation of existing WTO 
subsidies rules that require countries to report details of their 
fishing subsidy programs to the WTO;
     LUrge USTR and the Department of Commerce to give priority 
to reducing and reforming harmful fishing subsidies in the context of 
the Asia-Pacific. Economic Cooperation (APEC) forum; and
     LUrge USTR, the Department of Commerce, and the Department 
of State to raise fishing subsidies in our bilateral relations with 
governments such as the European Union and Japan. (With regard to the 
EU, emphasis should be given to the need to reform EU ``structural 
funds'' and other subsidies applicable to fisheries during the ``mid-
term review'' of structural funds scheduled for 2002; with regard to 
Japan, emphasis should be given to the need for improved transparency 
and reporting about fishing subsidy programs).
    As we note above, another area in which the U.S. has played a 
positive and active international role is with regard to an FAO Plan of 
Action to manage fishing capacity. In addition to adopting the Plan of 
Action's framework as a template for domestic capacity management in 
the United States, we urge this Subcommittee to support continued 
dedication of U.S. resources to its implementation elsewhere. 
Consideration should be given to increasing foreign assistance to 
developing countries to support their participation in the Plan. 
Diplomatic resources should be dedicated to putting pressure on major 
fishing nations to keep to the Plan of Action's implementation 
schedule. WWF also urges you to support efforts to strengthen 
international cooperation for the management of fishing capacity, 
particularly in areas in which the Plan of Action is weak (such as in 
the control of international transfer of fishing capacity).
    WWF applauds the fact that U.S. has been a leader in seeking 
international solutions to the overcapacity problem in both the WTO and 
the FAO. This leadership needs to be maintained and reenergized, with 
the support and participation of Congress.

                               Conclusion
    Once again, WWF appreciates the opportunity to offer our views on 
the problem of fishing fleet overcapacity in the United States, and to 
work with this Subcommittee to make our fleets more economically and 
biologically sustainable. As we note above, overcapacity is a major 
challenge for both fishermen and conservationists. We look forward to 
working with other stakeholders to address this important issue as we 
move forward with the upcoming reauthorization of the Magnuson- Stevens 
Act.
                                 ______
                                 
    Mr. Gilchrest. Thank you, Mr. Burns.
    Mr. Blue.

 STATEMENT OF GORDON BLUE, PRESIDENT, CRAB RATIONALIZATION AND 
                         BUYBACK GROUP

    Mr. Blue. Thank you, Mr. Chairman. My name is Gordon Blue. 
I am president of the CRAB Group. I am also a commercial crab 
fisherman in the Bering Sea. I have been involved there since 
1978 when I began as a crewman.
    I would like to thank the Subcommittee for holding this 
hearing and for allowing me to be here. I am delighted to be 
able to speak to you and I hope to offer my experience in the 
Bering Sea crab fisheries. I hope that it will be beneficial in 
a general sense.
    I was invited to serve on the Federal Investment Task Force 
and it was a marvelous opportunity for me to learn that our 
issues in the Bering Sea were not isolated, even though 
geographically we are in every sense. The issues we were facing 
and struggling to deal with were ones that are global and 
certainly matters of national concern.
    We are in serious trouble in the crab fisheries and this 
was not so apparent at the time that I sat on the task force in 
1998. Prior to that, members of the CRAB Group had already 
started trying to work out how to accomplish a Section 312 
buyback that would have sufficient appeal to the people in the 
crab industry that would have to pay for it. We designed an 
industry-funded program under Section 312 and were working at 
that time to get it through because we were concerned about 
what the future of our fisheries might bring. We were concerned 
that we already had significant excess of harvesting capacity 
in the fisheries and that we would be creating damages because 
of this that would lead to collapse of the stocks. There was 
not a great deal of prescience involved in this realization 
that this was coming because we had suffered a similar collapse 
of red king crab stocks in the early '80's.
    So the concerns, though, were not readily apparent from the 
income of the fleet. In my testimony in the written part I give 
a chart of the income stream in the crab fleet over a number of 
years.
    So we had sort of a tough battle under 312. We met a number 
of folks that said we were just trying to take advantage of 
this to corral too much opportunity for too few people. I think 
we got past that through what we were able to demonstrate on 
the record in those days and our program had gotten a lot of 
support from the industry. We did a survey of people in the 
industry and over two-thirds of them were in favor of paying 
for a buyback themselves.
    What we found was we simply could not do a good buyback 
overnight; in order to meet the kinds of requirements that the 
GAO report brought up later we had to stop the influx of effort 
so that we would not be overwhelmed by new effort after the 
buyback was accomplished. We went to work on that problem and I 
think we have finally arrived at the stage where we have good 
controls on effort, as well as new effort coming into the 
fisheries. We also have an effective license limitation program 
and have worked to reduce the latent capacity in the fishery, 
which means we have worked to help cut down on the number of 
existing permits that are not being used.
    In fact, the North Pacific Fishery Management Council 
(NPFMC) has helped us immensely and we have cut back the number 
of licenses from approximately 400, to approximately 285. That 
is a significant savings in cost to the program and it 
certainly is a significant statement on the part of the NPFMC 
about the necessity for going ahead with these programs.
    We have also discovered that Section 312 could probably be 
improved. We did not appreciate fully the impact that retiring 
vessels from one fishery could have on other fisheries.
    In the Bering Sea crab fisheries we have had a good income 
stream for quite a while, and the boats are worth a couple of 
million dollars each. To retire these vessels in a buyback plan 
that involves licenses and then dumping them on the market 
would be very damaging to other fisheries.
    So in the appropriations act measure that was passed last 
year to support the crab buyback, which is part of H.R. 4577, 
we have added provisions that the vessels must permanently 
retire their fishing licenses, their fishing documentation from 
the Coast Guard, that participants in the buyback must also 
stand ready to take on specific penalties for bringing the 
vessels into any of the world's fisheries, and that the vessels 
cannot be exported because it is so much harder to keep track 
of what happens afterwards.
    I see I am running overtime so I will just thank you for 
listening to me this far and hope that I can answer some 
questions if you have some later.
    [The prepared statement of Mr. Blue follows:]

 Statement of Gordon Blue, President, Crab Rationalization and Buyback 
                              (CRAB) Group

    Good morning Mr. Chairman, Congressman Young, and Members of the 
Subcommittee, my name is Gordon Blue, I am the President of the Crab 
Rationalization And Buyback, or CRAB, Group. The CRAB Group is an 
organization of more than 80 vessels which prosecute the crab fisheries 
of the Bering Sea and Aleutian Islands area [BSAI], and is the largest 
organization of vessel owners in these fisheries. We appreciate this 
opportunity to present our views on Fishing Capacity Reduction 
programs, and role of Federal investment in fisheries and the 
reauthorization of the Magnuson-Stevens Fishery Conservation and 
Management Act. I will focus my testimony on the Capacity Reduction 
Program for Bering Sea and Aleutian Islands [BSAI] Crab Fisheries, 
authorized as a part of H.R. 4577, Department of Labor, Health and 
Human Services, and Education, and Related Agencies Appropriation Act, 
2001, which passed on December 15, 2001. I would like to address issues 
of reauthorization of the Magnuson-Stevens Fishery Conservation and 
Management Act [MSFCMA] and the role of Federal investments in 
fisheries with respect to development of the Capacity Reduction 
Program, and as they mirror larger aspects of the fisheries.
    The BSAI crab fisheries have been valuable contributors to the 
economies of Western Alaska and the United States. Proceeds of these 
fisheries have built infrastructure providing basic health, 
communications and transportation for the residents of the communities, 
as well as the processing plants and the vessels which deliver to them. 
I also add, they have provided for my family for 23 years; I've 
participated in the BSAI crab fisheries variously as a crewman, 
captain, vessel manager, and vessel owner throughout that time.
    Now these fisheries are in serious trouble. This is particularly 
distressing, because the most significant human factor in the decline 
of these stocks is one that we've recognized for a long time, worked 
hard to contain, and have been unable to accomplish, up until now. This 
factor is the excessive fishing capacity that has been brought to bear 
on the fisheries. In the crab fisheries especially, because of the 
positive ability to sort catch and return small and female crab to the 
sea relatively unharmed, the sheer number of vessels involved in a 
given fishery becomes an important factor in the unintended impact of 
the fisheries on the stocks. This occurs when the vessels of the 
fishery must cover areas of the grounds where small crab and female 
crab predominate, simply in order to find room to fish. In these 
conditions, the movement of gear by different vessels, searching the 
grounds for catch, begins to produce cumulative small injuries to the 
crab that are discarded, over and over, until the future of the fishery 
begins to be killed.
    Since the re-authorization of the MSFCMA, in 1996, members of the 
CRAB Group have worked to see the implementation of an industry-funded 
buyout of excess capacity under provisions of Section 312 of the Act. 
We have received a great deal of encouragement and support from members 
of the industry, officials of NMFS, NOAA, the Department of Commerce, 
the States of Alaska, Washington, and Oregon, the North Pacific Fishery 
Management Council [NPFMC], members of Congress and staff persons, and 
we have seen our fisheries fall, one by one, as we've struggled to push 
through the mountain of paper the program requires. The crab buyback 
program enacted into law by H.R. 4577 provides for a capacity reduction 
program that will eliminate a reasonable measure of excessive capacity 
from the fisheries, and create enough room that we can work out the 
agreements to take us the next necessary step.
    In the crab fisheries, we define fishing capacity as the ability to 
catch crab. Every incentive that brought me into the fisheries and has 
kept me there, has helped to improve my ability to catch crab. I am 
sure that is true for each of the other vessel owners and operators out 
there as well. Each of them has worked hard, struggled with incredibly 
difficult conditions, and survived thus far, and deserves to continue 
to survive. In the process, each vessel has accumulated a catch history 
that represents its ability to catch crab. Consequently, the CRAB Group 
has focused its efforts to retire capacity through the purchase of 
active catch history as well as the vessel to which that history is 
assigned. This purchase and sale is a voluntary transaction on the part 
of both parties, and is designed to provide for the satisfaction of 
both.
    We have taken pains that the seller receives a fair price, by 
providing a reverse bid structure that encourages a sharp pencil, but 
allows the seller to bid what he wishes. We've provided for bids to be 
ranked, in order to assure that the seller offering the most benefit to 
buyers, in the form of catch history, receives the greatest opportunity 
to benefit himself. We have taken pains to assure that the buyer 
receives fair measure for his purchase. These include measures to 
forestall the mechanisms by which this value can become diluted. We 
have made real progress, by the terms of H.R. 4577, in the reduction of 
latent licenses. There are prohibitions on re-entry of sellers into the 
fisheries, and on the addition of new licenses to the fisheries after 
the sale. There is provision for the rebuilding of the fisheries. In 
the fishery year just past, my vessels and most others in the crab 
fleet, each were able to fish crab just 15-1/2 days, spread out over 
four months. New regulations designed to rebuild the fisheries have 
further reduced the allowable catch of crab. These regulations were 
designed to meet the stricter standards of the MSFCMA. We think that 
rebuilding stocks is the way to go, and that healthier crab fisheries 
will result from the long-term benefits of reduced exploitation rates. 
We believe that the sweeping changes mandated by the Act have just 
begun to be implemented, and that they should be let stand, so that 
benefits can begin to accrue.
    We have examined the impacts of ``input stuffing'' in the 
fisheries, and have concluded that in the case of these fisheries, the 
fleet is now operating in a mode that is far below the capacity of each 
vessel. We acknowledge that the removal of real live capacity from the 
grounds also requires that some crew jobs are eliminated, and some 
vessels become more efficient. We declare that in the present 
circumstances of great hazard and dubious reward, to do so provides a 
real benefit, and not alone to the remaining crewmen, who may gain real 
fishing jobs as a consequence of a longer season. Recently, we have 
come to acknowledge that the harm that has occurred in our fisheries 
from an uncontrolled influx of new effort, cannot be allowed to be 
passed to other fisheries, in the form of vessels displaced by our 
capacity reduction. H.R. 4577 provides stringent measures that prevent 
this from occurring, anywhere in the world.
    H.R. 4577 additionally provides a directive to the NPFMC to analyze 
a number of quota programs, and their impacts upon the harvesters, the 
processors, and the communities that depend upon these fisheries, and 
to report back to Congress. We believe that when this has been properly 
accomplished, that you will see how to properly establish general 
guidelines that will protect the resource, the communities and the 
larger public interests -as well as fishermen, vessel owners and 
processors, and that you will give the job of developing and 
implementing a rationalization program back to the experts, in our 
case, the NPFMC and NMFS.
    Finally, H.R. 4577 includes a feature which we did not design in 
our program. As a consequence of greater costs than anticipated, to 
provide for rebuilding and lower exploitation rates in the rebuilt 
fisheries, to provide for the permanent revocation of all fishing 
rights, and as a consequence of our greatly reduced fisheries, the 
fisheries will not presently support the payments necessary to this 
program. H.R. 4577 includes a provision for an appropriation of $50 
million - half of the cost of this program. We ask you for your 
support.
    What follows in written testimony is a discussion of the 
development and features of the capacity reduction program, Thank you.

REGULATION OF THE FISHERIES
    The Bering Sea and Aleutian Islands [BSAI] crab fisheries are 
prosecuted in the waters of the Bering Sea and North Pacific Ocean, in 
the U.S. Exclusive Economic Zone. These fisheries are managed jointly 
by the State of Alaska and the North Pacific Fishery Management Council 
[NPFMC] and National Marine Fisheries Service [NMFS], under a Federal 
Fishery Management Plan [FMP] approved by the Secretary of Commerce in 
1989. This agreement reserves the authority to limit access to the 
fisheries, as well as to amend the FMP, to the NPFMC and NMFS. Fishery 
management measures necessary to protect the stocks of crab from 
impacts of other fisheries (such as trawl bycatch restrictions) are 
also undertaken by NPFMC/NMFS. 1
    Day-to-day regulation of the fisheries is performed by the Alaska 
Department of Fish and Game [ADFG], under regulations adopted by the 
Alaska Board of Fish [BOF]. The fisheries are managed as a number of 
different stocks, occurring in different areas, and at different times, 
starting between September 15 and January 15. These fisheries consist 
of several species in two distinct types, marketed as varieties of king 
crab and snow crab. Pots, or traps, are the only legal gear for the 
directed harvest of crab; retention of bycatch in any other fishery is 
prohibited. Regulations are in place to limit fishery input effort, 
protect stocks from incidental take, protect spawning and molting, 
protect habitat, eliminate the potential for ghost fishing of lost 
pots, require the discard of female or undersize male crab, prevent 
over fishing, and manage the excess of capacity through reduced 
seasons, rapid catch determination, satellite catch reporting, reduced 
time between announcement of closure and closure, and on-board fishery 
observers 2. In 1998, the BOF concluded that the excess of 
capacity had overrun the ability of fishery managers to regulate the 
fisheries sufficiently to protect the stocks in all instances, by any 
of the means available to the State of Alaska, and asked the NPFMC to 
reduce the number of participants allowed. 3

FISHERY MANAGEMENT STRATEGY
    The harvest is governed by a Guideline Harvest Level [GHL] which is 
set according to management plan standards, annually, after a stock 
assessment model is evaluated, including data resulting from a summer 
trawl sample of the Bering Sea. The trawl sampling (survey) data are 
compiled and tabulated by NMFS and stock dynamics are modeled by ADFG, 
which then sets GHL, according to standards established in the harvest 
strategy for each fishery. A pertinent biological index, as for 
example, ``effective spawning biomass'' in the bairdi tanner crab 
fisheries, has been established for each principle fishery. Population 
thresholds which govern allowable exploitation rates as a function of 
current population estimates, provide a matrix of occurrences, from 
closure of the fishery, through low levels of exploitation for 
rebuilding (10% of mature males, in the Bristol Bay king crab fishery), 
and finally, to higher levels in robust stock conditions.
    The management strategy which had been under development and review 
since 1991, 4 established a more precautionary approach to 
management of the fisheries. A primary motivation for this work was 
that stocks of crab elsewhere in the State of Alaska had sustained 
fisheries at high levels, then entered a decline. Many had not 
recovered, even after significant periods of time. 5 
Although the crab fisheries of the BSAI were generally in good health, 
the Bristol Bay red king crab had suffered a dramatic failure in 1982, 
and had not recovered to former levels. Development of the new harvest 
strategy first established a new stock recruitment model for the 
Bristol Bay red king crab, based upon the length of recruits rather 
than strict stock aging, to account for the incremental growth pattern 
of crab, which is accomplished at risk, through molting of the shell. 
The model recognized that factors of climate and weather impact 
recruitment rates with greater variability and less predictability than 
had been appreciated in the older population model.
    As a necessary consequence, there has been less allowable harvest 
of Bristol Bay red king crab than would previously have been the case, 
since 1996 6. The overall harvest strategy has since been 
adapted for differing biology and knowledge, to provide the elements 
governing rebuilding requirements of the Magnuson Stevens Fishery 
Conservation and Management Act [MSFCMA] 7, particularly 
with respect to the Bering Sea bairdi 8, St. Matthew Island 
blue king 9, and Bering Sea opilio 10 crab 
fisheries.

CONDITION OF THE FISHERIES RESOURCES
    The management strategy has withstood a test before the courts, and 
is now accepted by the fleet, even if with some reluctance. In the 
first year since all of the rebuilding plans have been established, 
three BSAI FMP fisheries have been closed for rebuilding (St. Matthew 
Island blue king crab, Pribilof Island red and blue king crab) two have 
continued to be closed for rebuilding (Bering Sea bairdi crab and Adak 
red king crab), and the Bristol Bay red king crab and Bering Sea opilio 
[snow] crab fishery have been operated at reduced exploitation rates, 
as they were in the 1999/2000 fishing year.
    The reduced exploitation rates applied to the crab fisheries, have 
resulted in lower allowable rate of catch, but the reduction in rate of 
catch was triggered by declines in population. The tonnage of product 
delivered from the fisheries in 2000, is twelve percent (12%) of that 
delivered in 1990. a There have been stock fluctuations in 
the intervening years, but the most significant decline was noted for 
the opilio crab resource, after the fishery of 1999. In the language of 
the writers of the report of the results of the 1999 summer survey: 
``Abundance has declined precipitously to below threshold and is now 
defined as over fished. Exploitation rate has been reduced to 22%. 
Little recruitment is apparent, and the fishery may be closed next year 
11 This decline continued into the present year 
12, and, although the annual summer survey cruise that will 
produce data for the determination of the 2002 fishery has yet to 
occur, the condition of stocks observed on the grounds during the 
directed fishery was not encouraging.
---------------------------------------------------------------------------
    \a\  See appended tables: Harvest, BSAI Crab Fisheries, 1976 - 
2000.
---------------------------------------------------------------------------
    The opilio population decline and its associated effects were of 
sufficient impact to require a declaration of fishery disaster by the 
Governor of the State of Alaska and the Secretary of Commerce, in the 
spring of 2000. One community, St. Paul Island, derives most of its 
annual revenue from the snow crab fishery, and has been particularly 
hard-hit. The conservation benefits which are designed to accrue to 
future fisheries have also acted to increase the present problems of 
excess capacity in the fisheries, and their broader impacts.

CHARACTERISTICS OF THE FLEET
    Vessels involved in the fisheries must withstand wintertime 
conditions in the Bering Sea, and be capable of competitive fishing in 
cold and fierce seas. Catcher vessels are typically 91 to 125 feet 
overall length (73% of the fleet 13), and cost $1 million to 
$3 million. Vessels are generally owned by partnerships or limited 
liability companies formed of a few investors, mostly individuals 
actively involved in the fisheries in some capacity, and very often 
owners include the principal Captain of the vessel. There is a fleet of 
approximately 235 vessels that are especially outfitted for these 
fisheries and primarily dependent upon them. b
---------------------------------------------------------------------------
    \b\  See appended tables: Vessels delivering, BSAI FMP crab 
fisheries.
---------------------------------------------------------------------------
    Crew sizes vary between fisheries, with a typical catcher operation 
carrying five to seven persons on board. ``Input stuffing'' in the form 
of additional crewmen, was a prevalent practice during the years of 
greatest opilio harvest, 1991-95. There are disincentives to much 
larger crews, however - both as increased cost in liability coverage, 
and, with ten or more, crewmen become employees, rather than co-
venturers. During the years 1991-1995, the maximum fishing capacity of 
the fleet and supporting industries attained sustained harvest rates 
above 30 million pounds per week. Fleet size peaked in the fishery in 
1994, with 273 vessels participating for some part of the fishery.
    A 1997 survey of vessel owners 14 indicated that 81% 
qualified as small business entities, under the provisions adopted by 
NMFS for the region. Consolidation, both among vessel owners and 
processors, as well as an increased degree of vertical integration 
between harvester and processor owners, had been occurring already at 
that time, and has been increasing since. Primary causes of this 
consolidation are economic.
    These economic pressures for consolidation of ownership interest 
are heightened by excess of fishing capacity in the BSAI crab fisheries 
and manifest in a number of factors. Processing companies have 
increased their shares of vessel ownership, whether by design, or 
through failed notes to troubled owners. Vessel owners struggling to 
maintain income in an era of falling revenues have added units of 
production. Since 1995, when NPFMC asked NMFS to implement a limited 
entry program, new vessel construction has diminished, and existing 
vessel acquisition has increased. Some vessel owners have acquired 
``fishing rights'' in anticipation of increased value due to the 
License Limitation Program [LLP], implemented in 2000, and revised in 
2001. A feature of the LLP, as implemented, provides incentive for 
consolidation. Although the total number of LLP licenses for crab is 
high, the fishing rights represented by the license are actually a 
binomial nomenclature, with specific fisheries ``endorsements'' 
attaching to each license. Fishing rights are not allowed to be severed 
from the license, however licenses are allowed to be ``stacked'' within 
limits, on a given vessel. This scheme makes it necessary for a vessel 
owner wishing to pursue a fishery for which the vessel was not issued 
an endorsement, to acquire, and ``stack'' the entire license of another 
vessel, in order to pursue that fishery. The licenses available for 
stacking are drawn from the pool of vessels which have sunk, or 
otherwise departed the area fisheries. These ``latent licenses'' might 
otherwise re-enter the fisheries on new vessels. Excess capacity is 
helping to drive consolidation of vessel ownership, but not reducing 
the fishing capacity of the fleet in these fisheries.

ECONOMIC IMPACTS ON THE FLEET
    One of the results of overcapacity in fisheries is that revenues 
decline. Average gross revenues per vessel in the opilio fishery are 
shown in the adjacent table. Note that these revenues broadly follow 
the population trends, and are impacted by capacity, as represented by 
number of vessels. Also bear in mind that trends in other crab fishery 
populations which have augmented vessel income in the past, have 
similarly been in decline, in some cases, fisheries have been closed, 
for rebuilding. c
---------------------------------------------------------------------------
    \c\  See attached Table: Fleet gross revenues, BSAI FMP crab
---------------------------------------------------------------------------
    The peak per vessel revenue year in this fishery occurred in 1995. 
As stocks declined, a number of newer vessels left the fishery, both 
for domestic fisheries elsewhere, and foreign fisheries. In addition, 
the ex-vessel price was the highest received. This trend abruptly 
turned in 1996, when the resource continued to show low levels of 
recruitment, although ``prerecruit (stocks one year away from fishing 
size) levels showed that a ``recruitment spike'' (a single year class) 
was likely to be entering the fishery the following year. Vessel 
revenues buoyed in 1997 as this population component entered the 
fishery.
    Once again, ex-vessel price supported revenues for one year after 
the stocks began to diminish, even though a number of vessels re-
entered the fishery in 1999. Both harvest and revenue fell dramatically 
in 2000. The differences represented by the declines of harvest in 1995 
and 1999 are greater than the impact of the new ``rebuilding 
strategy.'' Population structures, described above, in ``Condition of 
the Fisheries Resources,'' indicate that the time required to rebuild 
stocks is likely to be greater than previously.

COMPETITIVE PRESSURES
    Pressures of increasing competition in the fisheries have several 
impacts. The vessels in the fisheries resort to ``capital stuffing,'' 
which reduces return to investment. In the BSAI crab fisheries, many 
older vessels were replaced, between 1986 and 1994. Much of this 
activity involved Capital Construction Fund [CCF] activity, and an 
appreciable amount of that was from Fishing CCF qualified withdrawals. 
An even greater benefit, however, was received by vessel owners who 
brought vessels converted from oilfield support activity into the 
fisheries through conversion. This benefit derived from a coincident 
decline in oilfield activity, and the retirement of many of the support 
vessels that had been built under terms of MARAD administered CCF 
agreements, which were then available at very favorable cost, for 
conversion to crab fishing platforms.
    It is in the nature of unforeseen events, that efforts of 
government, in this case, the NPFMC, which was working to establish 
programs to deal with excessive capacity, can become undermined by 
other programs of government. Rather than abolish programs, such as the 
CCF, that continue to produce needed benefits, it is suggested that 
programs be designed with the ability to monitor their impacts, and to 
provide inputs to affect program performance according to both the 
original program intent, and to allow moderate corrections should 
specific instances of program success begin to produce undesirable 
results. In the instance of the BSAI crab fisheries, the implementation 
of the capacity reduction program, and an incentive to deposit capital 
proceeds of a buyback sale of fishing rights, for instance, to a 
retirement account, would provide for the documentation of capital 
removed from the fisheries. Similarly, the fishing vessel CCF, through 
administrative or regulatory changes, could provide for a one-time 
constructive withdrawal of funds from vessel CCF accounts, to a 
retirement account. This would provide for a ``deconstructive'' use of 
the CCF, and a supervised exit of capital from fisheries that are 
manifestly suffering, at present, from an excess of capacity. In the 
absence of such deconstructive incentive, we have seen CCF holders 
bring new vessels into these struggling fisheries, as qualified 
constructive withdrawals, rather than be compelled by fund 
administrators to take a penalty-producing non-constructive withdrawal 
of funds.
    Many of the existing vessels in the fleet increased capacity 
between 1995 and 1999 by ``sponsoning'' to greater width. Some 
lengthened as well. These measures were felt as imperatives by 
individual operators, due to the necessity to fish in tougher weather 
conditions, at greater distance from markets, and further offshore. The 
shift, from new vessel acquisition to existing vessel conversion, was 
in response to changes in access to the fisheries, discussed below. In 
the aggregate, of course, the individual imperatives to compete drove 
the problems of capacity further ahead than ``fleet number'' alone 
would indicate.
    As vessels became larger and more effective, gear restrictions were 
imposed. Pot limits were instituted in the 1992. Due to a court 
challenge, the first pot limit was redesigned, producing a ``tier'' 
which allowed more pots according to vessel size. This created an 
incentive for vessels to lengthen into the upper tier. These capacity 
enhancements combined with the attempt at effort limitation to change 
fishing behaviors. Gear soak times dropped as vessels sought to stay 
busy, under the reduced soak times. Pots began to be ``shuffled'' more 
routinely across the grounds, rather than targeted on an optimum spot 
and reset. This was a consequence of the shorter soak times, the 
larger, more efficient vessels, and the declining stocks. One impact of 
this, is that handling mortalities of regulatory discards has risen. 
Rather than former searching behaviors, which resulted in the ability 
to identify select fishing spots for size and quality of catch, it 
became the norm for one vessel after another to make a pass through the 
same ground, and the reiterative impacts of repeated small handling 
injuries to crab created additional fishing induced mortalities in the 
immature and reproductive reserve stocks, due to the increase in 
capacity.
    The combined effects of fishery closures and diminished quotas are 
such, that the fishing fleet in the BSAI FMP crab fisheries suffered a 
steep decline of gross revenues, following upon a period of capital and 
other input stuffing that maximized vessel productivity, at significant 
cost and reduction of net revenue. The fleet gross revenues in 2000 
were 35% of those available in 1990. Revenue thus far in 2001 has 
continued to fall: the opilio fishery produced only 62% of the gross 
revenues available in 2000. If the ``break-even'' income for a vessel 
engaged in the opilio fishery is taken to be $500,000 (a number that is 
too low, when other crab fisheries are curtailed), then the vessel 
gross revenues in the table show clearly that for four of the past six 
years, vessels have operated at loss in the fishery. The ``ripple 
effect'' of these combined losses in local economies has begun to take 
on the character of steep seas sweeping through some communities, which 
have suffered reduced tax revenues (a function of raw fish price), 
municipal and other layoff of workers, general economic slowing, and 
increasing transportation difficulties as airline service levels have 
dropped and freighter schedules become less frequent - in short, 
increased isolation, fewer goods in local stores, lower quality of food 
as fresh food supplies age and dwindle, loss of income and occupation. 
In addition to short-term support the communities require a long-term 
reduction of capacity in these fisheries as much as does the fleet. 
This is required to promote economic stability, which will augment, and 
enjoy, any benefits of future resource rebuilding.

THE RACE FOR FISH
    The opening date and time for each fishery for which a GHL has been 
determined, is set by statute. Vessels are required to be licensed, as 
are the vessel operator and crewmen. Permits must be acquired for each 
fishery, and vessels must be registered prior to entering a fishery. 
The registration process includes a ``tank inspection'', typically 
performed within two days of the start of the fishery; the tank 
inspection assures that no crab are on board; there is a pot tag, 
unique to each season and fishery, required for each pot allowed, which 
must be displayed on the buoy of any pot on board the vessel or 
actually used in the fishery. No pots are allowed to be set before the 
opening time, and aircraft with sophisticated surveillance equipment, 
as well as vessels, of both the State of Alaska and the US Coast Guard, 
patrol the grounds, looking for violations.
    Fisheries are closed by the managers, when it is estimated that the 
GHL has been attained. Managers may allow catch in excess of the GHL, 
or stop the fishery short of GHL, depending upon the rates of catch and 
the manager's reappraisal of stock conditions. Fisheries which ran for 
months have, within the past decade, been reduced to days. 
15 A fishery closure may be announced with as little as 
twelve hours notice. In certain conditions, the closure announcement 
may be made for a specified time period, before the start of fishing. 
In this mature stage of competition, there is no margin for error. The 
first boat to the crab takes the most, and the rest of the fleet is not 
far behind. ``Hot spots'' and accumulations of legal stocks are soon 
caught up. Delays for any purpose, result in irrevocable loss of 
diminishing opportunities to fish - this management regime is well 
described as ``the Olympic system.

SAFETY
    The conditions of weather and climate of the region during the 
winter have helped to make these fisheries among the most dangerous of 
occupations, and those who fish for crab are at the greatest risk for 
fishing-related fatalities. This is aggravated by the management 
system, and risks have been made acute by the fishing power of the 
fleet and the decline of stocks. 16 Beginning in 1999, and 
continuing through 2000 and 2001, U.S. Coast Guard [USCG] officers 
began boarding vessels during the preseason tank inspection period, in 
order to make an assessment of the preparation of the vessels. They 
found a ``surprising'' proportion of licensed captains - half of the 
vessels boarded, even though there is no legal requirement for 
licensing. They found safety equipment above that required, a very high 
degree of compliance with stability and lading characteristics of the 
vessels, and that a large percentage of vessels had participated in 
voluntary U.S.C.G. dockside safety examinations. 17
    Although the boardings have helped to keep the importance of safety 
in the minds of captains and crews, they have also served to 
demonstrate that competence alone will not serve to reduce these risks. 
Spurred to a more proactive approach, USCG and ADFG arrived at an 
understanding of mutual authorities that allowed ADFG to postpone the 
start of the October 2000 Bristol Bay king crab fishery while a 
forecast storm system with winds of 60 knots and 45 foot seas passed 
through. 18 Once a fishery is underway, however, there is no 
mechanism for such closure. Operating far at sea, with fisheries 
openings that are only days in length, fleets are unable to avoid 
weather that comes up during the openings. ``Hurricane-force winds. 
Waves crashing through pilothouses. All that, and the fleet didn't even 
reach the quota, thanks to more bad weather . . .'' read the opening of 
one report of the 2001 opilio season. 19 Overcapacity has 
lethal effects in the BSAI crab fisheries.

A MORATORIUM ON ACCESS
    One of the ways in which fishery managers have attempted to control 
fishing capacity, is effort control through limiting access to the 
fishery resources. This has taken a number of forms throughout the 
nation. One constant, which was noted during the investigations of the 
Federal Fisheries Investment Task Force, is a necessary result of open, 
public process. In each case for which a regional Fishery Management 
Council has proposed a future access control system, the number of 
participants in the affected fishery has risen, in anticipation of the 
closing window of opportunity, frequently to the dismay of the 
regulators. The particular path of access limitation in the BSAI crab 
fisheries is described, with respect to impacts on capacity in the 
fisheries. It will be seen that the Capacity Reduction program for BSAI 
crab has become a crucial component of this program development.
    In 1992, the NPFMC voted to establish a moratorium on new entrants 
to the BSAI crab and groundfish fisheries. This moratorium, which would 
have allowed more than 700 vessels into the BSAI crab fisheries, was 
not implemented by the Secretary of Commerce, until 1995. During this 
interregnum, the NPFMC proposal spent most of its time on the desk of 
the Regional Administrator, in Juneau. This turned out to be an astute 
judgment, from an administrative viewpoint. The NPFMC decision was 
announced to the public in the usual manner, and the behavior of 
investors in the fisheries underwent a shift. Rather than undertake a 
project with the additional burden of risk arising from indeterminate 
actions of government, and in face of such a clear statement of intent 
by the NPFMC, investors began to create agreements involving the sale 
of future fishing rights arising under the proposed moratorium. Before 
long, a regular market in ``moratorium rights'' was trading through 
boat and permit brokerages at $1,000/foot of vessel length, even though 
there were no such rights in law. No method to determine whether this 
trade had any impact on capacity in the fisheries has suggested itself, 
however it is clear that commercial agreements helped to establish the 
legitimacy of the regulation.
    At the outset, the NPFMC recognized there was little benefit to 
controlling capacity, in establishing such a broad, inclusive class. 
Nevertheless, it was apparent that the groundfish fisheries had become 
fully utilized by the domestic fleet within a very few years (many had 
been vessels fleeing the collapse of the red king crab fishery in 1981 
- 82) and that additional capacity was building and entering the 
fisheries. As a part of the moratorium deliberations, the NPFMC adopted 
the goal of an incremental approach to fishery rationalization, called 
the Comprehensive Rationalization Plan, which recognized that the 
spillover of vessels made surplus by the rationalization of a fishery, 
could create disruptive increases in the levels of capacity in other, 
not rationalized, fisheries. For this and other reasons, the NPFMC 
determined the most reasonable course for development of further 
rationalization programs (halibut/sablefish was already in 
development), was to move rationalization ahead in all the fisheries 
under its jurisdiction, simultaneously.

THE LICENSE LIMITATION PROGRAM
    The second phase of the NPFMC Comprehensive Rationalization Plan 
was to establish a limited entry system for the fisheries of the 
region. The License Limitation Program [LLP] for Bering Sea/Aleutian 
Island Crab and Groundfish was adopted by the NPFMC in 1995. Not 
coincidentally, the moratorium on entry was implemented by the NMFS, in 
the same year. Again, the parameters for inclusion were broad. The LLP 
resulted in 542 potential licenses in the crab fisheries, when program 
implementation by NMFS finally occurred, in 2000. This number includes 
168 licenses which were issued as ``interim'' or ``non-transferrable.'' 
Interim licenses were issued under appeal from license-holders and are 
under administrative review by the Restricted Access Management [RAM] 
division of the NMFS. Although a certain number of appeals may 
eventually result in denial of a license, this is a long-drawn 
procedure. Additionally, and recalling the binomial nomenclature of the 
LLP license discussed under ``Characteristics of the Fleet,'' 
relatively few of the ``umbrella'' LLP licenses are in dispute. Far 
more common, is the appeal of one or more endorsements, by vessel 
owners seeking to continue participation in specific fisheries.
    One of the observations to be made, with respect to this initial 
LLP program for crab, is that the total number overestimates the vessel 
capacity that is of concern to the BSAI Capacity Reduction program. 
Included are licenses which qualify 64 vessels to fish in the Norton 
Sound red king crab fishery, and no other BSAI crab fishery. This 
fishery has been exempted from the Capacity Reduction program, because 
it consists of a small-boat near-shore ``super-exclusive'' registry 
(that is, vessels engaging in the fishery can take part in no other 
king crab fishery) summer season fishery of opportunity for local 
vessels of the Norton Sound area, which tend to have a higher 
dependence on other fisheries in the area. Additionally, there are two 
vessels which have been issued interim licenses, with NO endorsements. 
Deducting the vessels described above, the LLP qualified 476 vessels to 
fish in the BSAI FMP crab fisheries. This represents a considerable 
burden in latent capacity, given that the primary economic activity of 
the fisheries has the regular participation of a fleet of about 235 
vessels.

A NATIONAL MORATORIUM ON ``RATIONALIZATION''
    By 1996, many participants in the BSAI crab fisheries were 
convinced that it was time to move forward to the next phase of 
rationalization with establishment of Individual Transferable Quotas 
[ITQs]. An even greater number were opposed. This opposition included 
new entrants to the fisheries, processing interests, who felt the 
program would detract from their degree of control of the fishery 
resources, and the State of Alaska, which was in the throes of a sharp 
reaction to the establishment of the halibut/sablefish program. In this 
light, every defect of the program was magnified, and some intended 
features (such as a very moderate consolidation of effort) were re-
characterized as defects. Alaska and National opposition resulted in a 
four year moratorium on establishing new Individual Fishery Quota [IFQ] 
programs, nationwide, as a provision of the MSFCMA. This stopped 
progress on the NPFMC development of the third phase of its 
Comprehensive Rationalization Plan.

THE CRAB BUYBACK PLAN
    Section 312 of the MSFCMA provided for industry-funded buybacks of 
effort, as a potential method of reducing capacity in the nation's 
fisheries. Crab fisheries were feeling the impacts of excess capacity, 
on the resource, and on revenues. The CRAB Group formed to explore the 
viability of this approach.
    The process described in section 312 seemed to offer a streamlined 
process for the accomplishment of an industry-funded program. Rather 
than the familiar lengthy Council process, which then was passed to 
NMFS for approval and implementation, the Act described a process which 
allowed a fishery management council, or the Governor of a state, to 
request such a program, and the Secretary of Commerce to act upon that 
request, and design and implement the program.
    Interest was high, and between December, 1996 and June, 1997: The 
group formed as a non-profit corporation, with an active and diverse 
board; researched national and international buyback programs; complied 
a database of vessel registrations from State of Alaska Commercial 
Fisheries Entry Commission records (there was nothing yet available 
from NMFS) which identified vessels, vessel owners, and historic 
participation in the fisheries, during the LLP qualification years and 
afterward, as well as current flags and activities for most vessels of 
record; conducted public meetings together with NOAA Office of 
Sustainable Fisheries, in Seattle and Kodiak; held additional public 
meetings in Seattle, Kodiak, and Anchorage; met with legislators at 
both State and National levels, fishery regulators at NMFS and in the 
states of Washington and Alaska; commissioned a survey of the vessel 
owners, and an analysis of the legislative basis for an industry-funded 
buyback; and reported to the NPFMC.
    By September, 1997, an economic study for a model plan was 
completed by KPMG Peat Marwick, a draft business plan was prepared, 
both were submitted to NPFMC. NPFMC then sent a letter requesting that 
the Secretary of Commerce work with the CRAB Group to develop and 
implement a Section 312 buyback plan for the BSAI FMP crab fisheries. 
By December, CRAB Group studies, plans and a lengthy memo concerning 
possibilities for a framework regulation for the program were carried 
to NMFS headquarters to initiate the process. One element of concern 
identified by KPMG was the number of latent licenses that were 
potentially destined for the fisheries.
    Rapid program development was made possible by the fortunate 
occurrence of sufficient and complete data. All landings of BSAI crab 
are recorded upon a fish ticket, which is a legal instrument in the 
State of Alaska. Fish ticket information includes species, weight, 
price, date, time, area caught, dates caught, vessel name and the name 
of the permitted deliverer. Landing taxes are noted on the fish ticket, 
and deducted from payment. Taxes are collected by the raw fish buyer on 
behalf of state and local government. Observers are required to be 
present for all processing operations. No live (unprocessed) crab is 
allowed to be exported from the State of Alaska on board vessels. If a 
vessel both harvests and processes crab on board, an observer is 
required to remain aboard until all product is discharged. Vessel 
licenses, interim use (delivery) permits and crew licenses all require 
annual renewal, and the records compiled by the State of Alaska. in 
administration of licenses were essential for the early identification 
of participants in the fisheries.

AMENDMENT 10
    In December, 1997, the NPFMC Industry Advisory Panel began an 
effort to reduce the number of LLP licenses to be issued, by requiring 
current participation in the fisheries. Economic analysis and necessary 
staff time were budgeted by the NPFMC to move the process forward. 
Amendment 10 established a minimal landing requirement, one landing of 
any species of crab, in any of the three years since final action on 
the LLP. This provision resulted in the elimination of approximately 90 
latent licenses, resulting in 286 projected licenses for the crab LLP. 
Final action by the NPFMC took place in June, 1999.
    In August of 1999, the results of the Bering Sea summer research 
cruise, and the preliminary stock assessment for the 2000 fisheries 
described a fishery stock failure. This occurred despite the attempts 
of industry to reduce capacity in the fisheries, and of fishery 
managers to limit fishery efforts to sustainable levels. The NPFMC 
continued to work at program development. In January, 2000, the LLP 
program was implemented. Notices mailed to initial recipients cautioned 
that the program was under revision, and that licenses were issued for 
one year only. Work aimed at implementing Amendment 10 proceeded.

EXTENSION OF THE NATIONAL MORATORIUM
    In late 1999, an ad hoc industry committee formed, to examine the 
possibility of establishing harvesting cooperatives, similar to those 
of the Whiting Conservation Cooperative or the Pollock cooperatives 
authorized under the American Fisheries Act, in the BSAI crab 
fisheries. The process was to initiate discussion of the elements that 
would need to be present to succeed in adopting such allocation 
structures. A parallel committee was formed, to determine unresolved 
issues facing the CRAB buyback, and advance its implementation.
    By June, 2000, the ad hoc cooperative committee had adopted a plan 
to achieve quota shares, rather than cooperatives, and to seek 
Congressional support. The moratorium on new IFQ programs expired, in 
October of 2000. The ad hoc committee plan for rationalization 
described Individual Transferable Fishing Quotas [ITQs] to harvest 
crab, Individual Transferable Processing Quotas [IPQs] to process crab 
(a tough sell in Alaska and elsewhere in the country), and a Regional 
Landing Requirement to stabilize the historic pattern of deliveries, 
and protect communities from the migration of deliveries away, in a 
rationalized fishery. In December, the moratorium was extended for two 
more years.

CAPACITY REDUCTION PLAN FOR THE BSAI CRAB FISHERIES
    In April, 2000, NPFMC Chairman Rick Lauber sent a letter to the 
Secretary of Commerce, describing the resource problems of the BSAI 
crab fisheries, and the problem of excess harvesting capacity. The 
letter described a ``two-step'' process, and asked the Secretary first, 
``to seek congressional assistance to support a vessel buyback program 
using a combination of appropriations, Federal loans, and modifications 
of the Capital Construction Fund as appropriate.
    Secondly, the letter asked the Secretary to `` . . .support our 
efforts to further rationalize these critical crab fisheries. We are 
committed to working toward the reduction of fishing capacity, which 
fully comports with NOAA Fisheries Strategic Plan to alleviate 
overcapitalization in 15% of Federally managed fisheries by 2004. 
20
    In June, 2000, the ad hoc buyback committee met, in Portland, 
Oregon, and resolved final details of the program. The period of 
consideration for catch history to be retired under the plan was to be 
the most recent five years in the years 1990 to 1999, when a fishery 
was open. The amount of appropriated funds requested was to be $50 
million, with a $50 million loan to be repaid by industry. This amount 
was calculated to be capable of payback at reduced levels of harvest 
mandated by the new harvest strategies adopted by the Board of Fish in 
1999 and 2000. Given the uncertainty of fishery openings in the years 
just ahead, the term of the loan was requested to be extended to 30 
years. Finally, in response to the concerns of participants in other 
fisheries, the vessels which were attached to the fishing rights and 
history purchased under the buyout, would lose the right to participate 
in any fishery, anywhere in the world. In the US, this could be 
accomplished through the permanent retirement of the vessel fishery 
endorsement to the Vessel Documentation.
    On December 15, 2000, H.R. 4577, Section 144, (d)(1) - (6) defined 
and authorized a Capacity Reduction Plan for the BSAI Crab fisheries, 
whose purpose `` . . . is to implement a fishing capacity reduction for 
the BSAI crab fisheries that results in final action to permanently 
remove harvesting capacity from such fisheries prior to December 31, 
2001.

COMPREHENSIVE RATIONALIZATION OF THE NORTH PACIFIC FISHERIES
    H.R. 4577 of December 15, 2000, Section 144. (2)(a) provides `` . . 
.The North Pacific Fishery Management Council shall examine the 
fisheries under its jurisdiction, particularly the Gulf of Alaska 
groundfish and Bering Sea crab fisheries, to determine whether 
rationalization is needed. In particular, the North Pacific Council 
shall analyze individual fishing quotas, processor quotas, 
cooperatives, and quotas held by communities. The analysis should 
include an economic analysis of the impact of all options on 
communities and processors as well as fishing fleets. The North Pacific 
Council shall present its analysis to the appropriations and 
authorizing committees of the Senate and House of Representatives in a 
timely manner. 21
    In December, 2000, the Chairman of the NPFMC, David Benton, named 
two committees, the Gulf Rationalization and the BSAI Crab 
Rationalization committees, to develop elements and options for the 
analysis mandated, above. The Crab Rationalization committee met three 
times, and reported to the NPFMC at its April meeting. After NPFMC 
discussion, the Council Chairman addressed a letter to Secretary of 
Commerce Donald Evans, describing the actions of the NPFMC relative to 
the analytic requirements of H.R. 4577: `` . . .analysis could be 
completed later this year, in time for Council consideration in 
December, with final action likely in February of 2002. Once completed, 
we would also forward that analysis to Congress . . .'' The letter 
continues, ``As part of the overall process to rationalize the crab 
fisheries, I also want to reiterate our Council's support for the 
buyback program which was also legislated in the recent appropriations 
bill. Such a buyback will be a very important first step in the 
rationalization process, and availability of the authorized 
Congressional funding of $50 million will likely be critical to the 
success of the buyback program. 22

                                ENDNOTES
    1  Staff, Summary of the Fishery Management Plan for 
Bering Sea/Aleutian Island King and Tanner Crabs, North Pacific Fishery 
Management Council, Anchorage, Alaska, July 18, 1998
    2  State of Alaska, Administrative Code, King Crab 
Fishery 5 AAC 34.001 -- 5 AAC 34.960), Tanner Crab Fishery (5 AAC 
35.001 ``'' 5 AAC 35.590)
    3  White, John, Letter of the Chairman of the Board of 
Fish to the NPFMC, Anchorage, Alaska, October, 1998
    4  Kruse, Gordon H. and Collie, Jeremy S., Preliminary 
application of a population size estimation model to the Bristol Bay 
stock of red king crabs, RIR 5J91-09, Alaska Department of Fish and 
Game, Juneau, Alaska, October 4, 1991.
    5  Oresanz, J.M. (Lobo), Armstrong, David, and Hilborn, 
Ray, Crustacean Resources are Vulnerable to serial Depletion - the 
multifaceted Decline of crab and Shrimp in the Greater Gulf of Alaska, 
Reviews in Fish Biology and Fisheries 8, Chapman and Hall, 1998, pp117-
176.
    6  Zheng, Jie, Murphy, Margaret C, and Kruse, Gordon H., 
Overview of population estimation methods and recommend harvest 
strategy for red king crabs in Bristol Bay, RIR 5J96-04, Alaska 
Department of Fish and Game, Juneau, Alaska, February 22, 1996.
    7  Murphy, Margaret C. And Kruse, Gordon H., Federal 
requirements for State of Alaska management measures under the auspices 
of the fishery management plan for Bering Sea/Aleutian Islands king and 
Tanner crabs: A report to the Alaska Board of Fisheries. RIR 5J99-04, 
Alaska Department of Fish and Game, Juneau, Alaska, February 27, 1999.
    8  Alaska Board of Fish, Tanner Crab Harvest Strategy, 
5AAC25.5XX, adopted, March, 1999
    9  Alaska Board of Fish, St. Matthew Blue Crab 
Rebuilding Strategy, ACR 23, Adopted as amended, March 2000
    10  Alaska Board of Fish, Opilio Crab Rebuilding 
Strategy, ACR 24 Adopted as amended, March 2000
    11  Stevens, B.G., Haaga J.A., and MacIntosh, R.A., 
Otto, R.S., and Rugolo, L., Report to the Industry on the 2000 Eastern 
Bering Sea Crab Survey, Alaska Fisheries Science Center Processed 
Report 2000-07, National Marine Fisheries Service, Alaska Fisheries 
Science Center, Kodiak Fisheries Research Center, Kodiak, Alaska, 
January, 2001
    12  Zheng, Jie and Kruse, Gordon H., Status of King Crab 
stocks in the Eastern Bering Sea in 2000, Regional Information Report 
No. 5J00-09, Alaska Department of Fish & Game, Division of Commercial 
Fisheries, Juneau, Alaska, August 31, 2000
    13  Rome, Patty L., Bering Sea and Aleutian Islands Crab 
Fisheries Survey: License Limitation and Buyback program, McDowell 
Group for C.R.A.B., Juneau, Alaska, June 1997, p.12.
    14  Rome, Patty L., Bering Sea and Aleutian Islands Crab 
Fisheries Survey: License Limitation and Buyback program, McDowell 
Group for C.R.A.B., Juneau, Alaska, June 1997, p.11.
    15  Morrison, Rance, 2000 Bering Sea Snow crab (C. 
opilio) Fishery Summary, 2000 Bristol Bay Red King Crab Fishery 
Summary, 2001 Bering Sea Snow Crab Fishery (C. Opilio) Fishery Summary, 
Alaska Department of Fish and Game, Westward region, March 22, 2001.
    16  Alaska Field Station, Safety Alert, Centers for 
Disease control and Prevention, National Institute for Occupational 
Safety and Health, Division of Safety Research, Anchorage, Alaska, 
November 1997
    17  Woodley, Chris, Lt., A review of the 13th and 17th 
Coast Guard District At the Dock Stability and Pot loading survey for 
the 1999 Bristol Bay Red King Crab Season, 13th Coast Guard District 
Fishing Vessel Safety Coordinator, Dutch Harbor, Alaska, October 10-15, 
1999, p. 10.
    18  Mecum, Doug, Delay of the Bristol Bay King Crab 
Fishery Season Opening Due to Severe Weather Conditions, Commercial 
Fisheries News Release, Alaska Department of Fish and Game, Westward 
Region, Kodiak, Alaska, October 14, 2000.
    19  Paulin, Jim, Weather Hammers Opilio Opener, Alaska 
Fisherman's Journal, Seattle Washington, April 2001, p.10,11.
    20  Lauber, Richard B., Letter of the North Pacific 
Council to The Honorable William Daley, April 25, 2000.
    21  The Congressional Record, December 15, 2000.
    22  Benton, David, Letter of the Chairman of the North 
Pacific Council to the Secretary of Commerce, Anchorage, Alaska, May 2, 
2001
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    Mr. Gilchrest. Thank you very much, Mr. Blue.
    Mr. Grader.

  STATEMENT OF W.F. ``ZEKE'' GRADER, JR., EXECUTIVE DIRECTOR, 
      PACIFIC COAST FEDERATION OF FISHERMEN'S ASSOCIATIONS

    Mr. Grader. Yes, thank you, Mr. Chairman and members. I 
appreciate this opportunity to discuss with you here today the 
issue of reducing fleet capacity. You have a copy of my paper 
so I will just summarize that briefly and add a couple of other 
things that have come up since that was submitted to your 
staff.
    Probably the biggest problem we are faced with on the West 
Coast today, the two biggest fishery crises are those in salmon 
and in groundfish. Now in the case of salmon, the problem is we 
need a buyback but it is not fleet; it is buying back excess 
irrigated agricultural capacity in both the Klamath Basin and 
the San Joaquin Valley where there is too much agriculture 
sucking too much water out of the streams. But that is not what 
we are here today to discuss, that is however our problem with 
salmon.
    But for groundfish, certainly--
    Mr. Gilchrest. Buyback excess--
    Mr. Grader. Excess irrigated agricultural capacity.
    Mr. Gilchrest. That is interesting.
    Mr. Grader. In those two basins, particularly when what 
happened is the Federal Government promised water that it could 
not deliver and yet still needed to protect fish in stream. 
That is what we are up against right now with salmon, 
particularly in the Klamath Basin. As you may or may not have 
been reading in the last couple of weeks where all the 
irrigated agricultural water got shut off to try to protect 
some remnant runs of salmon in that basin.
    That is one problem but as far as fleet capacity goes, on 
groundfish we have a serious problem on the West Coast. The 
Pacific Council has estimated that there is probably about 50 
percent excess fish harvesting capacity in that fleet and that 
affects not just the groundfish fleet but it affects every 
other fleet on the West Coast because of spillover.
    And I must say here that probably most of the members of 
the organizations I represent would not directly benefit; that 
is, would not likely be participants in any sort of vessel 
buyback program. They are in the other fisheries outside of 
groundfish. But they are greatly affected here because if we do 
not do something to resolve the groundfish problem those 
groundfish vessels will be going into other fisheries--into 
Dungeness crab and albacore and some of these others and 
creating problem there. So we really have a need to deal with 
this excess groundfish capacity issue.
    Most of the groundfish fleet was built up, during the time 
of Americanization, with help from either the CCF or the 
fishing vessel obligation guarantee programs. And we built it 
up at the urging of the U.S. government to take the place of 
the foreign fleets. Basically we had the option of either 
having the foreign fleets there fishing our stocks or put in 
our own fleet.
    Well, we decided to put in our own fleet, which was well 
and good, but nobody ever bothered to do the research to 
determine how much actual harvesting or how much resource there 
was there to support what size of fleet. That was never done 
and so as a result, we ended up with excess capacity, which is 
our problem now.
    And that has to be dealt with. I think you have the 
testimony that was submitted by the Fishermen's Marketing 
Association on behalf of the trawl fleet involved in the 
groundfish fishery. Their plan has a lot of merit. But, I am 
not here to endorse it. There are still many details that need 
to be worked out. They are estimating around $15 million would 
probably get at about half of that fleet as well as deal with 
the issue of latent capacity.
    Additional, Senator Wyden I know has had some draft 
legislation addressing this issue. I think that legislation has 
a great deal of merit, as well, and I think it has many of the 
elements that would be necessary for groundfish fleet 
reduction.
    As far as what needs to be in any sort of fleet reduction 
program, I think we need to look at not just making sure that 
there is a limited entry program in place initially so that we 
do not take some boats out of the fishery only to them replaced 
by others. First and foremost, we have to get rid of the 
permits, both in the groundfish fishery, as well as any other 
permits the vessel may hold so that we do not have the 
potential for spillover.
    Secondly, you have to get rid of the vessels because if 
those vessels remain in fishing they are just going to go into 
another fishery and create problems there.
    And third, we have to get rid of the people. By that I mean 
that once a person is bought out, they must not be allowed to 
re-enter the fishery; that is, use the money that they get from 
any buyout and use those funds to capitalize entry into another 
fishery. I think at the very minimum there should be a 10-year 
requirement that they not re-enter the fishery, at least as a 
vessel owner.
    Additionally, I think some of the ideas that have come up, 
the Capital Construction Fund for example, could help reduce 
fleet capacity. I do not think we need to get rid of CCF. I 
just think we just need to redirect it. And with that, I will 
conclude. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Grader follows:]

  Statement of W.F. ``Zeke'' Grader, Jr., Executive Director, Pacific 
              Coast Federation of Fishermen's Associations

    Good morning, Mr. Chairman and members of the Subcommittee. My name 
is Zeke Grader. I am the Executive Director and Legal Counsel to the 
Pacific Coast Federation of Fishermen's Associations (PCFFA). The PCFFA 
is made up of 22 different associations representing working men and 
women in the West Coast commercial fishing fleet. I wish to thank the 
Subcommittee for the opportunity to provide comments today on fleet 
capacity reduction programs, Federal investment in fisheries and some 
thoughts on the reauthorization of the Magnuson-Stevens Act.
    My comments here today will focus principally on the issue of 
fishing fleet reduction programs, but I also want to touch on Federal 
investment in fisheries. At the outset, let me also explain the 
experience and interest of PCFFA in these issues. PCFFA was formed 
approximately a month prior to the signing by President Ford of the 
Fishery Conservation & Management Act on 13 April 1976. A number of 
PCFFA's founding organizations had been involved in pushing for passage 
of legislation to extend U.S. fisheries jurisdiction to 200 miles in an 
effort to control or eliminate foreign fishing fleets operating in U.S. 
coastal waters. These fishing organizations representing either 
trollers and crabbers, or trawlers worked with former California 
Representative Don Clausen (who introduced the first bill to extend 
U.S. fisheries jurisdiction to 200 miles in 1969) and with another 
California Congressman, Robert Leggett, (who chaired the Fisheries 
Subcommittee when H.R. 200 was working its way through the Congress in 
1975 and 1976) supporting passage of the legislation we now know as the 
Magnuson-Stevens Act. PCFFA, itself, has been active in the various 
reauthorizations of the Magnuson Act, pushing for, among other things, 
the inclusion of habitat language in the 1986 reauthorization and the 
1976 passage of the Sustainable Fisheries Act.

               FISHING FLEET CAPACITY REDUCTION PROGRAMS

    While it may be hard to believe now, 25 years later, there was 
considerable opposition to the extension of U.S. fisheries jurisdiction 
to 200 miles, even though President Truman had some two decades before 
declared the resources of the shelf (i.e., oil and gas, minerals) to 
belong to the U.S. There was opposition from defense and maritime 
shipping interests; there was opposition from the U.S. tuna fleet that 
operated off the shores of Central and South American nations and 
Africa. And there was opposition from foreign relations interests who 
believed the fishery resources of the oceans, beyond nations' 3 or 12 
mile limits, should be dealt with by an international agreement or 
through a United Nations' Law of the Sea treaty, and not by unilateral 
declarations. As part of a compromise to ameliorate some of the 
opposition to a 200-mile limit, H.R. 200 provided for the continuation 
of foreign fishing off U.S. shores, through Governing International 
Fishing Agreements (GIFAs). Foreign fishing was only to be eliminated 
as the U.S. built up its harvesting and processing capabilities to 
utilize the fish in the newly-established Fishery Conservation Zone 
(later renamed the Exclusive Economic Zone or EEZ). The problem was we 
had no idea of what the fish stock sizes were or how much harvesting 
they could sustain.
    The inherent flaw with the Federal law then, which now seems clear 
although few saw a quarter century ago in those heady days when the new 
law was being trumpeted as the ``renaissance of the fisheries,'' was 
that we had to build up our U.S. fleet, and our processing capabilities 
and demand, to get rid of the foreigners, but we had no idea what level 
we could to build to for sustainable fisheries.
    The second flaw was that the U.S. had no experience in conserving 
or managing fisheries. Management previously had been done by the 
states. The National Marine Fisheries Service was a brand new agency 
cobbled together from the old Bureau of Commercial Fisheries and the 
marine elements of the nation's sportfishing programs. The Bureau of 
Commercial Fisheries had experience in administering a fishing vessel 
loan program and a loan guarantee program, as well as the Capital 
Construction Fund. It did have some research elements as well - 
laboratories and research vessels, but not the capability to conduct 
the research and stock assessments necessary to determine what level of 
harvest the fish stocks being brought under the new Federal fishery 
management plans (FMPs) could sustain. But, there we were with a new 
agency and no experience in fishery regulation, charging them with 
appointing eight regional fishery councils and managing the vast 
fishery resources off the U.S. coast.
    In hindsight, what should have happened was an immediate phase-out 
foreign fishing and the imposition of a moratorium on any new U.S. 
harvesting capacity in the fishery within the EEZ until some thorough 
stock assessments had been conducted and some understanding gained on 
what level of fishing those stocks could sustain. Then there could have 
been a reopening of the fishery to new U.S. effort as well as the 
foreign fleets that had previously fished in the new U.S. waters, with 
a plan in place for a transition from a mix of U.S. and foreign fleets 
to an exclusively U.S. fishing fleet presence - all of it based on what 
level of harvest each species or species complex could sustain. That, 
unfortunately, did not happen and I doubt that, given the politics of 
the time and the nature of the opposition to extended jurisdiction, it 
would have been possible.
    Exacerbating this situation was the fact the money for the 
necessary research and stock assessments was not forthcoming, but there 
was plenty of encouragement for fishermen, as well as other investors, 
through the fishing vessel loan guarantee and CCF programs and various 
provisions in the U.S. Tax Code, to build new and larger vessels - 
mostly trawlers. Other U.S. programs, such as Saltonstall-Kennedy Act 
(S-K) funds were used to help develop and promote ``underutilized'' 
stocks to assure there would be markets for the fish caught by the 
expanded U.S. fleet. In the meantime, some of the new U.S. boats sold 
their catches at sea to foreign processing ships under joint venture 
arrangements. That was the ``Americanization'' of the EEZ.
    What happened as we all know, is this nation went on a boat 
building binge, not just adding more vessels to the fleet, but 
substantially increasing the catch capacity of the new vessels entering 
the fishery. And, the old vessels were not removed to make room for the 
new boats, they kept fishing too. All of this was happening so we could 
eliminate the foreign fleets, but we didn't have a notion about how 
much fish was there or could be taken. The irony is that all many U.S. 
fishermen wanted was to be rid of the foreign fleets who they felt were 
overfishing the stocks. Building up a U.S. fleet to take the place of 
the foreigners was not what many fishermen who wanted the 200-mile 
limit had sought.
    Given this history, it is clear the law and policy of the U.S. is 
at the root of the problem we are now faced with of excess fish 
harvesting capacity. There is little doubt in my mind that there is 
Federal responsibility for the situation we find now in many of our 
fisheries where there is too much harvesting capacity for the fish 
available. This excess capacity is putting fish stocks at risk as well 
as fishing men and women and our fishing communities. And, where there 
is overcapacity in one fishery it can quickly lead to overcapacity in 
others as fishermen in overcapitalized fisheries seek out opportunities 
in other fisheries.
    On the West Coast, even before the passage of H.R. 200 in 1976, 
there were efforts afoot to limit the number of vessels in fisheries to 
bring the fish harvesting capacity in line with what the resource could 
support for an economically viable fishery. Alaskan salmon and 
California abalone were examples of such early efforts. Indeed, most 
West Coast fisheries are presently under some form of limited entry to 
restrict access into various fisheries. The problem was that many of 
the limited access programs came in to place too late when the fleet 
harvest capacity already exceeded the capacity of the resource to 
sustain an economically viable fishery.
    The West Coast groundfish fishery, in particular, was being 
encouraged by Federal policy - ``Americanization'' - to expand in the 
late 1970's and early 1980's, and it did. This expansion happened, 
however, without first having a good understanding of the stocks or 
their size, because while there was money for vessels, there were 
inadequate funds for the necessary research. By the time the Pacific 
Fishery Management Council finally established a limited access program 
for the groundfish fishery it was too late. And it is the Pacific coast 
groundfish fishery that in dire need of a significant reduction in the 
harvest capacity of its fleet.
    In its October 2000 ``Transition to Sustainability,'' the Pacific 
Council's Groundfish Fishery Strategic Plan, states:
          The groundfish resource cannot support the number of vessels 
        now catching and landing groundfish. There are now over 2,000 
        licensed West Coast commercial fishers [sic], and many 
        thousands of sport fishers. To bring harvest capacity in line 
        with resource productivity, the number of vessels in most 
        fishery sectors will have to be reduced by at least 50%. 
        Coastal ports have significant shoreside infrastructures to 
        support this once-prosperous industry, such as processing 
        plants, boat yards, machine shops, marine supply stores, motels 
        and restaurants. Fishing fleet overcapitalization has been a 
        major factor in fish stock depletion, and the industry and 
        coastal communities are facing an economic and social crisis.
    Resolving the overcapitalization, the excess harvest capacity, in 
the Pacific coast groundfish fleet is crucial for the health of West 
Coast fisheries. First, groundfish has been the largest fishery on the 
West Coast in terms of total landings and, in most years, value. Not 
only is it a large employer, it helps to sustain the shoreside 
infrastructure utilized by other fisheries. Second, as long as excess 
capacity remains, it will be politically difficult to impose the types 
of catch limits needed for stock rebuilding because of their harsh 
economic implications. And, third, and probably of most concern to my 
members, since they are either not in the groundfish fishery or would 
not be targeted for any buyout, is the potential for groundfish vessels 
to put pressure on other fisheries - spreading the problem from that 
fishery to other fisheries; for example, increasing pressure in 
fisheries where groundfish vessels may have permits -- such as 
Dungeness crab, or entering fisheries that are still open access -- 
such as albacore.
    Some have suggested that we simply let economics take care of the 
problem, or even to impose an individual transferrable quota (ITQ) 
system as a solution. It is supposedly a free market system, after all. 
The problem is economic theory and reality don't always match up and 
ITQ systems don't deal with excess vessels:
    First, if we leave it to economics there will be continuing 
pressure from those in the fishery to make quotas as large as possible, 
so they can survive, thereby lengthening delaying, or even undermining, 
stock rebuilding.
    Second, as I mentioned, many of the boats will go into other 
fisheries or put more pressure on other fisheries - probably resulting 
in overcapacity in those fisheries as well.
    Third, bankruptcies will not take vessels out of the fishery, but 
simply allow the new entrants to get into the fishery at a lower cost - 
they, too, will be adding pressure on stocks and clamoring for liberal 
seasons trying to make ends meet.
    Fourth, there is precedent for the Federal Government lending 
assistance. Government regularly aids private enterprise - from 
airlines, to agriculture, to foreign trade missions, to logging roads 
in national forests, to oil and mineral extraction, to locks and 
channel construction and maintenance for tug-and- barge operations, to 
cheap, subsidized water and power in the west. Indeed, the government 
has funded buy-backs from New England groundfish to North Pacific 
factory trawl operations. While the buy-backs in these and other cases 
have not been without their problems, and in New England of 
questionable impact, there is ample justification for a multi-million 
dollar groundfish vessel buyout now on the Pacific, particularly if 
such a program is designed not to repeat some of the problems that 
plagued buy-backs elsewhere.
    Fifth, as I discussed earlier, there is clear Federal 
responsibility here. The Federal Government encouraged the fleet 
expansion, indeed, made it the condition for the removal of the foreign 
fleets.
    Estimates of the cost needed to achieve an effective buy-back range 
from about $50 million upwards. The $50 million figure is the estimate 
developed by the Fishermen's Marketing Association, which represent 
trawlers to reduce fleet capacity by about half - the Pacific Council's 
goal. In fact, the trawl fishery should be the major target for any 
fleet reduction program in the Pacific coast groundfish fishery, since 
it was the fleet whose capacity was greatly expanded under the 
Americanization program and it accounts for the lion's share of the 
groundfish catch.
    Let me just add here that the problems is not really that of ``too 
many boats, chasing too few fish,'' as a lot of fishery professors and 
a few environmental groups are found of saying, but of too much fishing 
capacity for the amount of resource available. Any type of fleet 
reduction program, whether funded by the Federal Government, by 
industry, or jointly, must target on reducing harvest capacity, not 
simply number of vessels. Not all vessels are equal. It makes more 
sense to me eliminating (through a buy-out) a single vessel capable of 
harvesting 50 tons a day than five or ten capable of catching five tons 
per day - provided all are economically viable units.
    In addition to the Fishermen's Marketing Association's draft plan 
for a Pacific coast groundfish capacity reduction program, I understand 
Senator Wyden is also proposing legislation for Federal aid to assist a 
fleet reduction program for this fishery. I am not going to comment on 
either, because they are still in draft form, but rather I want to 
emphasize here today that a capacity reduction program is desperately 
needed in the Pacific coast groundfish fishery and there is a Federal 
responsibility to assist with such a program. Three elements, however, 
are critical to make any such program work. They are:
    1. All permits held by a vessel must be retired. Merely retiring 
one permit from a vessel simply allows that vessel to fish harder in 
another fishery causing problems in that fishery.
    2. The vessel must be permanently retired from fishing. Merely 
removing a permit or permits from a fishing vessel and still allowing 
it to fish will result in the vessel either purchasing permits from a 
less active vessel or entering fisheries for which no permits are 
required - again, exacerbating problems in other fisheries. We may wish 
to consider whether any vessel removed from the fishery should be 
prohibited from entering the fishery of another nation, but certainly 
we should not allow vessels to move freely into another nation's waters 
unless it is part of a program for sustainable fisheries in that 
nation.
    3. The individual owner who participates in a vessel buyback 
program should be prohibited from reentering the fishery for a minimum 
of ten years, if not longer. Nothing is going to be achieved by buying 
out a high-line fisherman in a fleet reduction program, only to have 
them come back with the cash from a buy-out and use it to buy back into 
the fishery. Restrictions on re-entry into a fishery in vessel buy-back 
programs have been used in other fisheries, such as the salmon and 
gillnet fisheries in the State of Washington.
    Finally, let me talk briefly about the Capital Construction Fund 
(CCF) that has been blamed, in part, for the overcapitalization in many 
fisheries and proposed, as a result, for elimination. While CCF 
certainly has contributed in the past to new vessel construction and 
major reconstruction (increasing the catching capacity of a fishing 
vessel), the program can have some positive benefits to the fisheries 
in the future in at least two ways:
    First, there is a need for a fund that fishermen can use to set 
aside earnings for future investment in their vessels to not increase 
their catching capacity, but to: 1) make them safer; 2) make them more 
fuel efficient; and 3) allow them to better hold the catch to increase 
product safety and quality.
    Second, there is a need to modify the program allowing it to 
modulate vessel construction, including a mechanism to allow CCF 
holders to take a one-time withdrawal of funds, at a marginal tax rate 
or as a retirement account, without necessitating a penalty for 
nonconstructive use. Thus, the CCF program could assist in helping 
reduce fleet capacity.

                    FEDERAL INVESTMENT IN FISHERIES

    Next, let me turn briefly to Federal investments in fisheries and 
the crucial need for some ongoing programs and increases in 
expenditures.
    SALMON RESTORATION. The monies being invested in salmon resources 
for California and the Pacific Northwest are necessary, along with 
strong enforcement of the Clean Water Act and the Endangered Species 
Act, if we are to get many of these stocks not only delisted, but back 
to full productivity. The critical elements in any grant programs to 
the region for salmon restoration to assure they are effective and not 
squandered are these:
    1. The monies should only be expended pursuant to a restoration 
plan. Considerable funds have been squandered for various projects that 
were not part of any overall restoration plan and, therefore, had 
little impact.
    2. The monies should only be used where there is some permanence to 
the project. It does little good to put a restoration project in one 
part of a watershed only to have it destroyed as a result of activities 
occurring upstream or upslope in that watershed. Project proponents, 
whether private groups or state agencies, must be made to demonstrate 
that their project will not be destroyed by other activities in a 
watershed.
    3. The monies should not be used to mitigate damages caused by a 
landowner or other entity that the landowner or entity has a current 
obligation to correct. Federal dollars should not be used, or precious 
salmon restoration monies squandered, to pay to fix the damage someone 
else is legally obligated to correct.
    ANNUAL STOCK ASSESSMENTS. The status of more than three quarters of 
all species managed under the Magnuson-Stevens Fishery Conservation & 
Management Act is unknown largely due to a lack of funding for basic 
research and stock assessments. We need better information on all 
stocks to fulfill their responsibilities to rebuild overfished stocks, 
prevent overfishing of stocks approaching an overfished condition, and 
to set appropriate catch levels for those fish that are not overfished. 
Currently, National Marine Fisheries Service, with the President's 
requested increase of $13.3 million for stock assessments, would still 
have a deficit of 1,700 research days at sea to fulfill their stock 
assessment duties. Increasing the stock assessment expenditure by $26.6 
million from 2001 levels would cut that number in half so that the 
deficit could be erased in 2003 or 2004.
    OBSERVER PROGRAMS. Increasing the annual appropriations for 
fisheries observers by the National Marine Fisheries Service would 
enable the agency to establish and implement an effective National 
Observer Program. Such a program is essential to overall fisheries 
research, the dearth of which is caused so many of the problems now 
facing our fisheries today. An increase this year, for example, from 
$16.4 million to $25 million in observer programs would provide an 
extra $5 million over fiscal year 2001 funding levels for West Coast 
observers. The information from these observers, together with the 
information that is expected to be generated through the National 
Fisheries Information System, would give us a better idea on exactly 
how much fish is caught directly and as bycatch, thereby improving 
management of our fish populations.
    ESSENTIAL FISH HABITAT (EFH). Essential fish habitats (EFH) are 
those waters and substrate on which fish depend. These habitats are 
currently being damaged from both land-based activities and some 
destructive fishing practices. While the Sustainable Fisheries Act of 
1996 gave NMFS a clear mandate to identify and conserve essential fish 
habitat too little has been done to protect these habitats. An increase 
in funding would allow NMFS to gain the information necessary to 
further refine designations of EFH and take action to conserve EFH, 
including measures to minimize the adverse impacts of fishing gear and 
other human activities on EFH.
    ENFORCEMENT AND SURVEILLANCE. Enforcement of our fishery management 
laws has been woefully underfunded for years. According to NMFS, there 
are currently around 150 enforcement agents that are each responsible 
for 1200 miles of coastline. This year alone, an increase in funding 
for enforcement by $7 million over the President's request, would allow 
for the hiring of 30 more officers to begin to address this chronic 
shortfall. The increase would also allow for a strengthening of 
alternative enforcement programs and enhancement of state and local 
partnerships.
    Increasing funding for the Vessel Monitoring System (VMS) would 
allow for the establishment and implementation of VMS systems and the 
placing of VMS transponders on a vast majority of the estimated 10,000 
boats in the U.S. commercial fishing fleet. VMS programs enhance data 
collection and safety at sea, and can be beneficial to fishermen by 
allowing them to fish right up until a quota is reached rather than 
leave the fishing site before the season closes. These systems could 
also be used to increase fleet safety through the tracking of vessels.

Reauthorization of the Magnuson-Stevens Fishery Conservation & 
        Management Act
    My organization is one of the commercial fishing organizations 
belonging to the Marine Fish Conservation Network (MFCN). The Network 
is currently working on developing a set of recommendations for the 
reauthorization of our nation's fisheries act that, we believe, will 
reflect the concerns of conservation organizations, as well as the 
concerns of commercial and recreational fishing organizations committed 
to sustainable fisheries. There are a number of concerns the Network 
has currently with the implementation of the MSFCMA and the 1996 
Sustainable Fisheries Act amendments that will be addressed when the 
Network makes its recommendations, probably within the next month.

                               CONCLUSION

    Mr. Chairman and members thank you again for this opportunity to 
testify. As you will have noted, the resolution of the Pacific coast 
groundfish crisis is of the most concern to those of us on the West 
Coast. We believe that the fleet harvesting capacity in that fishery 
must be substantially reduced, not just for the protection of 
groundfish stocks and the continued economic viability of a fishing 
fleet in that fishery, but to protect our other fisheries and fleets as 
well. There is a clear Federal obligation to provide assistance and we 
ask that this Subcommittee, the full Resources Committee and the 
Congress provide the assistance necessary so we can rebuild the stocks 
and restore vitality to our fishing communities. I will be happy to 
respond to any questions the Subcommittee may have. Thank you.
                                 ______
                                 
    Mr. Gilchrest. Thank you very much, Mr. Grader.
    Mr. Kirkley.

 STATEMENT OF JIM KIRKLEY, CHAIRMAN, COASTAL AND OCEAN POLICY 
       DEPARTMENT, VIRGINIA INSTITUTE OF MARINE SCIENCES

    Mr. Kirkley. Thank you very much for allowing me to be here 
today. It is an honor and a privilege to be here to discuss 
issues on capacity and capacity reduction programs.
    For the moment let us just ignore how we ended up in our 
condition. We know currently what is going on in the United 
States is that we have a lot of fisheries that have serious 
problems of excess capacity. We have overfishing. The National 
Marine Fisheries Service in a recent report identified 40 
fisheries in the United States as having excess capacity. That 
means that they have the capability to harvest well in excess 
of levels at which the resource can be sustained at. These 40 
fisheries tend to be the higher value fisheries, as you might 
expect--Gulf shrimp fisheries, Northwest Atlantic sea scallop 
fisheries.
    What happens when you have excess capacity? The first thing 
you have usually is a crisis reaction on the part of management 
in regulation. You impose a series of command and control-type 
regulations and then you discover you have to tweak the system 
to get a little farther and you tweak the system some more and 
you have a layering of management and regulatory strategies. 
And what does this do? This of course causes community 
disruption, serious economic impacts and consequences and 
problems, additional problems in the future for management and 
the resource.
    Now about five years ago the National Marine Fisheries 
Service formally recognized they had to do something about 
excess capacity and to this day I give them credit because they 
took very, very bold steps to go forward and sponsor or 
cosponsor workshops to define and measure capacity and to try 
to develop or look at initiatives for reducing capacity in 
fisheries.
    We know capacity has to be reduced. What are some options? 
Right now we are discussing buybacks. That is one option. A 
second option and that which has been used most often is not 
really a capacity reduction program; it is a capacity 
utilization program. That is the typical command and control-
type regulation. You impose a limit on days at sea a vessel can 
fish. You impose a limit on crew size. You increase the mesh 
size of the gear. You do anything and everything possible to 
prevent vessels from operating efficiently but at the same time 
that does reduce their capacity utilization.
    The third option are what I prefer to call private property 
rights regimes. There is a misnomer among people when they say 
property rights regimes. All types of fisheries management 
structures are property rights, even the case of open access 
and the property right in there is no property right. By 
default they all have it but the private property rights which 
are being highly touted now are, for example, individual 
transferrable quota programs, individual transferrable effort 
programs, territorial use rights to fish programs, TURFs. In 
the United States we have only used ITQs.
    Now on the buyback program, which is what I want to focus 
the right of my energy on here, the tricky question on 
buybacks, one major question is who pays? And I have heard a 
lot of discussion today. There is no reason why you cannot have 
a mix. You could have public dollars. You could have private 
industry. You could have NGOs, environmental groups, 
recreational groups, any mix thereof that goes forward in 
mutual agreement among the parties.
    If we look at the three buybacks we are familiar with that 
have occurred since 1995, basically $130 million has been spent 
on buybacks for the New England groundfish fishery, the Pacific 
Northwest Bering Sea groundfish fishery, and the Washington 
State salmon fishery. The first two, the groundfish fisheries, 
they reduced vessels directly and the third one pulled permits 
from the fishery.
    One thing that troubles me about all three of these 
programs is that it does not seem like enough homework was done 
ahead of time to predict consequences of allowing entry, latent 
effort. To me, it makes no sense that you would ever have a 
buyback program and allow entry back in. Something seems wrong 
about that. It just does not go well.
    Of those three fisheries, the only one that we have really 
good quantitative information on is for the New England 
groundfish fishery. Estimates were actually done to determine 
how much capacity was removed from that fishery.
    What I would like to stress on the ideal buybacks is 
somebody has to spend a lot of time paying a lot of attention 
to structuring these programs. To design a buyback program it 
is not going to be a one-size-fits-all. It is going to be 
highly variable, fishery by fishery, region by region, and 
given different goals and objectives, these will have to be 
considered.
    What works best? We have three options here on the table in 
terms of buybacks, ITQs and command and control regulations. My 
premise is that what works best is the wrong question to be 
asking right now. The reason why it is the wrong question is 
because there is a lot of other considerations that now have to 
be considered, in addition to just removing excess capacity. 
You have regulations relating to community impacts. You have 
multiple species issue. You have issues dealing with essential 
fish habitat. You have the Sustainable Fisheries Act, which is 
asking you to rebuild resources within a 10-year period. You 
have international agreements and international plans of 
action. So you cannot just say let us do this, let us do 
buybacks or ITQs.
    In addition to that, people should not be looking at these 
options as sole source or either/or type programs to reduce 
capacity. There has to be a mix.
    Now we are going to move on here to what I call the missing 
piece of the puzzle. That is I hope something the gentleman 
next to me will discuss in more detail and that is recreational 
capacity. Right now I honestly do not know how to define 
recreational capacity and I do not know to measure it. And if I 
had a measure of it, I do not know what I would do with it.
    There are concerns being raised, though, that if the 
commercial sector has to reduce capacity, why should not the 
rec sector? And those are fair, legitimate concerns and issues 
that probably will need to be addressed, particularly for those 
fisheries where the two user groups compete against one 
another.
    How much capacity should be reduced? How do we determine 
the level of reduction in capacity? This is an extremely tricky 
question and one which you cannot get a real answer to. Why? 
The Magnuson-Stevens Fisheries Conservation Management Act has 
as its primary objective the promotion of maximum benefits from 
food production and recreational opportunities.
    To an economist, which is what I do and one concerned about 
theory, that implies economic efficiency. We do not have a good 
track record in managing America's fisheries of promoting 
economic efficiency.
    We have other laws that deal with consideration of 
community impacts. We have the National Marine Fisheries 
Service's strategic plan that says we are going to have a 20 
percent reduction of capacity by the year 2005.
    The bottom line is that you do not have a hard set of 
guidelines to determine the level of capacity to reduce. Right 
now about the only thing you can work with is you start on 
maximum sustainable yield, which can be a flawed premise for 
some fisheries, and you look at your existing capability to 
produce relative to that maximum sustainable yield level and 
that gives you a starting point.
    Someone is going to have to figure out how to balance 
different goals, different objectives, the Magnuson Act, the 
Sustainable Fisheries Act component of rebuilding the resource 
against community impacts. Thank you very much.
    [The prepared statement of Mr. Kirkley follows:]

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    Mr. Gilchrest. Thank you, Dr. Kirkley. That was a fire 
hose. We will come back to that and turn down the pressure a 
little bit so we can absorb more of it. Thank you very much.
    Mr. Mike Nussman.

      STATEMENT OF MIKE NUSSMAN, VICE PRESIDENT, AMERICAN 
                    SPORTFISHING ASSOCIATION

    Mr. Nussman. Thank you, Mr. Chairman. I appreciate the 
opportunity to be here today and testify on behalf of the 
American Sportfishing Association. For those of you who are not 
familiar with ASA, we are a trade association representing the 
sportfishing industry. By that I mean manufacturers, 
wholesalers, retailers in the sportfishing sector.
    Our written testimony addresses the broad issue of 
overcapacity of fishing fleets under the Magnuson Act and more 
specifically the Wallop-Breaux program, which was addressed in 
the task force's report. I do not think it would serve the 
Subcommittee for me to go back through that material in any 
great detail so if I may, what I would like to do is narrow my 
comments and focus on three what I think are fairly important 
points and I would say that at least with two of them, I agree 
with my other colleagues.
    First, the issue of capacity reduction in Federal subsidies 
in marine fisheries are indeed very, very important ones and 
perhaps even the most important issue that we will face as we 
look to reauthorize the Magnuson Act. Congress, with your 
leadership, I might add, undertook a number of very tough 
issues back in the '96 reauthorization but as evidenced by the 
call for this Federal report, investment report, did not fully 
address these kinds of issues.
    The group that came together to produce the Federal 
Fisheries Investment Report have performed a substantial 
service to us all. They have compiled a thorough and 
comprehensive review of Federal fisheries subsidies and while 
the members of the task force do not agree on all the 
recommendations contained in the report, there is a substantial 
amount of consensus in there and I would urge the Committee to 
look at that.
    So as you go forward to develop legislation for 
reauthorization of Magnuson-Stevens, I would urge the Committee 
to use the guidance provided by the task force in those 
recommendations.
    Secondly, Mr. Chairman, I would like to comment briefly on 
the international situation as it relates to subsidies in 
fishing capacity. As I mentioned in my written testimony, I 
have just had the pleasure of completing my second term for a 
total of 6 years as the U.S. Recreational Commissioner to ICCAT 
or the International Commission for the Conservation of 
Atlantic Tunas. And while I do not and cannot claim to be an 
expert on international fishery management, I will say that if 
you are concerned by too many fishermen chasing too few fish 
domestically, just wait until you get a look at what is going 
on internationally.
    Developing countries around the Atlantic--in fact, around 
the entire globe--are building the capacity to enter that race 
for the fish that was mentioned earlier. And as we know, all 
the fish are already spoken for. This issue, this international 
issue, is one where I fear that we are significantly behind the 
curve and I think we as a nation need to focus far, far more 
attention and more leadership in this area.
    Finally, Mr. Chairman, Wallop-Breaux and sport fish 
restoration are, I believe, fine examples of user pay, user 
benefit programs. My written testimony provides the history, as 
well as the current funding levels for these efforts. In my 
review I can find absolutely no evidence that these programs 
are a subsidy of any type or that they have caused harm to the 
nation's marine resources.
    The task force concludes in their report that these 
investments by Wallop-Breaux do not present a serious matter of 
concern. I would go a bit further. I believe that without 
Wallop-Breaux, our nation's fisheries, both freshwater and 
marine, would be in much worse shape than they are today. 
Representing a number of companies that write significant 
checks to the IRS each quarter--I might add these checks over 
the course of a year will come to some $120 million--I can 
assure you my companies do not view this as a Federal subsidy. 
In fact, I would argue that America's anglers, through the 
excise taxes they pay and the license fees they pay, subsidize 
the proper management of our nation's fisheries.
    With that, I will go to the capacity question that was 
raised here just a second ago and address that very quickly.
    I think we have apples and oranges when people talk about 
capacity of recreation, I do not think such a term exists. I do 
not think you will ever be able to find it.
    The reason we are interested in reducing capacity is 
because we are fearful that companies may well go out of 
business, that they are economically not using their resources 
well. While there are companies that are in the recreational 
fishing business (and I represent them), the actual anglers out 
there catching fish are in it as a hobby. It is recreation. If 
they do not catch the fish, they are not going to go out of 
business. They are not going to go hungry in most instances. 
They are just not going to catch as many fish. So if instead of 
catching five fish they catch two fish, they do not have to be 
reimbursed. They do not have to be bought out.
    So I think we are mixing apples and oranges when we try to 
say that recreational fisheries are just like commercial 
fisheries. They are not.
    So thank you, Mr. Chairman. With that I would be happy to 
answer any questions.
    [The prepared statement of Mr. Nussman follows:]

   Statement of Mike Nussman, Vice President, American Sportfishing 
                              Association

    Mr. Chairman, I appreciate the opportunity to testify before the 
subcommittee on behalf of the recreational fishing industry. My 
testimony today addresses the broad issue of over-capacity of fishing 
fleets under the Magnuson Fishery Conservation and Management Act, and 
more specifically, the Wallop-Breaux program. In addition, I'll comment 
briefly on the international component of the issue, having recently 
completed two terms as the U.S. Recreational Commissioner to the 
International Commission for the Conservation of Atlantic Tunas 
(ICCAT). This testimony is given on behalf of the 400 members of the 
American Sportfishing Association (ASA).
    ASA is a non-profit trade organization whose members include 
fishing tackle manufacturers, boat builders, retailers, state fish and 
game agencies, angler organizations, and the outdoor media. For more 
than fifty years, ASA and its predecessor organizations have promoted 
the conservation of fisheries resources and supported measures that 
improve the aquatic environment.

                               BACKGROUND

    With the passage of the Sustainable Fisheries Act (SFA) in 
1996,Congress indicated a renewed commitment to managing the marine 
fisheries of this nation in a sustainable manner. As a part of that 
commitment, Congress directed the Secretary of Commerce (Secretary) to 
examine the role of the Federal Government in subsidizing the nation's 
fishing capacity. The Secretary convened a task force on the matter and 
in July of 1999, the group released the Federal Fisheries Investment 
Task Force Report to Congress. Dr. Vishwanie Maharaj, ASA's then 
Director of Economics participated in the task force on behalf of the 
recreational fishing industry. The report, while thorough and 
comprehensive in its treatment of Federal subsidies, does not attempt 
to evaluate subsidy programs as either good or bad. Instead, it reviews 
existing subsidies and recommends whether they should be continued 
given our current circumstances.
International Commission for the Conservation of Atlantic Tunas
    The issue of fishing capacity and its impact on fishery 
conservation is of interest not only in the United States, but also in 
the international fishery community. Having served the last six years 
as the U.S. Recreational Commissioner to ICCAT, I can assure the 
Committee that the body is closely examining the issue of capacity and 
its link to overfishing. For example, at its 2000 meeting, ICCAT 
adopted a measure that recognizes and encourages actions being taken by 
Japan and Chinese Taipei to scrap Japanese-built, illegal, unreported 
and unregulated (IUU) fishing vessels. Further, it supports actions 
being taken by Chinese Taipei to re-register and control a number of 
vessels owned by Chinese Taipei business entities that have been 
engaged in IUU fishing activities.
    And previously, at its 1998 meeting, ICCAT adopted a measure to 
limit fishing capacity in the northern albacore fishery. A similar 
action was taken by ICCAT for the bigeye tuna fishery in 1999 that was 
intended to prevent further increases in fishing mortality, consistent 
with scientific advice indicating that the stock is close to full 
exploitation. Unfortunately, as is so often the case in international 
fishery management, gaining agreement on what needs to be done is far 
easier than ensuring compliance with the agreed-to measure. The United 
States needs to provide important leadership in this area.
Wallop-Breaux Program
    The Wallop-Breaux Program (Program) is actually a collection of a 
number of boating and fishing related efforts, brought together by a 
common funding source--user fees paid by anglers and boaters. 
Recognizing that the members of the ASA typically contribute well over 
$100 million to the Program each year, it is easy to understand our 
interest and involvement in the effort. As you might imagine, given our 
contribution, this program is extremely importance to the recreational 
fishing industry.
    We believe the Program is an excellent example of a user pays-user 
benefits program. Anglers and boaters pay a little more for their 
equipment and fuel and in return enjoy increased fishing and boating 
opportunities. These monies are deposited into the U.S. Treasury and 
then disbursed to state fish and game agencies for sportfish 
restoration, wetlands conservation, aquatic education, outreach, boat 
safety, and boating access and facilities projects. The cycle is 
completed with a return of benefits to the users through improved sport 
fishing and boating opportunities.
    The Program was launched in 1950 when Representative John Dingell 
(MI) and Senator Edwin Johnson (CO) pushed for and passed the Federal 
Aid in Sport Fish Restoration Act. Based on a similar bill (the 1937 
Pittman-Robertson Act) that placed an excise tax on specific hunting 
equipment, the Sport Fish Restoration Act was aimed at dealing with the 
expanding number of anglers and the declining quality of the resource. 
Utilizing the same user pays-user benefits model as Pittman-Robertson, 
the Dingell-Johnson Act as it became known, was an immediate boon to 
state fish and game agencies that previously could not provide adequate 
attention to fisheries due to strapped budgets. Instead of having to 
fund 100% of a fisheries improvement project, now under Dingell-
Johnson, for every one dollar invested by the state, the Federal 
Government could contribute three dollars. During the years immediately 
following passage, monies from the collection of excise taxes vastly 
improved the quality of America's sport fishery resources.
    However, in 1984, in response to a growing list of needs, a new set 
of amendments to the Program were passed spurred on by Senator Malcolm 
Wallop (WY) and Congressman John Breaux (LA). These 1984 Wallop-Breaux 
amendments expanded the list of taxable sport fishing articles to 
include nearly all sportfishing equipment. In addition, a 3% tax on 
electric trolling motors and fish finders was added along with a 
redirection of the tax on motorboat fuel. Further, the amendments 
recovered from the General Fund fuel taxes paid on fuel used by boaters 
and anglers and dedicated these funds to the Program. The Wallop-Breaux 
amendments expanded the pool of money made available to the Program 
from an average of $40 million before 1984, to over $400 million today.
    Since the 1984 Wallop-Breaux Amendments, the program we now know as 
Wallop-Breaux has undergone changes resulting from other amendments. 
Many of the changes increased funding for programs such as boating 
safety and created new programs such as the coastal wetlands and clean 
vessel (pumpout) programs. In 1998, the Transportation Equity Act for 
the 21st Century reauthorized the Program creating a boating 
infrastructure effort, and an outreach and communication program.
    Additionally, other changes to the Act in 1998 increased the 
minimum percentage of state allocations to be invested in boating 
access and facility projects from 12.5% to 15%, and raised the maximum 
percentage of state allocations to be used for aquatic education and 
outreach and communications from 12.5% to 15%. Boating Safety programs 
administered by the U.S. Coast Guard also realized increased funding. 
(See Table 1 for Wallop-Breaux Program receipts and expenditures)
    In reviewing the Wallop-Breaux program, the task force focused 
primarily on Sport Fish Restoration, the portion of the Program's 
funding that is apportioned to the state fish and game departments. 
Table 2 outlines state funding levels for fiscal year 2001 and Figure 1 
demonstrates the increase in state funding levels since the program 
began.

                               DISCUSSION

    Mr. Chairman, the task force concludes that investments in 
fisheries by the Wallop-Breaux Program do not ``present a serious 
matter of concern''. I would go a bit further. I believe that without 
the Wallop-Breaux Program, the nation's fisheries, both freshwater and 
marine, would be in much worse shape than they are today. Representing 
a number of companies that write a significant check to the IRS each 
quarter, on top of any Federal or state income taxes they pay, I will 
assure you that they do not view this as a Federal subsidy. In fact, I 
would argue that America's anglers, through the excise taxes and 
license fees they pay, subsidize the proper management of our nation's 
fisheries.
    However, Mr. Chairman, if we ignore the fact that America's anglers 
and boaters are paying the bills in terms of higher prices for their 
sport, there still is no evidence to suggest that Wallop-Breaux has led 
to overfishing of our saltwater resources. Despite the substantial 
increase in funding that has flowed to Wallop-Breaux in recent years 
(see Figure 1), the National Marine Fisheries Service data in Table 3 
shows no substantial increase in the number of saltwater recreational 
anglers or their harvest.

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    In addition Mr. Chairman, of the total amount of Sport Fish 
Restoration funding going to states each year, only about 10 percent is 
dedicated to saltwater projects. The remainder of the monies return to 
freshwater efforts. This division in funding leads to the natural 
question Has the Wallop-Breaux funding dedicated to our nation's 
freshwaters led to overfishing? I think the clear answer is NO and I 
believe that state fish and game departments would agree!
    Wallop-Breaux is a unique example of a user pay-user benefit 
program. I have attached state reports provided by the U.S. Fish and 
Wildlife Service from Maryland and Utah for the Committee's review. I 
appreciate the opportunity to testify.
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    Mr. Gilchrest. Thank you very much, Mr. Nussman.
    I think just for a second we will stick with that point. 
The overcapacity problem, as we are hearing this morning, is 
enormously complex and it has different solutions from 
different perspectives from a whole range of different 
interests. My perspective on overcapacity, which has been 
stated here this morning, is too many people catching too few 
fish. So if we want to sustain the fisheries we need to have a 
reduction in effort.
    So if we look at it from that perspective, to sustain the 
fisheries and have a reduction in effort, does that include 
recreational fishermen into the mix of understanding the nature 
of overcapacity?
    And this is probably a relatively, depending on who you 
ask, small piece of the puzzle, small part of the problem. But 
Dr. Kirkley, could you address the issue of overcapacity and 
the potential of including recreational fishing into that mix 
and what you meant by that statement?
    Mr. Kirkley. The recreational component, we have been 
wrestling for about three or 4 years, we being individuals and 
the National Marine Fisheries Service, other academicians and 
people employed in state agencies, trying to come up with this 
concept of capacity in a rec fishery. We think we know some 
ways you can measure it, we think we know some ways you can 
define it, but we are not sure what to do with it if we do get 
it. There is no doubt in my mind what you will end up being 
confronted with is eventually probably adoption of more formal 
procedures for allocation of resources, which is where this is 
going to be going in the future when you have competing 
resources. Someone is going to have to allocate commercial and 
then allocate recreational.
    Mr. Gilchrest. Is the recreational effort in the fishery 
significant enough to be considered?
    Mr. Kirkley. In some fisheries it very well could be. You 
could take the case of striped bass in Virginia and Maryland, 
also. Right now there is a series of limits, slot limits, that 
are keeping things under control but the recreational angler 
has the capability to take quite a few more striped bass. We 
know there is some poaching going on here and there and what is 
going on is because of a fishery like that, in fact, you are 
having increasing pressure up and down the coast to declare it 
a gamefish only status and remove it from the commercial 
sector.
    You have--I am sorry I cannot remember--six or seven or 
eight states' jurisdictions right now that prohibit the capture 
and/or commercial sale of striped bass. Washington, D.C. is one 
of the states that prohibits the commercial capture of striped 
bass.
    Mr. Gilchrest. You mentioned striped bass. Can I ask you 
about summer flounder and recreational effort? Does that 
contribute to overcapacity?
    Mr. Kirkley. In terms of the total picture and level of 
removal it has to. Along the eastern shore, the East Coast of 
the U.S., particularly from New York down to North Carolina, 
there are a lot of anglers who catch summer flounder and retain 
them. Again though, I think you are going to be looking at 
cases of allocation.
    In other words, I guess in the big scheme of things I see 
less damage done by having excess capacity in the rec sector 
than I do in the commercial sector.
    Mr. Gilchrest. Less damage in what way?
    Mr. Kirkley. In terms of damage to the resource and in 
terms of lost benefits to society, in terms of negative 
economic connotations and impacts. You could probably deal a 
little better with, handle or accept some economic waste, some 
lost benefits associated with the recreational excess capacity 
than you could accept relative to excess commercial capacity.
    In the case of summer flounder, there are a lot of anglers 
and they do catch a lot of summer flounder.
    Mr. Gilchrest. When we are considering overcapacity, almost 
from an academic perspective there is overcapacity in the 
commercial sector and you would also consider overcapacity in 
the recreational sportfishing sector but the way to reduce that 
overcapacity would be different in the two sectors. One would 
be possibly a buyout; one would be more of a regulatory 
timeframe scheme for access to the fishery.
    Mr. Kirkley. Yes, sir. That is exactly the way I would do 
it as working best. In the case of the flounder you have a 
quota and you have daily limits. When you reach your limits, 
you are over and done and the damage is not so horrible to 
society from that as you might have by allowing the excess 
capacity to continue in the commercial fisheries.
    Mr. Gilchrest. Mr. Nussman, would you agree with that 
statement, that the damage done is not so horrible? And do you 
think that recreational fishing activity, for example, for 
something like striped bass or summer flounder, should be a 
consideration in the overall scheme of things when we look at 
overcapacity?
    Mr. Nussman. You have asked about three or four different 
questions inside of two.
    Mr. Gilchrest. You can answer them any way you want because 
I probably do not remember two of them.
    Mr. Nussman. Let me try, if I could. First, I think 
recreationally if you look nationwide at all our marine 
fisheries, according to the National Marine Fisheries Service, 
recreationally we harvest 2 percent of the total take, between 
2 and 3 percent. So as a nation in saltwater recreationally, 
the harvest is about 2 to 3 percent per year; 98 percent is 
being harvested commercially.
    Mr. Gilchrest. Could that be a higher percentage in a 
specific fishery?
    Mr. Nussman. In some fisheries we harvest 100 percent. In 
some, like striped bass, we harvest the majority. In some, like 
summer flounder, we are supposed to harvest slightly less than 
a majority. So it certainly is fishery-dependent. There is 
absolutely no question about that.
    But your first question was is it less onerous or less 
horrible, whatever the phrase you used, less bad in recreation? 
I think people go recreational fishing because it is fun. The 
same reason they go to movies--it is fun. If it is fun to go 
out there and they catch some fish, they are going to go back.
    Now maybe some fisheries, if you go and you catch one 
bluefin tuna, that is a lot of bluefin tuna to catch for a day. 
If you go out and catch one spot, that is a very different 
dynamic there.
    So yes, the ranges of acceptability, because you are not 
planning on--you do not, at the end of the day, have to sell it 
and make your living from it, are broader than they would be in 
the commercial sector.
    Having said that, unfortunately for us, I believe, quite 
often the impacts of disadvantaging the recreational sector are 
much more diffuse and harder to trace than the impacts of 
disadvantaging the commercial sector. Does that make sense?
    Mr. Gilchrest. Yes, it does. Thank you.
    I think we may have another round of questions. Last 
comment, Mr. Nussman?
    Mr. Nussman. I was going to try to get to the third 
question.
    Absolutely you have to take into context recreational catch 
in any rebuilding plan. But we have a series of tools that work 
very well for recreation--size limits, bag limits, season--that 
work in freshwater, that will work and work in saltwater. We 
just need to learn how to use them well.
    Mr. Gilchrest. Thank you very much.
    Mr. Underwood?
    Mr. Underwood. Thank you, Mr. Chairman. I want to ask three 
questions and let me start with Mr. Blue.
    Mr. Blue, you discussed a kind of buyback series of events 
in Alaska, some which are industry-funded. So what do you 
propose as an appropriate ratio for what should be industry-
funded in terms of buyback programs?
    Mr. Blue. Thank you. The appropriate ratio is probably 
going to have to be arrived at fishery by fishery. It depends 
upon a lot of factors--the value of the fleet that is being 
retired, the present value of the fishery, and so forth.
    In the case of the Bering Sea crab fisheries, we were quite 
comfortable with the program that we designed as a 100 percent 
industry-funded program until we had collapse of the fisheries, 
and redefinition of catch rates is part of the rebuilding, 
which we support. We need to have conservation of the fisheries 
first of all, of course.
    So, at our instance, we have been reduced to a 50 percent 
ratio. We have done this as a calculation in our business plan, 
which we submitted as part of the program definition.
    Mr. Underwood. Thank you.
    Mr. Grader, in the Capital Construction Fund, and this goes 
back to a question I asked of the earlier panel where there 
seems to be a contradiction between the buyback and the use of 
the Capital Construction Fund.
    Would it be reasonable to assume that if you participated 
in the Capital Construction Fund that you should be precluded 
from participating in a future buyback?
    Mr. Grader. I think I would look at it a little bit 
differently. I think perhaps what is needed here is an 
amendment to the Capital Construction Fund that where a fishery 
is being considered for a buyback, where there is excess 
capacity, that those individuals who have invested, put money 
into the Capital Construction Fund, could take it out in the 
form of--and I think Mr. Blue had this in his testimony and I 
certainly agree with it--in the form of either a retirement 
program or something else. In other words, they are not 
reinvesting. They are not putting that money back into the 
fishery.
    I think the Capital Construction Fund could be amended to 
actually help us provide incentives for reducing capacity.
    Secondly, I think the thing that is important in Capital 
Construction Fund, and it is something that we use in other 
industries, as well is allowing fisherman to put aside funds 
for bad years--we allow farmers to put money aside. Because 
fishing varies from year to year. In the fisheries we need to 
get away from having funds out there that will potentially 
increase the catch capacity. But certainly we need the Capital 
Construction Fund. I think, to allow fishermen to put money 
aside for such things as improving safety equipment on their 
vessels, improving the ability to hold fish in such a way that 
they can increase the value of the fish that they catch; that 
is, better product quality. Everybody benefits from that. And 
then third, the whole issue of fuel efficiency has to be 
addressed so they can invest in the type of technologies that 
will allow their vessels to be more fuel-efficient.
    Those are the ways I would see Capital Construction Fund 
being amended but certainly it can be part of the whole package 
of helping us reduce fleet capacity.
    Mr. Underwood. Thank you. Very thoughtful answer. I 
appreciate that very much.
    Mr. Burns, the FAO plan of action calls upon all nations 
around the world to reduce capacity. How do we propose to 
enforce that, particularly if on our end we continue to reduce 
tariffs on foreign fish being imported to the U.S.? What kind 
of leverage do we have in order to enforce a worldwide 
reduction in capacity?
    Mr. Burns. The FAO plan of action itself does not provide 
any real authority for enforcement. It is a voluntary plan. I 
think personally that the best way to make progress with 
overcapacity in the context of other nations' fleets is through 
U.S. bilateral relationships with individual countries. We meet 
about fisheries with most of the major fishing states in the 
country on a regular basis.
    In addition, in the context of the regional management 
organizations, like ICCAT and the ITTC and the new treaty 
organization that is just being established in the Western 
Pacific, to use the U.S. presence in those bodies to push for 
capacity reduction where it is important.
    Mr. Underwood. Thank you.
    Mr. Gilchrest. Thank you, Mr. Underwood.
    Mr. Saxton.
    Mr. Saxton. Let me just touch on two subjects that I think 
are important. First of all with regard to the reauthorization 
of Magnuson, let me ask first Mr. Burns.
    There is stated in the purposes of the Magnuson Act two 
purposes which seem to me to contradict each other or conflict 
with each other. In one section of stated purposes it says the 
purpose is to take immediate action to conserve and manage 
fishery resources found off the coast of the United States. 
And, of course, we have touched on that several times today, 
overcapacity and better ecosystem management, et cetera, et 
cetera. It is all talking about how to conserve sea creatures.
    Then you move on to the sixth stated purpose. It says to 
encourage the development of the United States fishing 
industry. Then, to be fair, it goes on to say ``of fisheries 
which are currently underutilized or not utilized by United 
States fishermen.''
    I have always thought that there is a conflict between 
those two purposes and I guess I am interested in your take on 
that. My take is that we have seen the collapse of fisheries 
and you can kind of walk your way down one coast and across the 
gulf and up the other coast and you can count the fishery 
collapses that we have seen, starting with groundfish in New 
England, striped bass along the Atlantic coast, coastal sharks 
along the Atlantic coast, redfish in the Gulf of Mexico, sea 
urchins on the West Coast, salmon.
    It is kind of discouraging and I believe that a case can be 
made that one of the reasons that we have seen those collapses 
is because of this conflict in purpose that we give the 
regulators that have the job of taking care of these things; 
namely, the National Marine Fisheries Service. What do you 
think?
    Mr. Burns. Obviously I agree. I think that the Magnuson 
Act, like a lot of other U.S. laws, has been sort of like 
Troy--one layer on top of the next. The provision which deals 
with the development of fleets in the U.S. is, I think, a relic 
of the original intent of the framers of the act. I think it is 
similar to a lot of the subsidy programs that we see that are 
still in place in the United States and elsewhere in the world. 
They were put in place at a time when there was a desire to 
expand fleets that were smaller but they have in many cases 
outlived their useful lives.
    I think one of the things that you are hearing today and 
one of the things that I think came across both among the 
members of our task force but also from the many people who 
came to the regional meetings we held and spoke before us is 
that there is a real consensus in American fisheries today that 
most fisheries are overcapitalized and that there is a desire 
to make them smaller rather than larger with a very few 
exceptions.
    So I would agree that the provision that you mentioned 
probably is not especially relevant in most fisheries today. It 
probably is not consistent with the desires of either the 
conservation community or the fishing community and, as a 
number of witnesses have said, a real emphasis in the next 
reauthorization ought to be on dealing with the need to 
downsize fleets in a lot of cases.
    Mr. Saxton. May I ask the rest of you to briefly comment? 
Mr. Blue?
    Mr. Blue. With respect to buyback programs in the past, we 
have seen that they mostly provide an incentive to get out and 
I would like to say that in building programs for the future we 
would do well to consider the impact on the people remaining. 
So we need to make sure that the conservation basis is well 
established going forward and I think that will provide the 
primary incentive for these things to work, both now and in the 
future.
    Mr. Saxton. Thank you very much, Mr. Blue.
    Mr. Grader. Congressman Saxton, I think you have pointed 
out a very big problem that we have had in the law. Having been 
around when we were pushing to get extended jurisdiction, I can 
remember full well that the intent of many of our members on 
the West Coast--in fact, it was one of our West Coast 
congressmen, Don Clausen, in fact, who introduced the first 
extended jurisdiction bill back in 1969 at our urging--the 
intent was to get rid of the foreign boats.
    Unfortunately, I think because of the times, people felt 
the only way we could get rid of the foreigners was showing 
that we could utilize those resources, so what we did, we got 
into this Americanization frenzy when we probably should have 
just said stop, get rid of the foreign boats, let us go out and 
find out, do independent surveys and find out how much fish we 
have there and then design how we then want to build up a fleet 
that can take advantage of those resources.
    We did not do that and that has been one of my arguments 
here, that I think specifically on Pacific Coast groundfish and 
some of these other fisheries that were under FMPs, that is, 
the Federal plans, where we did see a build-up--people were 
encouraged to build up--those fleets, I think there is a clear 
Federal obligation that at least the Federal Government should 
be assisting in helping with those buyback programs whether 
that assistance is 100 percent or 50 percent, as has been 
suggested by someone in the Pacific ground fishery. I think 
there is a clear Federal obligation there.
    That Federal obligation is to be distinguished, say, from 
some of the state managed fisheries, for example, squid on the 
West Coast. If, in fact, it was found that a state managed 
fishery was overcapitalized, it would be the state's 
responsibility or perhaps industry's for addressing a buyback.
    I should add one other thing in passing, that in the case 
of urchins on the West Coast, keep in mind that urchins for 
many years were considered a pest. California at one time was 
actively involved in destroying urchins. In fact, it was the 
urchin industry that sought the legislation to establish 
management over the fishery, and there really was no deliberate 
overfishing. The state and the industry are trying to find out 
what the proper level of fishing is. So I would hope that 
urchin not be categorized with some of the other disasters we 
have had because it is certainly a separate case. Thank you.
    Mr. Saxton. Thank you for pointing that out.
    Mr. Kirkley?
    Mr. Kirkley. I am probably going to be the odd person out 
but I do not see this as that serious a conflict. What I see in 
terms of encouraging the development is a need for tweaking of 
the language.
    Currently Sea Grant, through its various marine advisory 
programs around the United States, has a tremendous commitment 
and has done a phenomenal job of assisting industry to develop 
fisheries, to develop new products. So I would like to see that 
be maintained in the language where just the tweaking of the 
language and the emphasis would be altered. You might, for 
example, encourage market value-added-type products.
    In cases of underutilized fisheries, we are doing a lot of 
work right now. In New Jersey and Maryland, North Carolina we 
have a critter called the cow-nosed ray. You have probably 
never eaten it but if you have been out recreationally fishing 
you have seen it. It is a monster of a critter and it does a 
lot of damage. It wipes out oyster beds and clam beds. We are 
doing tremendous work right now to try to get processors to 
work with us to develop portions that you could sell at the 
restaurants and at grocery stores.
    So I really would not want to see the language on 
encouraging development removed. I would like to see some 
continuation but make it more specific to aiding industry and 
enhancing efficiency of America's fishing industry. Thank you.
    Mr. Saxton. Mr. Nussman?
    Mr. Nussman. All I would add would be that to agree with my 
colleague here, I think we have moved from a point of 
Americanization of the fleet to now where we have unfortunately 
much more difficult needs. We need to get it right sized. We 
made it all American and now we need to make sure it is right-
sized, that it is profitable and that it, in fact, fishes in a 
way that is sustainable.
    So I do not know that the idea of promoting is a bad one. 
Maybe we have just gone too far down one of the paths. Thank 
you.
    Mr. Saxton. Thank you, Mr. Chairman.
    Mr. Gilchrest. Thank you, Mr. Saxton.
    I had some other questions and Mr. Kirkley, you teased my 
imagination. What was the name of that fish that in an 
underutilized fishery that might be used for restaurants and 
dinner tables that is quite a beast?
    Mr. Kirkley. Cow-nosed ray.
    Mr. Gilchrest. Cow-nosed ray?
    Mr. Kirkley. Yes, sir.
    Mr. Gilchrest. Now you say it does a lot of damage because 
it eats oysters, clams?
    Mr. Kirkley. They tend to herd together in large schools 
and like you have seen bluefish, they go into a feeding frenzy 
and they will come into a shallow area that has a clam bed in 
there and in 20 to 30 minutes time they can devastate a clam 
bed or an area of high concentration of oysters.
    Mr. Gilchrest. So you are saying we have to get rid of this 
for doing that?
    Mr. Kirkley. No, I am not saying we have to get rid of the 
cow-nosed ray. We would be out of whack with the ecosystem if 
we eliminated the cow-nosed ray but at the same time, it offers 
an option particularly for fishermen, in-shore fishermen from 
New Jersey to North Carolina to redirect their effort off of 
other species that are overfished--for example, blue crab, 
which has serious problems in Maryland and Virginia--and to 
start still collecting an income and making a decent living at 
what they are doing.
    Mr. Gilchrest. This is a fish that has not been 
commercially caught before or eaten?
    Mr. Kirkley. On a regular basis it has not been 
commercially harvested nor has it been regularly consumed by 
humans.
    We have lots of interesting cases in our waters like that.
    Mr. Gilchrest. What does it taste like? It does not taste 
like chicken, does it?
    Mr. Kirkley. No, and it does not taste like lobster, 
either. But a good idea with it that we have been experimenting 
with is Tex-Mex. You can do an awful lot with Tex-Mex.
    Mr. Gilchrest. Tex-Mex? A lot of seasoning?
    Mr. Kirkley. Yes, sir. It is a food style, Tex-Mex.
    Mr. Gilchrest. There is a weatherman on the lower Eastern 
Shore that can make catfish taste like crab meat and you could 
not tell the difference.
    Mr. Kirkley. We need more of that.
    Mr. Gilchrest. What is the natural predator of the cow-
nosed ray?
    Mr. Kirkley. I guess the only natural predator we are going 
to have that we can readily identify probably would be coastal 
pollution and humans more than anything else.
    Mr. Gilchrest. Are you familiar with some of Farley Mowat's 
books?
    Mr. Kirkley. With whose?
    Mr. Gilchrest. Farley Mowat.
    Mr. Kirkley. No, sir, I am not. I have four kids; I do not 
read anymore.
    Mr. Gilchrest. Oh, I see. That will happen, or if you are a 
Member of Congress you find it difficult, too. Thank you, Dr. 
Kirkley.
    Mr. Blue, you said that there is two-thirds of the 
fishermen that were in the crab fishery in the Bering Sea that 
favor some type of industry buyback for overcapacity. The crab 
fishery in the Bering Sea you said was in trouble, there needs 
to be or one of the solutions would be a buyback program in the 
crab fishing in the Bering Sea.
    Could you tell us what is the status of that buyback 
program right now and the reason for crab fishing in the Bering 
Sea, what caused the problems with that crab fishery?
    I just wondered also, you said that the king crab had a 
problem before and there was a buyback program in that fishery 
or there was some effort to bring the king crab back and is the 
king crab coming back?
    Do you want me to start over again? I asked you about six 
questions.
    Mr. Blue. Thank you, Mr. Chairman. I will try to answer 
your questions in inverse order and then you can remind me if I 
forget any one of them.
    With respect to king crab, there was no buyback. In fact, 
when the king crab fishery collapsed in 1982 there was 
widespread and large scale bankruptcy of harvesters and 
processors and some of the Western Alaska communities were very 
profoundly impacted.
    Mr. Gilchrest. How fast did it collapse? How much warning 
was there before the collapse?
    Mr. Blue. I have included for the record some extensive 
data tables and in the case of the Bristol Bay red king crab 
fishery we went from 128 million pound harvest in 1980 to 32 
million in '81 and 3 million in '82 and zero in 1983. It was 
quite a bad collapse and in terms of revenue it was very 
dramatic.
    Mr. Gilchrest. In 1980 no one was able to predict that was 
going to happen?
    Mr. Blue. No one was--
    Mr. Gilchrest. No one was able to predict that that was 
going to happen?
    Mr. Blue. Well, the fishery managers at the time certainly 
were not predicting it. The cause of the collapse is still, if 
you review the old papers, indeterminate. So what I am telling 
you today is that the excess of fishing capacity in the fishery 
was certainly a factor and certainly, in my opinion, a large 
one.
    Mr. Gilchrest. Did many of the king crab fishermen then go 
to other fisheries?
    Mr. Blue. Yes. That actually contributed to the rapid 
buildup of effort in the groundfish fisheries. Many king crab 
vessels, the largest vessels, were reconfigured and re-equipped 
to fish pollock. Many of the pollock fishermen that went 
through the American Fisheries Act, started from king crab and 
then were impelled into that fishery by the king crab collapse.
    There is no ready area of refuge available these days, 
anywhere in the nation, certainly not in our fisheries in 
Alaska.
    We harvested 243 million pounds of opilio crab, in 1998. We 
had a 185 million pound harvest in 1999. We had a 33.5 million 
pound harvest in 2000 and a 25 million pound harvest in 2001. 
So we are looking at the same sort of disastrous decline in 
that stock, as well.
    We have a very serious problem. We have several other 
fisheries in the area which have been closed in an effort to 
rebuild them so the total combined income has diminished 
drastically.
    Mr. Gilchrest. Is the red king crab coming back at all?
    Mr. Blue. Not very successfully but it has somewhat and we 
have had lots of years of working on this. The red king crab 
fishery produced 8 million pounds in 2000. We have tried effort 
limitation to try to reduce the sheer number of pots. The red 
king crab fishery only lasts for four or five days and we have 
pot limits in effect. We have all kinds of regulations that are 
especially designed for this fishery and I went into these in 
great detail in the written testimony. It is something we just 
try our best to control by reducing the number of vessels.
    Mr. Gilchrest. And you are a crab fisherman in the Bering 
Sea?
    Mr. Blue. That is right.
    Mr. Gilchrest. And you mentioned that there is overcapacity 
in that fishery?
    Mr. Blue. That is right.
    Mr. Gilchrest. Has there been or is there a buyout program 
in that fishery now?
    Mr. Blue. There was provision for one that was passed last 
year as part of that appropriation 4577, the Capacity Reduction 
Act for crab in the Bering Sea. It is scheduled to occur by the 
end of this year but is lacking funding at this point. We need 
an appropriation to help it go forward.
    Mr. Gilchrest. Will that buyout then be done completely 
with an appropriation from the Congress or is there some 
industry money involved in that, as well?
    Mr. Blue. Yes, the industry money is in the form of a loan 
from the Fishery Obligation Guarantee program, Title 11 
funding, and it will be paid back over 30 years by assessment 
of the fleet.
    Mr. Gilchrest. In that crab fishery buyout program in the 
Bering sea, the one you just mentioned, will that be a 
comprehensive buyout program where the permits are bought up or 
eliminated, the vessel cannot go into another fishery? What 
then happens to the vessel?
    Mr. Blue. That is something that we have not tried to 
define. That has been intentional because we have several 
hundred small businessmen who are used to finding opportunities 
for themselves. A number of these vessels came into our fleet 
from oilfield supply and service work and so we think that 
those boats can reconvert and go back to that kind of work. I 
have heard there is some demand for it.
    I talked to a lot of guys this winter when I was out on the 
grounds and a few told me they enjoy their boats so much that 
they were going to just turn them into yachts, keep them parked 
at the dock, and putt around once in a while. Others--
    Mr. Gilchrest. Take it down to Miami.
    Mr. Blue. --are going into research activities, and so 
forth. Everybody is thinking of other things to do but fishing 
is not a part of it.
    Mr. Gilchrest. Mr. Saxton?
    Mr. Saxton. Thank you very much.
    I listened very carefully to each of your responses to my 
question in the last round and first of all, let me take sea 
urchins off the table. I do not know about the sea urchin 
problem or even if it is a problem but I have heard and that is 
why I included it and I apologize if I am wrong on that.
    Mr. Kirkley, I listened to your response, as well, and as I 
sat here while the Chairman was asking his questions I was 
trying to think how we might tweak this, as you put it, I 
think, to kind of redirect effort. I cannot, at least so far, 
come to the conclusion that I agree with you.
    Our history since we kicked the foreigners out of the 200-
mile limit with this law written the way it is and the emphasis 
placed on development of various fisheries and conservation of 
various fisheries, leads me to continue to believe that when we 
directly or indirectly create a market for seafood of some kind 
we exploit that market and then it becomes profitable to 
exploit that market, then we overexploit that market and it 
happens over and over and over again. It happened with all of 
the examples that I gave earlier, with the exception of--you 
have to teach me about sea urchins; I do not know about them. 
But it happens over and over again.
    For the last two years I have looked at numbers on highly 
migratory species and it is happening with targeted highly 
migratory species and it is happening with untargeted highly 
migratory species. And this is the law that we passed that 
creates the situation that has historically proven to make that 
happen and I do not know how you tweak that. I would love to 
accommodate everybody and do a little tweak that solves the 
problem but we have a huge problem and it has its basis, I 
believe, in this conflict.
    So I am not quite sure how we could accomplish the tweaking 
without doing major surgery on this thing and maybe I am in the 
minority; maybe the folks who agree with you will win out on 
this but I am certainly going to make an effort to try to do 
something that is more productive.
    Here we are talking about spending Federal money to reduce 
capacity and we are talking about spending Federal money to 
reduce capacity because we want to find conservation measures 
to help us figure out how to stop ripping marine life out of 
the ocean, and yet we have a provision in this law that says we 
need to develop fisheries.
    I do not know if anybody wants to comment. I just wanted to 
say that.
    Mr. Grader. If I can, Mr. Saxton, I think that you have 
brought up an interesting issue. What we are looking at in some 
of our fisheries is where we have now determined what the 
limits are and that we can harvest at a safe limit and have 
established those limits, the question then becomes how can we 
get the maximum economic value for what is being harvested?
    So you are absolutely right. The example of the red drum, 
for example, in the Gulf of Mexico where all of a sudden we 
have built up the market and the next thing we knew it was 
overfished. I think what happened there is we put things in the 
wrong order.
    If we can first establish what level of harvesting capacity 
or what level of harvesting any individual species or species 
complex will take, and then begin looking at marketing. It is 
probably going to be a lower harvest rate for many of these 
fisheries than we are currently at. The question then is, how 
can we still maintain the economic value of that fishery? That, 
I think, as Dr. Kirkley has said, is to begin looking at better 
product forms.
    On the West Coast, for example, we now have rebuilt our 
sardine fishery, which is the first big fishery to collapse in 
the U.S. It took 50 years to rebuild it. We are now at a stage 
where we are really at a decision point. We know what level of 
harvesting capacity we ought to have but the question becomes 
do we want to have that resource harvested by 80 boats taking, 
say, 50 or 70 tons a night and all going to be ground up or 
going for cheap canned product or do we perhaps want to expand 
it, having more vessels but harvesting at a much less capacity, 
say at 2 tons per vessel per night, directing that fish into a 
fresh market where the fish could go into white tablecloth 
restaurants where we could get far more value for it?
    So that is the real issue. It is first coming up with a 
limit on what we think is reasonable to harvest and then, 
secondly, getting at the most economic value. That is important 
for the fisherman but that is also important for our 
communities.
    And it is not unique, I do not think, to fisheries. We are 
looking at the same thing in timber, for example. Do you want 
to export raw logs or do you want to keep those logs in the 
community, perhaps harvesting less from our national forests 
but getting more value from them by doing the milling and 
everything else locally?
    Mr. Saxton. Thank you.
    Mr. Blue. May I respond, also? Thank you.
    I would just like to add that I guess the way we do things 
in this process is we define a problem and then we build a 
machine, a regulatory sort of machine, to solve the problem. 
Then we wire the governor to maximum speed and we turn it 
loose. That goes on in Capital Construction Funds, as an 
instance; it goes on and does what it does until somebody says 
hold it, we have to turn this off or slow it down. We do not 
have any mechanisms built in in advance to govern these 
programs.
    We did not appreciate at the time that these programs were 
designed that we would run into these problems. But having run 
there, I am not sure that the right action is to dismantle them 
and rebuild a new program to, for instance, decapitalize the 
fisheries. We certainly do not want to design a program in that 
same way because we will turn the engine on, get it going, and 
pretty soon there will not be any boats. We will be hearing 
from everyone that we have to rebuild our fleets, we have to do 
this and that.
    So I think that maybe a key is, in this policy that is 
being designed right now, for the capacity of the fisheries. We 
have to devise a method for determining what the carrying 
capacity of these fisheries really is and then we need to 
tinker with our program so we have a throttle and we can turn 
capacity down and turn it back up, as necessary, specifically 
on a fishery by fishery basis.
    Mr. Saxton. If I may, I like your analogy with the 
throttle. The problem is we get about 16 hands on the throttle 
pulling in different directions.
    Mr. Burns, would you like to comment?
    Mr. Burns. I guess I would just say that it does not seem 
to me that the idea of changing the overarching message that is 
sent by the provision that you mentioned is necessarily 
inconsistent with the need to also look at fisheries on a case 
by case basis. I mean I think our message ought to be now that 
promoting the development of fisheries is generally speaking 
not the direction that we want to go in and I think fishermen 
agree with that.
    At the same time, I think from the fisheries that you have 
heard about today it is apparent that every one is complicated 
and different. They are politically complicated, they are 
economically complicated and we really do need to look at them 
one at a time. But I think what the Congress can do is provide 
an impetus to make that happen by creating some sort of a 
framework within the act that forces the councils to really 
examine the state of capacity in the fisheries that they manage 
and in cases where there is an overcapacity problem to take 
timely measures, whatever they happen to be, to address the 
problems.
    Mr. Saxton. Thank you, Mr. Chairman.
    Mr. Gilchrest. Thank you, Mr. Saxton.
    One last question, I guess in that line of thinking where 
you wire the throttle so you cannot pull it back and when you 
can pull it back there are 16 different people pulling on the 
throttle.
    The Capital Construction Fund. The direction I guess we 
want to go here is to reduce capacity and to some extent the 
Capital Construction Fund has helped maintain capacity across 
the fisheries. So I do not think I heard anybody here mention 
today that we want to do away with the Capital Construction 
Fund and we do not want to take that message and incorporate 
that into any reauthorization. But I guess as we look at the 
Capital Construction Fund and its mechanism, we have to look at 
all the fisheries, I would guess, to see the North Pacific 
fishery compared to the New England fishery and one will be 
older soon, if not already, and need some construction. So that 
program will need to to some extent remain viable for those who 
need it, especially for safety concerns. So it is an 
extraordinary system.
    I do not know if anybody wants to respond to that aspect of 
it. Mr. Grader?
    Mr. Grader. I was just going to say perhaps what we need to 
do is rename the Capital Construction Fund to the Capital 
Correction Fund and be able to use it in a way to both help us 
take vessels out if we need to or direct the money where it is 
needed in the fleet, which is very definitely, as Mr. Blue can 
attest to, the problem they have with vessel safety, the recent 
tragedy in Alaska, the problem with getting better product 
quality, the problem of having our vessels be more fuel 
efficient.
    Mr. Gilchrest. Mr. Blue?
    Mr. Blue. I will certainly second that notion. One way, for 
instance, that we can use Capital Construction Funds to help 
reduce capacity and reduce the threat of additional capacity is 
to allow people to take those funds into retirement accounts. 
We heard about that earlier on. What that would do is it would 
put the funds in a place where they are supervised and will not 
be used for reinvestment in the fisheries.
    And because the Capital Construction Fund program has been 
defined in terms of capital investment imperatives up to now, 
people have been pressured to either take an unqualified 
withdrawal at very great cost or to reinvest in fisheries. We 
want to at least change the regulations to the extent that that 
no longer occurs. We do not want to see people forced to either 
invest their CCFs or lose them. That is not a real big 
regulatory fix, I think.
    Another thing that could be done with funds that are now on 
deposit in Capital Construction Funds is they could be defined 
such that those funds would be allowed to become a source of 
capital for buyback programs so that they serve to underwrite a 
bonding authority, for instance, and we could then exercise 
those funds as a capital instrument involved in underwriting 
buyback programs.
    Now that would get pretty complicated but it is an idea 
that I think could have some merit as a decelerator on 
investment in the fisheries. There are a number of proposals we 
have heard to this effect that could help to not only mitigate 
but turn the impacts into something useful.
    Mr. Gilchrest. Those are certainly interesting proposals. I 
am just wondering if we would have to go to the Ways and Means 
Committee for the retirement provisions for any changes in the 
CFF.
    How about if we just change--would we have to go to Ways 
and Means if we changed it from Capital Construction Fund to 
Capital Correction Fund? Maybe.
    Are there any other comments from the witnesses?
    Gentlemen, thank you very much. You have been an 
extraordinary help this morning and this afternoon.
    Just one last comment I want to make before we all leave 
here. Macy Bell, we all owe her a debt of gratitude for her 
fine work here on the Committee as the staff person. Macy is 
retiring to Utah. I think she will probably still be pretty 
active out there. Macy, we appreciate all your work and effort 
on the Committee. You have been a fine staff person and we wish 
you nothing but the best in the State of Utah. Thank you very 
much.
    Mr. Gilchrest. The hearing is now adjourned.
    [Whereupon, at 12:30 p.m., the Subcommittee was adjourned.]

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