U.S. GOVERNMENT PUBLISHING OFFICE

32–434 PDF WASHINGTON : 2018

S. HRG. 108–1035 

BERING SEA/ALEUTIAN ISLAND 

CRAB RATIONALIZATION PLAN 

HEARING 

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED EIGHTH CONGRESS 

FIRST SESSION 

MAY 20, 2003 

Printed for the use of the Committee on Commerce, Science, and Transportation 

( 

Available online: http://www.govinfo.gov 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED EIGHTH CONGRESS 

FIRST SESSION 

JOHN MCCAIN, Arizona, Chairman 

TED STEVENS, Alaska 

CONRAD BURNS, Montana 

TRENT LOTT, Mississippi 

KAY BAILEY HUTCHISON, Texas 

OLYMPIA J. SNOWE, Maine 

SAM BROWNBACK, Kansas 

GORDON H. SMITH, Oregon 

PETER G. FITZGERALD, Illinois 

JOHN ENSIGN, Nevada 

GEORGE ALLEN, Virginia 

JOHN E. SUNUNU, New Hampshire 

ERNEST F. HOLLINGS, South Carolina, 

Ranking 

DANIEL K. INOUYE, Hawaii 

JOHN D. ROCKEFELLER IV, West Virginia 

JOHN F. KERRY, Massachusetts 

JOHN B. BREAUX, Louisiana 

BYRON L. DORGAN, North Dakota 

RON WYDEN, Oregon 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

JEANNE BUMPUS, Republican Staff Director and General Counsel 

ROBERT W. CHAMBERLIN, Republican Chief Counsel 

KEVIN D. KAYES, Democratic Staff Director and Chief Counsel 

GREGG ELIAS, Democratic General Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on May 20, 2003 ............................................................................... 1 

Statement of Senator Cantwell .............................................................................. 5 

Prepared statement .......................................................................................... 5 

Statement of Senator Stevens ................................................................................ 1 

WITNESSES

Duffy, Kevin C., Commissioner, Alaska Department of Fish and Game ............ 6 

Prepared statement .......................................................................................... 9 

Fraser, Dave, Captain, Fishing Vessel Muir Milach ............................................ 30 

Prepared statement .......................................................................................... 33 

Freed, Hon. Linda, City Manager, City of Kodiak ................................................ 16 

Prepared statement .......................................................................................... 19 

Kelty, Frank, Resource Analyst, City of Unalaska ............................................... 56 

Prepared statement .......................................................................................... 59 

Murkowski, Hon. Lisa, U.S. Senator from Alaska ................................................ 3 

Prepared statement .......................................................................................... 4 

Murray, Hon. Patty, U.S. Senator from Washington ........................................... 2 

Thomson, Arni, Executive Director, Alaska Crab Coalition ................................. 71 

Prepared statement .......................................................................................... 73 

APPENDIX

Anderson, Coleman A., prepared statement .......................................................... 107 

Burns, Michael F., President and Co-Owner, Blue North Fisheries, prepared 

statement .............................................................................................................. 107 

Chevalier, Robert L., Sitka, AK, prepared statement .......................................... 108 

Childers, Dorothy, Executive Director, Alaska Marine Conservation Council, 

prepared statement .............................................................................................. 109 

Garcia, Kale, Owner-Operator F/V Aquila, prepared statement ......................... 111 

Harrington, Erin D., Kodiak, AK, prepared statement ........................................ 111 

Halvorsen, Robert, Professor of Economics, Department of Economics, University of Washington, prepared statement ............................................................ 112 

Laukitis, Michael B., President, North Pacific Fisheries Association, prepared 

statement .............................................................................................................. 147 

Lestenkof, Phillip, President, Central Bering Sea Fishermen’s Association, 

prepared statement .............................................................................................. 149 

Letter dated May 19, 2003 to Hon. Ted Stevens from Larry Cotter, CEO, 

Aleutian Pribilof Island Community Development Association ....................... 234 

Letter dated May 20, 2003 from Michele Longo Eder to Hon. John McCain ..... 235 

Letter dated May 20, 2003 to Senator John McCain from Dennis Petersen, 

Resident of Seattle, WA ....................................................................................... 236 

Letter dated May 20, 2003 to Senator John McCain from Victor Smith, 

Friday Harbor, WA .............................................................................................. 237 

Letter dated May 25, 2003 to Senator John McCain from Victor Smith, 

Friday Harbor, WA .............................................................................................. 238 

Letter dated May 29, 2003 to Linda Freed, Manager, Kodiak City Manager 

from Simeon Swetzof, Jr., Mayor, City of St. Paul ........................................... 240 

Letter dated May 30, 2003 to Senator John McCain from Jeffrey R. Stephan, 

United Fishermen’s Marketing Association, Inc. .............................................. 241 

Letter dated June 6, 2003 to Senator John McCain from Victor Smith, Friday 

Harbor, WA ........................................................................................................... 245 

Petersen, Rudy A., Fisherman, CEO, and Owner, Fishermen’s Finest, Inc., 

F/V American No. 1/F/V U.S. Intrepid, prepared statement ............................ 151 

Page

IV 

Philemonoff, Ron, Chairman and CEO, Tanadgusix (TDX) Corporation of 

St. Paul Island Alaska, prepared statement ...................................................... 186 

Pierce, Byron L., prepared statement .................................................................... 188 

Powell, Richard, Resident of Kodiak, Alaska, prepared statement ..................... 189 

Pries, Robert E., Renton, WA, prepared statement .............................................. 190 

Soma, David, Deep Sea Fishermen’s Union of the Pacific, prepared statement 191 

Sorvik, Alf O., Owner F/V Rainier, F/V Paragon, F/V Isafjord, prepared statement ...................................................................................................................... 196 

Stewart, Capt. Gary, F/V Polar Lady, prepared statement ................................. 196 

Storrs, Bob, Vice President, Unalaska Native Fisherman Association (UNFA), 

prepared statement .............................................................................................. 197 

Swetzof, Jr., Simeon, Mayor, City of Saint Paul, Alaska, prepared statement .. 215 

Taufen, Stephen R., Founder, Groundswell Fisheries Movement, prepared 

statement .............................................................................................................. 222 

Tolva, Mimi, Homer, AK, prepared statement ...................................................... 223 

Tyack, Peter, Senior Scientist and Walter A. and Hope Noyes Smith Chair, 

Biology Department, Woods Hole Oceanographic Institution .......................... 224 

Uri, Konrad S., Seattle, WA, prepared statement ................................................ 233 

Hon. Ron Wyden, U.S. Senator from Oregon, prepared statement ..................... 246 

Response to written questions submitted by Hon. Ron Wyden to: 

Kevin Duffy ....................................................................................................... 246 

Dave Fraser ....................................................................................................... 247 

Linda Freed ....................................................................................................... 247 

Frank Kelty ....................................................................................................... 248 

Arni Thompson ................................................................................................. 248 

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BERING SEA/ALEUTIAN ISLAND 

CRAB RATIONALIZATION PLAN 

TUESDAY, MAY 20, 2003 

U.S. SENATE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC. 

The Committee met, pursuant to notice, at 2:45 p.m. in room 

SR–253, Russell Senate Office Building, Hon. Ted Stevens, presiding. 

OPENING STATEMENT OF HON. TED STEVENS, 

U.S. SENATOR FROM ALASKA 

Senator STEVENS. Congress directed the North Pacific Fisheries 

Management Council, in the Consolidated Appropriations Act for 

2001, to examine the fisheries under its jurisdiction, particularly 

the Gulf of Alaska groundfish and Bering Sea crab fisheries. The 

Council was directed to analyze individual fishing quotas, processor 

quotas, cooperatives, and quotas held by communities. In doing 

this, the Council was expected to include economic analysis of the 

impact of all options on the three components of the fishing industry communities, processors, and fishing fees. 

In 2002, the Council voted unanimously to create a three-pie system of quota share for the harvesting sector, the processing sector, 

and communities. 100 percent of the catch is allocated to the harvesters and 90 percent to the processors, with 10 percent open access. The rationalization concept of processor quota share is a novel 

idea that has its roots in the American Fisheries Act, AFA. 

I worked closely with the Senators from Washington to develop 

the AFA, a fisheries rationalization plan, for the Bering Sea, Aleutian Islands pollock. AFA has proved to be a good rationalization 

plan that has allowed for increased use of target species, better 

execution of the fishery, instead of a race for the fish, and a great 

success in conservation and management of the fishery, and this 

has brought about substantial growth in pollock stocks. The BSAI 

Crab Rationalization Plan must benefit all Alaskan communities. 

This fishery is prosecuted entirely off the coast of Alaska, and the 

various communities that have a history under the Council’s plan 

must have a role in the future of this fishery. 

I am encouraged to learn that the Council has completed work 

on the trailing amendments and has provided additional protections for the communities’ impact by rationalization of this fishery. 

And I thank the witnesses for coming to Washington for this 

hearing, and I look forward to your testimony. Again, my apology 

for being slightly late. 

2 

Senator Murray, we are pleased to have your statement. 

STATEMENT OF HON. PATTY MURRAY, 

U.S. SENATOR FROM WASHINGTON 

Senator MURRAY. Well, thank you very much, Mr. Chairman, for 

holding this hearing today. I really appreciate your leadership and 

for inviting me to testify today on the North Pacific Crab Rationalization Plan. 

The states of Alaska and Washington share many common interests, and I appreciate the opportunity to work with you as we address these important regional issues. The commercial fishing industry is one example of the many interests that are shared by the 

states we represent. On the issue of crab rationalization which is 

before us now, I am confident that we will be able to work together, 

as we have in the past, to tackle this important subject. 

Mr. Chairman, you and I are both here today for one simple reason, the status quo is not working. The status quo means more 

lives lost at sea, inefficient use of the resource, and harm to fisheries. We know that overcapitalization plaguing the industry was 

caused, in part, by the race for fish and short fishing seasons, and 

we know that we can more efficiently manage our resource. 

Mr. Chairman, the race for fish puts our fisherman at an unacceptably high risk. Too often, we hear of boats that risk too rough 

a sea and never return home. We know from past efforts that rationalization slows down the fishery and brings tremendous environmental and safety benefits. Participants avoid going to sea during bad weather, take time to treat the resource carefully, and minimize waste. We do know, also, that there is risk and uncertainty 

associated with employing new public-policy tools, and, in many 

cases, we cannot know the full impact of new approaches until we 

try them. I believe, however, that the experience of the American 

Fisheries Act is a testament to the potential benefits of crab rationalization. 

The plan recommended by the Council may not be perfect, but 

it does represent significant progress over the status quo. The costs 

of continued delay, in lives and in resources, are high. 

There are, of course, different perspectives on the crab plan 

passed by the Council last June. Many of my constituents are concerned about the plan because of its inclusion of processor quotas 

and impacts for the industry and communities. Most of the anxiety 

expressed by harvesters and communities is focused on the proposed plan’s guarantee of 90 percent processor quotas. 

Mr. Chairman, I appreciate these concerns, and I am interested 

in exploring ways we might address them. We cannot let the perfect become the enemy of the good. After years of deliberation, the 

Council recommended its plan by a vote of eleven to zero. I believe 

it was the intent of the Council to send a strong message on this 

subject, and it did. Congress cannot ignore this significant action. 

Today, we will hear about the many benefits that can come from 

rationalizing the crab fisheries. We will be urged to enact legislation authorizing processor quotas so the Council and the National 

Marine Fisheries Service can begin the arduous work of implementing the plan. 

3 

I look forward to hearing from the witnesses today, in hopes of 

hearing perspectives that will bring us new insights about how we 

should proceed. After today’s hearing, it is important that Members 

of this Committee and Congress make crab rationalization a priority this Congress so we can complete the transition away from 

the status quo. 

Mr. Chairman, I look forward to today’s testimony and to working with you on this issue in the weeks and months ahead. And 

thank you, again, for allowing me to participate in this important 

hearing. 

Senator STEVENS. Senator, I would be pleased if you would join 

me here. I do expect another Senator, or more, could join before we 

are through. 

I should say to the audience—I know that most of you are from 

home, or at least from the Pacific Northwest—and this is one of 

those busy days in Washington, from the Senate. We have the 

Armed Services bill on the floor, and we have several competing 

conferences and hearings going on today. So I do not expect we are 

going to have any other Senators join us, except Senator Murkowski, if she gets cleared from her current hearing. 

We have, now, a panel which is made up of Mr. Kevin Duffy, 

Commissioner of the Alaska Department of Fish and Game; Ms. 

Linda Freed, City Manager of the City of Kodiak; Mr. Dave Fraser, 

Captain of the fishing vessel Muir Milach; Mr. Frank Kelty, Natural Resources Manager of the City of Unalaska; and Mr. Arni 

Thomson, Executive Director of the Alaska Crab Coalition, from Seattle. I failed to note that Mr. Fraser is from Port Townsend, 

Washington. 

I would appreciate it if you would come to the Council table, and 

we will go through the hearing. 

As you are coming up, many have questioned the time involved 

in this hearing. I am not the Chairman of this Subcommittee. The 

Chairman of this Subcommittee is otherwise involved in other 

things and did not have time for this hearing. He consented that 

we could have the hearing, but we are limited, in terms of the time, 

because of the circumstances I mentioned before, in terms of the 

bills that are before the Senate. We may have votes during the 

time of this hearing, in which we would have to stand in recess so 

that we could go cast our votes and return. Senator, do you have 

an opening statement? 

STATEMENT OF HON. LISA MURKOWSKI, 

U.S. SENATOR FROM ALASKA 

Senator MURKOWSKI. Mr. Chairman, thank you for the opportunity to participate, to be here with so many Alaskans this afternoon. 

If I had to characterize my views on the proposed Bering Sea 

Crab Rationalization Program at the moment, I would probably say 

it is undecided. So I look forward to hearing from today’s witnesses, 

who represent a range of views, and who will, I hope, help Congress make informed decisions on this. 

The last decade has been marked by rapid change. Resource levels, market conditions, and economic performance have all fluctuated wildly. And it is clear that a race for fish is no longer the 

4 

optimum strategy for management, if it ever was. It leads to adverse consequences for the resource, for the market, and for the 

fishermen who risk their lives to pursue it. So change is needed, 

but how much and what kind? 

Mr. Chairman, I do have a rather lengthy opening statement, but 

would like, more specifically, to hear from those who have come to 

speak on this issue. I would be happy to include the balance of my 

testimony for the record so that we can provide the opportunity to 

hear from the panel this afternoon. 

Senator STEVENS. Well, thank you very much, Senator. All of the 

statements that are filed by the witnesses and by yourself and the 

statement made by Senator Murray will be printed in full in the 

record as though completely read, and we appreciate your courtesy 

of postponing the further testimony so that we may turn to the witnesses now. 

[The prepared statement of Senator Murkowski follows:] 

PREPARED STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR FROM ALASKA

Mr. Chairman, thank you for the opportunity to participate in this important 

hearing. 

If I had to characterize my views on the proposed Bering Sea crab rationalization 

program at this moment, the appropriate word would be ‘‘undecided.’’ 

I look forward to hearing from today’s witnesses, who represent a range of views, 

and who will, I hope, help Congress make informed decisions. 

The last decade has been marked by rapid change. Resource levels, market conditions and economic performance all have fluctuated widely. 

It is clear that a ‘‘race for fish’’ is no longer the optimum strategy for management, if it ever was. It leads to adverse consequences for the resource, for the market, and for the fishermen who risk their lives to pursue it. 

Change is needed. But how much? And what kind? 

I see very substantial support for moving to Individual Fish Quotas (IFQs) for 

crab harvesters. This alone is a radical change from the open fisheries of the past, 

but IFQs have been shown to be beneficial in other fisheries. They have slowed the 

race, improved product quality, allowed more profitable operations, and improved 

safety. 

But there have also been unintended consequences. When IFQs were implemented 

in Alaska’s halibut and sablefish industries, some processors claimed they were 

harmed because their considerable capital investments—necessary to compete in an 

open-access race for fish—were no longer needed. I have no reason to doubt those 

losses. But neither have I seen convincing analysis to demonstrate that the same 

impact would necessarily occur in other fisheries. 

The most controversial aspect of the proposed plan is that it incorporates both 

IFQ’s and Processor Quotas (PQs). Where IFQ’s allocate the right to compete for 

fish, PQs allocate the fish themselves, after they have become private property of 

the fishermen. One effectively provides a license to compete, while the other effectively provides protection against competition. That is an important distinction, and 

one which Congress must take very seriously. Protection against competition is not 

a traditional role of the government in a free marketplace, except where dealing 

with a limited resource owned by the government, such as radio-frequency bandwidth. Congress must now decide if it is a necessary step—or if it will ultimately 

lead to more serious problems. 

There is very little history to draw upon for guidance, at least in the fishing 

world. Some point to the remarkably successful restructuring of the Alaska Pollock 

fishery under the American Fisheries Act (AFA), which also created a closed class 

of processors. However, it is important to note that the AFA, crafted by Senator Stevens and Senator Gorton with extensive input from involved fishermen and processors, functions quite differently in the way it deals with the processing issue. It 

requires that processors work with fishermens’ co-ops, and it offers no guarantees 

beyond the annual co-op agreements. 

As an Alaskan representing my State in Congress, my primary concern is the potential impact on my constituents and their communities. There is strong support 

for the plan among many of the communities that have traditionally processed the 

bulk of the Bering Sea crab catch. That is understandable. Most of those commuVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
5 

nities would, like the processors themselves, be protected by a program that mandates that harvested crab be delivered to their existing processors. 

Among the fishermen, however, and among other communities, there is widespread opposition, and I believe we must fully evaluate those arguments, as well. 

The primary question is whether the proposed plan will benefit all the fishery’s 

participants—processors, fishermen and the processing workers and support industries that form the backbone of our communities. At least one community that has 

received Bering Sea crab in the past will no longer be able to do so. Others, that 

may in the future be positioned to take Bering Sea crab, will be prevented from 

doing so. 

I recognize that the North Pacific Council has attempted to adjust the plan to provide for competition among processors for the 10 percent of fishing shares that 

would not be allocated among processors. It has attempted to preserve processing 

communities by geographic designations and by providing communities with an opportunity to acquire processing rights. And it has attempted to mitigate possible exvessel price reductions by mandating a form of binding arbitration. 

Are these steps enough? 

Will the plan lead to renewed prosperity not just for today’s participants, but also 

to an expansion of activity to new companies and new communities? Or will it lead 

to fewer economic opportunities in all but a handful of lucky cases? 

Will its impacts improve the ability of the fishing and processing industry overall 

to adjust to changes in other fisheries? Or will it simply cause stagnation? 

Will it continue to allow healthy competition? Or lead to a radical consolidation 

that leaves many communities marooned, with no way to profit from future changes 

in the market or in the location, abundance, or species mix of the Bering Sea crab 

resource? 

Those are the questions that must be answered, and which leave me wondering. 

I hope that today’s testimony will shed light on all of them, and look forward to 

hearing from the experts on all sides. 

Senator STEVENS. I would call on, first—oh, wait a minute, here 

is—Senator Cantwell, do you have an opening statement? 

STATEMENT OF HON. MARIA CANTWELL, 

U.S. SENATOR FROM WASHINGTON 

Senator CANTWELL. I do, Mr. Chairman, but I will have to submit it for the record. 

Senator STEVENS. Thank you very much. We will submit it. We 

have submitted the others. We are happy to have you join us. 

[The prepared statement of Senator Cantwell follows:] 

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

Thank you Senator Stevens. I appreciate your continued leadership on these 

issues and I look forward to working with you and Senator Murray to ensure that 

the constituents of both of our great states benefit from a fair crab rationalization 

plan. 

As we heard today, managing America’s Bering Sea and Aleutian Island crab resources is critical to the continuation of this multimillion-dollar industry. 

However, I don’t think anyone here today would dispute that the current system 

is broken and that we must act. 

Today’s ‘‘race to fish’’ is dangerous, it leads to unsustainable harvests, and it has 

forced an uneconomic overcapitalization of both the fishing fleet and processor facilities. 

The North Pacific Fishery Management Council’s plan represents an impressive 

investment of time and energy. 

I would like to publicly thank the Council members for their work and their consideration of the interests of all relevant stakeholders. 

With its ‘‘three-pie’’ approach, the plan attempts to balance the interests of harvesters, processors, and communities. However, Congress must decide if this is the 

fairest and most effective way to rationalize the North Pacific crab harvest. 

I look forward to working with my Senate colleagues on this critical issue in the 

weeks and months ahead. 

6 

Senator STEVENS. It is probably not politically correct to say, but 

obviously this is a regional issue, because there is no one here from 

outside of our region. Mr. Duffy, let us hear your statement first. 

STATEMENT OF KEVIN C. DUFFY, COMMISSIONER, 

ALASKA DEPARTMENT OF FISH AND GAME 

Mr. DUFFY. Thank you, Mr. Chairman. Good afternoon. 

I am Kevin Duffy, Commissioner of the Alaska Department of 

Fish and Game and also the State of Alaska representative on the 

North Pacific Fishery Management Council. I appreciate the opportunity to be here today to discuss the Council’s preferred alternative for the Bering Sea/Aleutian Island’s Crab Rationalization 

Plan. 

Rationalization is the path to revitalize the economic health of 

Bering Sea/Aleutian Island crab fisheries, provided the policy recognize the partnership among harvesters, processors, and communities. The Council sought to ensure this rationalize program maintains the integrity of this partnership by providing incentives for 

all parties to work toward mutually beneficial goals. 

There are two approaches that accomplish this objective. The two 

approaches that maximize benefits to the Nation and equitably distribute those benefits among the three partners are the voluntary 

cooperatives and the two-pie allocation of quota share, which, in 

combination with CDQ allocations and other community elements, 

is in reality a three-pie scheme. This voluntary three-pie approach 

approved by the Council in June 2002 recognizes the prior economic interests among harvesters, processors, and communities. 

This approach fits the Bering Sea crab fishery. 

The Council has a pioneering history of designing rationalization 

programs unique to the fishery at hand. The Council crafted an 

IFQ program for halibut and sable fish that fit the small-vessel 

owner-onboard nature of that fishery. For pollock, under direction 

from Congress, the mechanism was processor-linked cooperatives. 

We design rationalization programs to fit the dynamic needs of 

any particular fishery, as a council. For the large-boat, heavily industrialized corporate nature of the Bering Sea/Aleutian Island 

crab fisheries, the Council found that a voluntary three-pie coop 

structure fit best. 

I want to emphasize conservation and safety are as much a driving force to rationalize as the need to revitalize the economic 

health of the industry and communities. Resource protection is embedded within this plan. With extended slower seasons, it is anticipated that dead-loss will be greatly reduced and that already low 

bycatch levels will decline further. 

With more time to prosecute the fishery under IFQs, fewer pots 

will be lost, and ghost fishing by lost or abandoned pots will be reduced even beyond the current low levels. 

To ensure that the resource, its protection, is maintained and is 

a paramount factor under the Council’s jurisdiction, there will be 

increased monitoring under this program, and the plan the Council 

developed includes a funding source for that increased monitoring. 

Most importantly, this Council plan saves lives. The current management scheme results in a derby-style race for fish. 

7 

In terms of a brief background for the community, as the Chairman indicated, Congress directed the Council to consider a wide variety of approaches to a rationalized fishery. Early in this process, 

the Council established a broad-based industry working group to 

develop options to rationalize the Bering Sea crab fisheries. This 

workgroup met over a 2-year period to identify workable solutions 

and to develop a majority opinion. Including the work of the Committee, the Council has studied this issue for well over 3 years, 

with a detailed analysis of all of the issues brought forward by the 

Committee, which did include the concept of processor shares. 

The first Council action was to unanimously adopt a problem 

statement that any solution should consider the lack of economic 

stability for harvesters, processors, and coastal communities. After 

many revisions and exhaustive public review of the analysis, the 

Council unanimously adopted a final motion in June 2002, which 

responded to congressional direction. Since then, the Council continued to work on several trailing amendments and completed its 

work in April 2003. 

Overall, the Crab Rationalization Program strikes a balance 

among the three parties mentioned. Based on public input—exhaustive public input, I might add—the program was unanimously 

approved by this Council. 

As a Council, we have an obligation to review program performance, especially with respect to the impact on all three partners. 

The Council is on record that we will make necessary adjustments 

to achieve our stated goals and minimize unintended consequences. 

Through program review, we can adjust elements of the initial policy design. This flexibility is uncommon to most market-based rationalization plans. Specifically, the Council can adjust the percentage of these shares, adjust attributes intended to protect community interests, adjust the other mechanisms for community protection, and adjust specific design features of the program to adapt to 

changes in stock status for the Bering Sea/Aleutian Island crab. 

All eligible fishermen under this program gain by having value 

attached to their fishing history. The Council chose years agreed to 

by the industry committee and recommended by the advisory 

panel. Regardless of where a fisherman sits in the qualifying period, the word of quota share generates immediate value and economic gain over the race-for-fish scenario. Furthermore, it is anticipated that consolidation and the ability to stack quota, combined 

with a buy-back program, could reduce the crab fleet significantly. 

This results in very significant economic gains to the remaining 

participants. 

Even though the economic gains are recognized by many crab 

fisherman, there was still a need to address equity issues and balancing of negotiating strength between harvesters and processors. 

The Council has provided many protective measures to ensure that 

vessel owners are not disadvantaged. They include a discount of 

each processor’s history, providing for B shares, a system of binding arbitration to assure that no harvester will be forced to accept 

a price by a processor holding processor shares. Processors will be 

required, under the program, to give regulators full, complete, and 

detailed crab processing costs and crab sales revenues. 

8 

Caps on the amount of harvesting shares that can be owned by 

or affiliated with processors are incorporated. This is intended to 

ensure that the processor will continue to need crab from independent harvesters. We have also prohibited vessels owned processors from being awarded B shares. This was done in order to further protect the interests of independent harvesters. 

While not a direct part of the Council’s motion to protect fishermen’s interests, there is another key advantage that accrues. Currently, harvesters cannot really withhold product from processors 

for long periods of time, because the current open-access model allows any catcher-processor or strikebreaker to fish while others remain tied to the dock. Once IFQ is issued to harvesters, every harvester can, either individually or as a member of a coop under this 

plan, withhold product from the processing sector without fear of 

someone else harvesting it. As learned from the AFA model, the 

ability to withhold product is a powerful tactic that fishermen can 

use to leverage fair prices. 

The next set of benefactors are the crab processors. Having observed processor fallout from the harvester-only allocation on IFQs 

for halibut and sable fish, and processor viability under AFA coops, 

the Council made a deliberate choice to include processors in this 

program. Processor shares will allow the processing sector to more 

fully experience the efficiency gains of rationalization; and, thus, 

remain viable. With the ability to trade and purchase processing 

shares up to a set limit, it is anticipated that the number of processors available to buy crab may actually increase. At the very 

least, award of processor shares should stabilize the crab-processing sector so that the number of currently viable processors will 

remain the same. 

Last, the Council chose to provide specific community-protection 

measures to recognize the investment of communities in the relevant Bering Sea crab fisheries. Noting that the very real likelihood that for those same communities to experience irreparable 

harm without protection, National Standard 8 of the MagnusonStevens Act takes into account the need for sustained participation 

of fishing communities and minimizing adverse effects on those 

communities. 

There are a number of specific elements of the community protection measures in this plan. In the interest of time, I will pass those 

over, and please refer to my testimony. 

The Council has provided Congress with two comprehensive reports on the Bering Sea/Aleutian Island Crab Rationalization Program. The first report, in August 2002, provided details on the 

Council’s Crab Rationalization Program that was unanimously approved. The second report, dated May 6 of this year, provided details on a set of trailing amendments that included a binding arbitration program, a suite of community-protection measures, details 

on captain and crew shares, sideboards, and details of a comprehensive data-collection program. 

In closing, let me emphasize that while imposing an allocation 

scheme automatically has varying impacts among the participants, 

the Council strove to make all sectors—harvesters, processors, and 

communities—win from Bering Sea crab rationalization. It was a 

challenging balancing act, to say the least. However, through the 

9 

work of the industry committee, the Council staff, the advisory 

committee, and community representatives, the Council’s preferred 

alternative does benefit all sectors. And, most importantly, the plan 

will save lives and improve management. 

Senator STEVENS. I am going to have to cut you off there, Kevin. 

Thank you very much. 

Mr. DUFFY. Yes, Mr. Chairman. 

Senator STEVENS. We have limited witnesses to 10 minutes each 

so we can have some time for questions here. I would ask you to 

finish. Yes, sir? 

Mr. DUFFY. Just one quick concluding statement, if I could, Mr. 

Chairman. 

Senator STEVENS. Yes, sir. 

Mr. DUFFY. Thank you. 

The State of Alaska supports implementation of the Crab Rationalization Program as approved by the Council in 2002, including 

the details addressed through a set of trailing amendments completed in April 2003. 

Thank you, Mr. Chairman. 

Senator STEVENS. Thank you. 

[The prepared statement of Mr. Duffy follows:] 

PREPARED STATEMENT OF KEVIN C. DUFFY, COMMISSIONER, 

ALASKA DEPARTMENT OF FISH AND GAME

Good afternoon, Mr. Chairman and members of the Committee. I am Kevin C. 

Duffy, Commissioner of the Alaska Department of Fish and Game. I am also the 

State of Alaska’s representative on the North Pacific Fishery Management Council. 

I appreciate the opportunity to be here today to discuss the North Pacific Fishery 

Management Council’s preferred alternative for the Bering Sea/Aleutian Islands 

(BSAI) Crab Rationalization Plan. 

Thirty years ago, foreign harvesters and processors prosecuted Bering Sea crab 

fisheries. Then, the Magnuson-Stevens Fisheries Act Americanized these fisheries. 

The U.S. industry started from scratch, investing in both harvesting and processing 

capacity. At the same time, Alaska communities invested in the labor and infrastructure to support these fisheries. 

The crab fisheries flourished, quickly becoming the most valuable fisheries in the 

North Pacific. Investments in all sectors grew together and soon there was too much 

capacity harvesting and processing declining stocks of crab. None of the three partners—harvesters, processors and communities—I currently consider financially 

healthy. Of particular concern to the State of Alaska are the remote fishery-dependent communities, which are now adversely impacted by the diminished flow of economic activity. 

Rationalization is the path to re-vitalize the economic health of these fisheries, 

provided the policy recognizes the partnership among harvesters, processors and 

communities. This partnership is like a three-legged stool. Cut out any leg and the 

stool tips over. 

The solution to keeping this stool strong and stable is to ensure that any rationalization program maintains the integrity of this partnership by providing incentives 

for all parties to work toward mutually beneficial goals. There are two approaches 

that accomplish this objective. The two approaches that maximize the benefits to the 

Nation and equitably distribute these benefits among the three partners are the 

Voluntary Cooperatives and the Two Pie allocation of quota share, which in combination with the CDQ allocations and other community elements, is in reality a 

Three Pie allocation scheme. This Voluntary Three Pie Cooperative approach, approved by the North Pacific Fisheries Management Council (hereafter referred to as 

the Council), recognizes the prior economic interests among harvesters, processors 

and communities. This three-pie approach fits the Bering Sea crab fishery. 

The Council has a pioneering history of designing rationalization programs unique 

to the fishery at hand. The Council crafted an IFQ program for halibut and sablefish that fit the small vessel, owner on-board nature of that fishery. For pollock, the 

mechanism was processor-linked cooperatives. We design rationalization programs 

10 

to fit the dynamics and needs of the particular fishery. For the large boat, heavily 

industrialized, corporate nature of the BSAI crab fisheries, the Council found that 

a voluntary, three-pie cooperative structure fit best. Given the Council’s history, I 

fully expect a different model will emerge from the Council for the Gulf of Alaska 

rationalization process that is currently underway. 

I want to emphasize that conservation and safety are as much a driving force to 

rationalize as the need to re-vitalize the economic health of the industry and communities. Resource protection is imbedded within the Council’s plan. With extended, 

slower seasons it is anticipated that deadloss will be greatly reduced and that the 

already low bycatch will decline further. With more time to prosecute the fishery, 

fewer pots will be lost and ghost fishing by lost or abandoned pots will be reduced 

even beyond the low level that the current regulatory safeguards have resulted in. 

To ensure that the resource remains a paramount benefactor of rationalization, increased monitoring (with fees to support it) will occur. With voluntary cooperatives, 

the regulatory units will be smaller and hence administrators and resource managers will benefit as well. Furthermore, ending the ‘‘race for the fish’’ builds a conservation safety net that the Board of Fisheries and the Department of Fish and 

Game will build and act upon. 

And most importantly, the Council’s plan saves lives. The current management 

scheme of the BSAI crab fisheries results in a derby-style ‘‘race for fish’’. This system often puts pressure on participants to fish in unsafe weather conditions, work 

continuously for long periods without rest. There is also the potential to overload 

vessels with fishing gear in an attempt to improve returns under these conditions. 

Falling Guideline Harvest Levels (GHLs) and overcapacity in all crab fisheries has 

reduced fishing periods and increased the ‘‘race’’ for crab, thus exacerbating safety 

concerns for BSAI crab vessels. 

According to the 1997 and 2001 Occupational Safety and Health studies, the Alaskan commercial fishing industry had a fatality rate 28 times the national occupational average. Within this high-risk industry, the BSAI crab fisheries were found 

to account for a disproportionately high level of injuries and death. From 1990 to 

2001, there were a total of 25 vessels lost, resulting in 40 fatalities. Twenty-one 

more lives were lost as a result of being swept overboard, crushed by crab pots or 

entangled in lines or winches. These losses are simply unacceptable. It is these 

losses that in part compelled the Council to act now and end the dangerous ‘‘race 

for fish.’’ 

Examining safety statistics in the Alaskan halibut fishery suggests that rationalization of that fishery has been a force in improving safety. In the five years preceding implementation of the halibut IFQ program (1990 to 1994), 17 fatalities occurred in the halibut fishery. In the 7 years after implementation of the program 

(1995 to 2001) the number of fatalities in the fishery declined to 4. While no one 

can predict the number of lives saved, it is anticipated that rationalizing BSAI crab, 

the most dangerous fishery in the U.S., will have a similar affect on reducing fatalities. 

It should also be noted that to the extent that a rationalized management system 

results in a sustainable, economically viable fishery, then improvements in safety 

should follow. In economically viable fisheries, harvesters are able to make a profit, 

and vessel owners are able to invest in better quality equipment, proper vessel 

maintenance, and hire, train and keep professional skippers and crews. All of these 

factors help improve safety. 

Background on the Council Process 

Congress directed the Council to consider a wide variety of approaches to a rationalized fishery. As part of the Consolidated Appropriations Act of 2001 (Pub. L. No. 

106–554), Congress directed the Council to examine fisheries under its jurisdiction 

to determine whether rationalization was needed. The specific legislative language 

is: 

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 the 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. 

Early in the rationalization process, the Council established a broad-based industry working group to develop options to rationalize the Bering Sea crab fisheries. 

11 

This work group met over a two-year period to identify workable solutions and to 

develop a majority opinion. Including the work of the BSAI Crab Committee, the 

Council has studied this issue for well over three years, with a detailed analysis of 

all the issues brought forward by the Committee which included the concept of processor shares. Additionally, the Council held hearings in major ports and communities of Alaska, Washington, and Oregon. 

The first Council action was to unanimously adopt a problem statement that any 

solution should consider ‘‘the lack of economic stability for harvesters, processors 

and coastal communities’’. Adopting this problem statement allowed for the detailed 

analysis of numerous options. To assist in our understanding of the impacts of the 

various options on all participants, we employed several specialists to work with 

Council staff. After several revisions and an exhaustive public review of the analysis 

the Council then unanimously adopted a final motion in June 2002, which responded to Congressional direction. Since then, the Council continued to work on 

several trailing amendments and completed its work on BSAI Crab Rationalization 

in April 2003. 

Key Elements of the Council’s Motion (includes trailing amendments) 

• Harvest shares will be allocated for 100 percent of the total allowable catch 

(TAC). The qualifying years selected for these shares were the years recommended by the BSAI Crab Committee and the Advisory Panel. 

• Processing shares will be allocated for 90 percent of the TAC. The qualifying 

years selected for these shares were the years recommended by the BSAI Crab 

Committee. 

• Regional share designations will apply to all processor shares and to the corresponding 90 percent harvest shares. The regional designation recognizes historic delivery patterns and distributes landings between two specific regions. 

• There is no linkage between harvest shares and processing shares. Harvesters 

are free, within regions, to match up shares with any processor that hold processing shares. Ten percent of the harvester’s allocation will remain available to 

deliver to any processor (called B shares) whether or not that processor was eligible to receive an initial allocation of processing shares. 

• Voluntary harvester cooperatives are encouraged and once formed should 

achieve efficiencies through the coordination of harvest activities and deliveries 

to processors. It is anticipated that these cooperatives will also serve as a forum 

for profit-sharing arrangements similar to American Fisheries Act (AFA) cooperatives. 

• Community Development Quota allocations will be increased from 7.5 percent 

to 10 percent of the TAC. A community quota of brown crab was also established for Adak, a similarly situated community that lies outside the CDQ program. 

• A cool down period that would restrict the movement of processing activity from 

crab dependent communities for a period of two years following implementation 

of the program. 

• Allow communities to purchase harvest and processing shares and grant crab 

dependent communities the right of first refusal to purchase processing shares 

that may transfer outside of the communities. Grant communities in the Northern Gulf of Alaska the right of first refusal on the sale of processor shares from 

communities that are not dependent on the crab fisheries. 

• A captain share allocation of 3 percent of the TAC was established for exclusive 

use by captains and crew. 

• A vertical integration cap of 5 percent is used to control processor accumulation 

of harvesting privileges. 

• Use and ownership caps on harvesting and processing privileges are included 

to limit consolidation and excessive control. 

• A mandatory binding arbitration program will be used to settle any outstanding 

price disputes between harvesters and processors. 

• A crew loan program will assist crewmember entry into the fisheries. 

• Harvest restrictions, (called GOA sideboards) were included to protect nonrationalized Gulf of Alaska fisheries. 

• Comprehensive data collection and program review will be used to assess the 

success of the rationalization program and to make modifications where needed. 

As a Council, we have an obligation to review program performance, especially 

with respect to impacts on all three partners. And we will make necessary adjustVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
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ments to achieve our stated goals and minimize unintended consequences. Through 

program review we can adjust elements of the initial policy design. This flexibility 

is uncommon to most market based rationalization plans. Specifically, we can 

1. adjust the percentage of B shares. 

2. adjust attributes intended to protect community interests in a region. 

3. adjust the mechanism for community protection. 

4. adjust specific design features to adapt to changes in stock status. 

Overall, the crab rationalization program strikes a balance among the interests 

of harvesters, processors, and communities. The Council, based on exhaustive public 

input over three years, unanimously approved the crab rationalization program. In 

making this unanimous vote Council members recognized the comprehensive, balanced approach that incorporated both short and long-term safeguards to protect the 

interests of all three partners. 

Benefits for Harvesters, Processors and Communities 

Now, I would like to address the how and why involved in creating a stable threelegged stool, where harvesters, processors and communities each benefit from crab 

rationalization. First in the line of benefactors are the fishermen. All eligible fishermen gain by having value attached to their fishing history. Some will have more 

value than others. The years selected for qualifying quota share determine the extent that each fishermen gains. The Council chose the years agreed to by the industry committee and recommended by the Advisory Panel. More recent years were also 

considered, and in a few cases adopted, based on NOAA general counsel’s advice to 

consider recency for qualification determinations. Regardless of where a fisherman 

sits in the qualifying period, the award of quota generates immediate value and economic gain over the race-for-fish scenario. Furthermore, it is anticipated that consolidation and the ability to stack quota, combined with a buy back program, could 

reduce the crab fleet significantly. This results in very significant economic gains 

to the remaining participants. 

Even though these economic gains are recognized by many crab fishermen, there 

was still a need to address ‘‘equity issues’’ and balance of negotiating strength between fishermen and processors. With respect to these issues, the Council provided 

many protective measures to ensure that vessel owners are not disadvantaged. They 

include: 

• A discount of each processor’s history, which leaves 10 percent of the harvest 

shares (B shares) open to delivery to any processor. It is anticipated that these 

B shares will provide adequate negotiating leverage for fishermen. 

• A system of binding arbitration that to ensure that no harvester will be forced 

to accept a price by a processor holding processor shares. The system will be 

conducted using an independent third party arbitrator when or if there is a 

price dispute between harvesters and a processor. It will include an opportunity 

for groups of harvesters to bargain collectively, as they have traditionally for 

Bering Sea crab prices, or to enter arbitration on an individual basis. The binding arbitration approach adopted by the Council also provides for independent 

market analysis and a non-binding pre-season price formula. 

• Processors will be required to give the regulators full, complete and detailed 

crab processing costs and crab sales revenues. This information will be useful 

for the Council to monitor the way revenues are shared with vessel owners. 

• Caps on the amount of harvesting shares that can be owned by or affiliated 

with processors. This is intended to ensure that the processor will continue to 

need crab from independent harvesters. 

• Prohibiting vessels owned by processors from being awarded ‘‘B’’ harvest shares. 

This was done in order to further protect the interests of independent harvesters. 

While not a direct part of the Council’s motion to protect fishermen’s interest, 

there is another key advantage that accrues to fishermen as a result of rationalization. Currently, harvesters cannot really withhold product from processors for long 

periods of time because the current open-access model allows any catcher processor 

or other strike breaker to fish while others remain tied to the dock. Once IFQ is 

issued, every harvester can—either individually or as a member of a cooperative— 

withhold product from the processing sector without fear of someone else harvesting 

it. As learned from the AFA model, the ability to withhold product is a powerful 

tactic that fishermen can use to leverage fair prices. 

13 

It is also important to point out that the Council instituted caps on the amount 

of consolidation that may occur among the processors. The consolidation rules are 

far more restrictive than what would be required under normal antitrust laws, and 

they are intended to ensure multiple market opportunities. Furthermore, when crab 

stocks are low, a quota system that includes processors should result in less concentration of processing facilities and more buying entities as firms could choose to 

lease quota or have their shares custom processed. These measures to keep the existing processing base healthy while allowing for new entrants should expand, not 

limit, market opportunities for fishermen. 

The next set of benefactors are the crab processors. Having observed processor 

fallout from the harvester only allocation on IFQs for halibut and sablefish, and 

processor viability under the AFA cooperatives, the Council made a deliberate choice 

to include processors in the rationalization program. This decision to protect processor’s investments also responds to the Congressional direction given to the Council. 

Under the sablefish IFQ program (note: sablefish is a more appropriate comparison than halibut because sablefish did not change product form from frozen to fresh) 

only 25 of the 67 pre-IFQ firms survived the harvester only allocation of quota according to thorough analysis done by Washington State University. Additionally, 

most of the surviving processing firms lost market share. Processor shares will allow 

the processing sector to more fully experience the efficiency gains of rationalization 

and thus remain viable. With the ability to trade and purchase processing shares, 

up to a set limit, it is anticipated that the number of processors available to buy 

crab may actually increase. In the very least, award of processor shares should stabilize the crab processing sector so that the number of currently viable processors 

will remain the same. 

Similar to fishermen, processors have concern that they will be ‘‘price takers’’. 

Currently, some processors estimate that fishermen capture upwards of 87 percent 

of the wholesale price of crab. Crab harvesters are organized under the 1934 Act, 

into a monopolistic bargaining association and as such, negotiate price as one entity 

represented by the Alaska Marketing Association. The processors are not similarly 

organized and argue that the bargaining strength is all in the fishermen’s hands. 

This perspective suggests that like beauty, bargaining strength is in the eyes of the 

beholder, or the potential loser in this case. Nonetheless, the Council’s approach to 

binding arbitration, data collection and program review are aimed to protect the 

processing sector as well. 

Lastly, the Council chose to provide specific community protection measures to 

recognize the investment of communities in the development of the Bering Sea crab 

fisheries, noting the very real likelihood for those same communities to experience 

irreparable harm without protection. As you know, National Standard 8 of the Magnuson-Stevens Act directs Fishery Management Councils to take into account (a) the 

need for sustained participation of fishing communities and (b) minimizing adverse 

economic impacts to such communities. The Council chose to address communities 

and National Standard 8 through a ‘‘three pie’’ approach to rationalizing the crab 

fisheries in the Bering Sea. There are two key elements to the community third 

pie—(a) market-based allocations to community interests and (b) measures to protect communities from potentially adverse effects. Following are the specific elements of the ‘‘community third pie’’. 

Market-based Allocations to Community Interests include: 

• Expanding the CDQ program (includes 65 Western Alaska communities) to include all crab fisheries approved under the rationalization program with the exception of Western AI brown king crab. 

• Increasing the CDQ allocation of crab from 7.5 percent to 10 percent. 

• Allocating the percentage of Western AI brown king crab not used during the 

base period to the community of Adak and require that up to 50 percent of the 

‘‘A’’ share brown king crab be processed in Adak. 

• Allowing for purchase of processing and harvesting shares by crab dependent 

communities not included in the CDQ program. Give these same communities 

the right of first refusal for processing shares that may leave their communities 

after a two-year cool down period. Grant communities in the Northern Gulf of 

Alaska the right of first refusal on the sale of processor shares from communities that are not dependent on the crab fisheries. 

Community Protection Measures include: 

• Establishing two regions to protect historical, primary delivery patterns of various crab species and attach regional designations to crab harvested with Class 

A shares and to processing quota shares. 

14 

• Maximizing the benefits of regionalization on the communities of St. Paul and 

St. George by limiting B shares to 10 percent of the total amount of crab. 

• Imposing a two-year (post implementation) cool down period where processing 

shares must remain in the originating community. 

• Imposing processing use caps to assure that at least two plants will always be 

operating in the Northern Region and four plants in the Southern Region. 

• Limiting the future expansion of the offshore catcher processor fleet so that 

more crab might be processed in community based plants. 

• Requiring that a portion (equivalent to the increase received) of CDQ crab be 

delivered to shore-based plants. 

• Allowing for the transfer of catcher processor shares to shore-based processors. 

• Providing a 3 percent allocation to help captains, some of who reside in coastal 

communities, to leverage future employment opportunities in a rationalized 

crab fishery. 

• Excluding small, underutilized crab stocks from the rationalization program so 

that small vessel, state water fisheries could be developed near communities. 

The direct allocation of harvesting and processing shares, and purchase of processing shares by communities, translates into direct benefits to Alaska’s coastal 

communities. These actions in conjunction with the regionalization elements comprise the ‘‘meat of the third pie’’. 

Although processor shares are typically viewed as part of the second pie, the 

issuance of such shares has direct implications for the protection of a community’s 

processing base. As noted above, experience to date with the issuance of harvester 

only allocation in Alaska reveals a dramatic reduction and shift in shore based processing operations. While the causes for this shift and reduction are complex and debatable, it is good public policy to try and minimize these impacts, as the more processors that survive the transition to a ‘rationalized fishery’ the better the community’s economic base will be. Such a system inherently benefits communities as well 

as processors. Furthermore, the establishment of processor shares allowed for the 

creation of additional community protection measures. In essence, the processor pie 

helps makes the community pie whole. 

Catcher Processors 

There remains one more sector that benefits from the Council’s action—catcher 

processors. Catcher processors have long had an advantage over all other sectors 

participating in the harvesting and processing of BSAI crab. This advantage comes 

about from being 100 percent vertically integrated operations, which do not have to 

purchase all their crab. The Council’s action solidified this sector of the industry 

through the creation of catcher processor shares. However, the Council chose not to 

allow this sector to grow at the expense of the onshore sector and disenfranchise 

Alaska’s coastal communities. Hence, the Council’s program limits catcher processors to their historical aggregate level. In essence, the Council made the catcher 

processor sector whole without being punitive and for some fisheries such as the 

Aleutian Islands brown king crab, the Council chose qualifying years that advantaged catcher processors. 

Criticism of Council Action 

Despite the balanced approach of the Council motion and extensive efforts to be 

inclusive of all affected parties, the Council action still faces criticism. I will take 

some time to address the following concerns: 

• Not including the year 2000 for processing shares 

• Not creating a higher portion of B shares 

• Antitrust implications of processing shares. 

Year 2000 

It is reported that including 2000 would have benefited Kodiak based processors. 

While is true that the year 2000 was one of Kodiak’s better years in terms of BSAI 

crab landings, the Council analysis shows that Bristol Bay Red King Crab comprised 1.8 percent of the total value of fish landed at the port of Kodiak and Bering 

Sea Opilio Crab represented 1.35 percent of the total value landed in the year 2000. 

It is important to note that the year 2000 was not included in the recommendations made by the industry committee which, incidentally, included Kodiak representatives who did not bring this concern forward. The committee noted that the 

year 2000 was not included for a number of reasons: (a) it was the only year that 

had a delayed start date of April 1 due to inclement weather and some vessels did 

15 

not participate with the season change date; (b) it was the only potentially qualifying year affected by the AFA processor sideboards; and (c) a large storm greatly 

disadvantaged some small Alaskan vessels. As such, the year 2000 was seen as an 

anomaly and not included in the recommendations or in the Council actions. 

Nonetheless, processors in Kodiak will still benefit from the rationalization program, as they will no longer just be the port of last load delivery. With a slower, 

extended fishery fishermen will have the time to deliver mid-season to Kodiak processors. There are processors in Kodiak who will receive processor shares. Other 

processors in Kodiak have the option of buying processor shares or receiving ‘‘open 

delivery’’ B-shares of crab. In fact, Kodiak, home to Alaska’s largest crab fleet, is 

the port that is expected to benefit most from the ‘open delivery’ arrangement. To 

help ensure this, the Council made B-shares off limits to catcher processors. 

Kodiak is not the only community to gain under the Council’s rationalization plan. 

Dutch Harbor, St. Paul, St. George, Adak, Sand Point and all the communities 

under the CDQ program gain in the Council’s three-pie approach to rationalization. 

Why 10% B Shares 

In determining the appropriate amount of B shares, the Council first looked to 

the experience under AFA. In the AFA there is a similar 10 percent discount on 

processing history, i.e.; vessels may deliver up to 10 percent of their catch to any 

processor. Immediately after AFA passage, many harvesters tried to get the Council 

to amend the AFA agreement. They did so under the Dooley-Hall proposal. There 

were claims that the processors would capture all the profits. Today, if one were to 

ask key Dooley-Hall advocates if they are disenfranchised and would prefer no AFA 

or AFA as originally passed, their answer is unequivocal: AFA as enacted by Congress. This suggests that a 10 percent discount could serve as adequate negotiation 

leverage in a large-boat industrialized fishery. 

Based on the cost and wholesale data provided by crab processors, it does not 

make sense to discount processor history any more than the 10 percent level selected by the Council. Data was provided to the Council in public testimony that 

shows that processor margins are very thin, and probably non-existent in the small 

quota, slow-paced crab fisheries. With these low margins, processors will be hungry 

for all deliveries of crab, especially the crab delivered last. Once the start-up and 

initial operation costs have been covered, the remaining loads of delivered crab are 

where the margins increase and profits are realized. 

Additionally, crab fishermen (through their bargaining association) now allocate 

crab as a reward for a company setting the price, a price that in turn is adopted 

by the rest of the companies. The amount allocated has been less than 5 percent 

to achieve this advantage. This demonstrates the power of having 10 percent (or 

less) of the crab to allocate to processors as a reward for higher price. As such, the 

notion that the fishermen delivering last will become a price hostage is a notion unsupported by existing economic reality. No one will fish A-shares without a contract. 

There will be no ‘‘last harvester leaving the grounds.’’ Furthermore, with the adoption of voluntary cooperatives between fishermen and in discussions with a processor of their choice, it is anticipated that price and profit-sharing arrangements 

will: (a) cover all the crab the harvester intends to deliver, including the 10 percent 

B shares portion; (b) address profit sharing across vessels participating in the cooperative; and (c) be agreed to well in advance of the season. 

Public testimony from the community of St. Paul also pointed out that a higher 

amount of B shares would negatively impact their economic base. The balancing act 

of community interests required the Council to consider these concerns as well when 

determining the appropriate amount of B shares. 

Antitrust Issues 

The Department of Justice has not found any anti-competitive effects in the division of whiting allocations among catcher-processors or the division of pollock allocations among AFA cooperatives. It is expected that the Department will view the 

crab rationalization plan in a similar light. The Congressional Research Service has 

already made a similar review of the Council’s action to create processor shares and 

concluded ‘‘that the Federal antitrust laws are likely to be deemed irrelevant in the 

context of the subject proposal’’. 

Even with this green light from the Congressional Research Service it is important to note that the same anti-competitive issues that are being raised under crab 

rationalization were brought up under the AFA. Since the processor provisions of 

the AFA had no anti-competitive effects, then the less restrictive processor elements 

included in the Council approach on BSAI Crab Rationalization should be viewed 

similarly. The less restrictive provisions of the Bering Sea/Aleutian Islands (BSAI) 

crab rationalization program include: (1) no closed class of processors (new procVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
16 

essors can purchase ‘open delivery’ B shares or allocated shares from a qualifying 

processor); and (2) no direct linkage between fishermen and processors. 

The 1934 Fisherman’s Marketing Act contains an explicit statutory exemption 

from the antitrust laws allowing fishermen to bargain collectively in price negotiations with fish processors. The fishermen are allowed to decide, as a group, on their 

bargaining position, an activity that would violate the Federal antitrust laws without the exemption. 

The Whiting Cooperative (vertically integrated catcher processors) and the AFA 

inshore cooperatives have each submitted to the Department of Justice a request 

for a ‘‘business review letter’’ concerning planned cooperative activities. Section 210 

of the AFA requires each cooperative to request a business review letter prior to 

submitting the cooperative contract to the Council and the Secretary. Each cooperative described its proposed activities of allocating pollock quotas among member vessels. In response, the Department of Justice has issued the requested business review letters stating that the Department of Justice finds that the described activities are not anti-competitive and the Department intends to take no enforcement 

action. However, the AFA does not require the cooperative to have received a business review letter and the AFA does not grant an exemption to the antitrust laws. 

While we anticipate a similar ruling for crab cooperatives, if Congress approves the 

Council’s crab rationalization plan, this is a non-issue. 

Concluding Remarks 

In closing let me emphasize that while imposing an allocation scheme automatically has varying impacts among the participants, the Council strove to make all 

sectors—harvesters, processors, and communities—win from BSAI crab rationalization. It was a challenging balancing act to say the least. However, through the hard 

work of the industry committee, the Council staff, the Advisory Panel and the community representatives, the Council’s preferred alternative does benefit all sectors. 

And most importantly, BSAI Crab Rationalization will save lives and improve management while reducing bycatch and deadloss. 

The program is a Voluntary Three Pie Cooperative with unique protections and 

opportunities for communities and captains. The novelty of the program compelled 

the Council to include several safeguards into the program, including a binding arbitration program for the resolution of price disputes and extensive data collection 

and review programs to assess the success of the rationalization program. These 

safeguards demonstrate the Council’s commitment to a fair and equitable rationalization program that will protect the interests of all sectors which depend on these 

crab fisheries. 

In unanimously adopting the crab rationalization plan, the Council made it very 

clear that the program was one crafted specifically for the crab fisheries of the Bering Sea/Aleutian Islands, and that in so doing no one should assume a similar system for other fisheries under its jurisdiction. We have met the charge given to us 

by Congress. We have acted responsibly and creatively to meet all the standards of 

the Magnuson-Stevens Act. It is time for Congress to move the plan to rationalize 

these crab fisheries forward. 

Senator STEVENS. Ms. Freed? 

STATEMENT OF HON. LINDA FREED, CITY MANAGER, 

CITY OF KODIAK 

Ms. FREED. Thank you. 

Senator STEVENS. Could you pull that mike up toward you? 

Ms. FREED. Is that close enough for you? 

Senator STEVENS. Not quite. Thank you. 

Ms. FREED. Thank you. 

For the record, my name is Linda Freed. I have been a resident 

of Kodiak, Alaska, for 23 years, and I now have the privilege of 

serving as the City Manager of the City of Kodiak. 

I would like to note, for your information, that in the audience 

today is the Honorable Carolyn L. Floyd, Mayor of the City of Kodiak, and Dave Woodruff, a council member from the City of Kodiak. In addition, Dick Powell, a long-time Kodiak City resident 

and a Bering Sea crab fisherman, is also here. 

17 

Kodiak is a major fishing port in the United States. It has been 

consistently in the top communities for both product landed, the 

volume of product landed, and the value of that product. Kodiak 

has the largest resident fishing fleet in the State of Alaska and the 

largest resident population of processing workers. 

Crab rationalization and the issue of processor quota shares are 

critical to the City of Kodiak and all its residents. Kodiak has already lost 70 children from our school system within this last year 

due to the closure of processing plants and reductions in our fishing fleet. Kodiak is a fishing town, and we cannot afford to see our 

primary source of natural-resource employment taken from our 

residents by either fisheries managers or Congress. 

The City of Kodiak is opposed to the North Pacific Fisheries 

Management Council’s request that Congress pass special legislation to create individual processor quotas, or IPQs to establish individual monopoly markets for processing crab harvested from the 

Bering Sea. If enacted, the Council’s proposal would grant each 

member of a select group of companies the exclusive right to process specific percentages of the Bering Sea crab after it has been 

harvested by independent fishermen. Under the Council plan, each 

fisherman would be forced to deliver 90 percent of their catch to 

one of a select group of processing companies that are issued an 

IPQ. 

The City of Kodiak is not alone in its opposition to the Council’s 

unprecedented proposal. All of the regional Governments with communities where crab is processed—the Aleutians East Borough, the 

Lake and Peninsula Borough, the Kodiak Island Borough, and the 

Kenai Peninsula Borough—are all seriously concerned about this 

proposal. The Aleutians East Borough and the Kenai Peninsula 

Borough have gone further and passed formal resolutions opposing 

the Council plan, as have the cities of Sand Point, Chignik, Homer, 

and Seldovia, just to name a few. In fact, the only communities on 

record supporting the Council proposal are Dutch Harbor and 

Akutan. Even St. Paul, a community in the middle of the Bering 

Sea crab fishing grounds, is divided about whether to support or 

oppose IPQs. In fact, TDX, the village corporation for St. Paul, and 

the City of Kodiak find ourselves in similar circumstances. We both 

own processing plants that have processed crab. We are not eligible 

to have IPQs because we did not run those plants ourselves. 

The adverse impacts of IPQs on Alaskans are tremendous. Fishing communities that depend on independent fishermen and local 

processing plants for the mainstay of our economies will be devastated if Congress enacts this IPQ proposal. IPQs will mean the 

loss of innovation and competition within the processing industry. 

Companies with IPQs will not have to remain efficient, establish 

new product lines, or offer to process less valuable species in order 

to attract more deliveries. With a guaranteed share of the harvest, 

companies with IPQs will maximize their profits by minimizing 

what they pay for crab and reducing their investment in their facilities. 

The City of Kodiak alone stands to lose between $3 million and 

$10 million a year in revenues to our community and lost fish taxes 

if the Council’s plan is implemented. I must say that we had to 

18 

have that analysis done on our own, because the State of Alaska 

did not provide that kind of economic analysis for our community. 

The community protection provisions that have been proposed by 

the Council do not protect Kodiak and many other coastal communities. One provision is a right of first refusal on a proposed sale 

of IPQs between two companies. However, a community must meet 

all of the terms and conditions of the agreement between the two 

private parties and provide full payment within 120 days. This 

means that the two private parties, one of whom is a buyer, has 

a vested interested in making sure a community cannot afford to 

exercise its option, and they have every incentive to include provisions in the agreement that are poison pills to the community. 

Most communities would need 120 days just to start financing negotiations, much less make full payment of potentially millions of 

dollars. And there is no appeal process under the Council plan if 

a community does, in fact, try to exercise its right and is unable 

to do so. The Council’s IPQ plan effectively returns Alaska fishing 

communities to the days before statehood, when our State fishery 

resources were under the control of a few large processing companies. The Council’s own documents show the extent to which a few 

processors will control Alaska’s fisheries if this plan is enacted. 

In 1998, Congress enacted the American Fisheries Act, which 

created a closed class of processors for the inshore delivery of Bering Sea pollock. The AFA granted six companies exclusive right to 

process the entire 50 percent of the Bering Sea pollock that was 

AFA decreed to be delivered inshore. All six of those AFA companies also process crab. According to the Council’s own preliminary 

analysis, those six AFA processing companies will be granted IPQs 

approximately equal to 75 percent of the Bering Sea opilio and red 

king crab harvest. Perhaps coincidentally, five of those AFA companies are also defendants in the ongoing Bristol Bay salmon antitrust lawsuit in Anchorage. 

As many Members of the Committee are aware, Kodiak and 

other Alaskan coastal communities are in the midst of a long-term 

crisis in the salmon industry. IPQs will make this even worse. The 

combined effect of the closed class of pollock processors and IPQs 

will virtually ensure that there is no solution to the salmon problem. One of the AFA companies, Wards Cove, has used its guaranteed pollock revenue to enable it to withdraw from salmon processing marketing entirely. They no longer need the marginal income from their salmon operations. Other AFA companies have reduced their salmon buying in the years since the AFA passed despite the considerable increase in revenues and financial stability 

provided by the AFA. Add the guaranteed revenue from crab IPQs, 

and these companies have even less incentive to expend money to 

gain marginal revenue from salmon. 

We need to attract new and innovative processors to our salmon 

industry. The Council plan just locks in the same old companies 

that have created the mess we currently find ourselves in. 

Despite the overlap in companies that benefit under the AFA and 

the Council’s proposal, it needs to be stressed that the benefits 

granted to processors under the AFA and the IPQ plan are not the 

same. The fact that Congress passed the AFA provides no basis for 

Congress to pass IPQs. IPQs confer more benefits and far greater 

19 

market power to crab processors than pollock processors received 

under the AFA. 

And I would like to refer you to an attachment to my testimony, 

by Dr. Halvorsen, that points out the significant differences between the AFA and the plan proposed by the Council. 

The simple truth is that IPQs are nothing more than an economic allocation of markets. They are a ransom that processors are 

demanding before they will allow the crab fishery to be rationalized 

to improve conservation and fishing safety. There is no fishery 

management or community-protection justification for IPQs. 

The push for IPQs will not stop with crab. The Council is already 

considering plans to rationalize the Gulf of Alaska groundfish fisheries, and some Gulf of Alaska fish processors are demanding that 

IPQs be included. Further, a recent report on the crisis in salmon 

fisheries suggested that IPQs may be needed for salmon fisheries. 

Congress has already passed special legislation for pollock and is 

being asked again to pass special legislation for crab. If Congress 

authorizes crab IPQs, the floodgates will be opened, and Congress 

will be besieged with requests for special legislation for each fishery off Alaska. 

Having Congress legislate fishery by fishery is precisely what the 

Magnuson-Stevens Act was designed to prevent. Congress needs to 

send a clear message that IPQs will not be allowed. Once that message is delivered, it will be easy for the Council to quickly implement an individual fishing-quota program under its existing authority that will address the legitimate concerns of fishermen, communities, and processors. 

Thank you for the opportunity to present this testimony. And I 

would ask if the Committee could keep the record open for another 

10 days, because we do have some additional information we would 

like to present you with. 

Thank you. 

[The prepared statement of Ms. Freed follows:] 

PREPARED STATEMENT OF LINDA FREED, CITY MANAGER, CITY OF KODIAK, ALASKA

My name is Linda Freed. I have been a resident of Kodiak, Alaska for 23 years 

and now have the pleasure of serving as the City Manager for the City of Kodiak. 

Kodiak is a major fishing port in the United States, and has consistently been 

among the top three fishing ports for both volume and value. Kodiak has the largest 

resident fishing fleet in Alaska and also the largest resident population of processing workers. 

Crab rationalization and the issue of processor quota shares are critical to the 

City of Kodiak and all of its residents. Kodiak has already seen 70 children leave 

our schools in the last year due to the closure of processing plants and reductions 

in the fishing fleet. Kodiak is a fishing town, and we can not afford to see our primary source of natural resource employment taken from our residents by fishery 

managers or the Congress. 

The City of Kodiak is opposed to the North Pacific Fishery Management Council’s 

request that Congress pass special legislation to create Individual Processor 

Quotas—IPQs—to establish individual monopoly markets for processing crab harvested in the Bering Sea. If enacted, the Council’s proposal would grant each member of a select group of companies the exclusive right to process a specific percentage 

of the Bering Sea crab after it has been harvested by independent fishermen. Under 

the Council plan each fisherman would be forced to deliver 90 percent of their catch 

to one of the select group of processing companies that are issued an IPQ. 

Many Alaskans are frankly stunned that Congress would seriously consider the 

Council’s proposal for IPQs. An analogy to another independent American industry 

might help the Committee understand our dilemma. Congress established permits 

20 

for ranchers to graze their cattle on Federal land when the west was fenced a century ago. Those permits are akin to individual fishing quotas. What the Council has 

proposed to address the ‘‘harm’’ to processors caused by individual fishing quotas 

is the equivalent of granting a select few companies the exclusive right for each of 

them to process a set percentage of all of the beef products made from cattle grazed 

on Federal land, and then requiring each rancher to deliver 90 percent of the cattle 

grazed on Federal land to one of those companies—all in the name of protecting the 

meat packing companies from the harm caused by granting grazing rights on Federal land to independent cattle ranchers. 

The City Okuda is not alone in its opposition to the Council’s unprecedented proposal. All of the regional governments with communities where crab is processed the 

Aleutians East Borough, Lake and Peninsula Borough, Kenai Peninsula Borough, 

and Kodiak Island Borough-are seriously concerned about the Council proposal. The 

Aleutians East Borough and the Kenai Peninsula Borough have passed formal resolutions opposing the Council plan, as have the cities of Sand Point, Chignik, Homer, 

and Seldovia, to name a few. In fact, the only communities on record supporting the 

Council proposal are Dutch Harbor and Akutan. Even St. Paul, a community located 

in the middle of the crab fisheries, is divided about whether to support or oppose 

IPQs. 

The adverse impacts of IPQs on Alaska are tremendous. Fishing communities that 

depend on independent fishermen and local processing plants for the mainstay of 

their economies will be devastated if Congress enacts this IPQ proposal. IPQs will 

mean the loss of innovation and competition within the processing industry. Companies with IPQs will not have to remain efficient, establish new product lines, or offer 

to process less valuable species in order to attract more deliveries. With a guaranteed share of the harvest, companies with IPQs will maximize their profits by minimizing what they pay for crab and reducing their investment in facilities. To enable 

the IPQ companies to do just that the Council included in their plan a binding arbitration proposal supported by the processors, community protection provisions that 

are mere window dressing, and explicit language to ensure that processors could 

consolidate facilities by transferring and leasing IPQs. 

The effects are not limited simply to fishermen and processing plant workers. The City of Kodiak alone stands to lose between $3,000,000 and $10,000,000 a year in 

revenues to the community and lost fish taxes if the Council’s plan is implemented. 

Because neither the Council nor the State has undertaken an economic impact analysis of the Council proposal, the City had to hire its own economist to provide these 

figures. A copy of that analysis by Richard Tremaine is attached to my testimony. 

Other communities face an even more daunting prospect—under the Council plan 

a processor could transfer its IPQ out of their community and leave them with a 

crab processing plant which no one can use because there are no IPQs available to 

allow that plant to operate. The community would be legally barred by Congress 

from getting a new processor to come in and operate in their community. 

Kodiak fishermen and processors are also directly harmed by this proposal. Alaska Fresh Seafood, a long time Kodiak processor that helped pioneer the Bering Sea 

crab fisheries, would be unable to process crab caught by the fishermen that are 

part owners of the plant because, under the restrictive criteria selected by the Council, Alaska Fresh would receive IPQs equal to far less than what they historically 

processed. In fact, the Council’s own analysis of their proposal shows that the 12 

largest processors receiving IPQ under the plan would get nearly 20 percent more 

than they have historically processed-to the detriment of Kodiak processors who 

have already been locked out of entering the Bering Sea pollock processing market. 

Another Kodiak example of the absurd nature of the Council’s IPQ plan is illustrated by Dick Powell, a long time Kodiak fisherman who operates both a crab 

catcher processor and a crab fishing boat. Under the Council plan Dick would be 

unable to use his own catcher processor to process crab from his own fishing boat. 

Once again the Council’s plan operates to thwart competition and free enterprise. 

Alaska coastal communities fare no better under the Council plan. The so-called 

‘‘community protection provisions’’ are nothing of the kind. What the Council has 

offered to communities is a first right of refusal on a proposed sale of IPQs between 

two private companies. However, a community must meet ALL of the terms and 

conditions of the agreement between the two private parties, and provide full payment within 120 days. This means that the two private parties, one of whom (the 

buyer) has a vested interest in making sure a community can’t afford to exercise 

its option, have every incentive to include provisions in the agreement that are poison pills to the community. Most communities would need 120 days just to start financing negotiations, much less make a full payment of millions of dollars. And 

there is no appeal process under the Council plan if a community does in fact try 

to exercise its right and is unable to do so. 

21 

I was a member of the Community Protection committee appointed by the Council 

chairman, and have to say that the process was nothing more than a sham. The 

committee was under instruction not to consider anything that was outside the 

scope of the IPQ alternative that the Council had already adopted unless 3⁄4 percent 

of the Committee members agreed to discuss it. As a result the Committee was unable to have any discussion of, let alone take any action on, substantive proposals 

that would have addressed the impacts of IPQs on Kodiak and other coastal communities. 

The City of Kodiak also takes exception to the May 6, 2003 letter the Chairman 

of the North Pacific Fishery Management Council sent to Congress. The letter once 

again attempts to mislead Congress about the support for this plan by referencing 

an 11 to 0 vote that occurred in June of 2002, before all of the details of the Council 

plan were known to the public or even to Council members. Since that time the 

Council has had 6 to 5 votes approving various elements of the ‘‘safeguards’’ promised to communities and fishermen at that June meeting. Now that the details of 

the entire plan are known, only one fishing group controlled by processors and two 

Alaska communities remain in support of the IPQ plan. 

Contrary to the claim of the Council chairman, the Council has NOT taken final 

action on the entire suite of crab rationalization options. The Council was scheduled 

at their upcoming meeting in Kodiak this June to vote to put out for public review 

a draft analysis of the entire package that includes the work done over the past 

year. But the Council chairman chose to pull crab rationalization from the June 

agenda rather than have to report to Congress a less than unanimous vote in support of the entire IPQ plan. In addition, by delaying action until the fall, the Council 

chairman has denied the public and the Congress access to the Council’s detailed 

analysis of the IPQ alternative and an individual fishing quota only alternative that 

is also being considered as part of the National Environmental Policy Act process. 

The Council’s IPQ plan effectively returns Alaska fishing communities to the days 

before Statehood, when our State fishery resources were under the control of a few 

large processing companies. IPQs grant an exclusive right to process a specific percentage of the crab harvest to a particular company, and the company may chose 

to process all of their percentage at any facility that they own within the region. 

In fact, the Council has gone out of its way to ensure that processors have an unrestricted right to consolidate their IPQs at any facility they own within the two regions—north and south—that are created under the Council plan. Consolidation for 

processors is nothing more than a euphemism for closing plants in remote Alaska 

coastal communities. 

The Council’s own documents show the extent to which a few processors will control Alaska’s fisheries if this plan is enacted. In 1998 Congress enacted the American Fisheries Act (AFA), which created a closed class of processors for the inshore 

delivery of Bering Sea pollock. The AFA granted six companies the exclusive right 

to process the entire 50 percent of the Bering Sea pollock that the AFA decreed 

must be delivered inshore. No other processing companies are allowed to process 

that pollock, regardless of their history in Alaska’s other fisheries. All six of those 

AFA companies also process crab. According to the Council’s own preliminary analysis, those six AFA processing companies will be granted IPQs equal to approximately 75 percent of the Bering Sea opilio and red King crab harvest. Perhaps coincidentally, five of those AFA companies are also defendants in the ongoing Bristol 

Bay salmon anti-trust lawsuit in Anchorage. 

As many members of the Committee are aware, Kodiak and other Alaskan coastal 

communities are in the midst of a long term crisis in the salmon industry. IPQs will 

make this crisis even worse. The combined effect of the closed class of pollock processors and IPQs will virtually ensure that there is no solution to the salmon problem. One of the AFA companies—Wards Cove—has used its guaranteed pollock revenue to enable it to withdraw from the salmon processing market entirely—they no 

longer need the marginal income from their salmon operations. Other AFA companies have reduced their salmon buying in the years since the AFA passed, despite 

the considerable increase in revenues and financial stability provided by the AFA. 

Add the guaranteed revenue from crab IPQs, and these companies have even less 

incentive to expend money to gain marginal revenue from salmon. 

Even more to the point, Nippon Suisan, an AFA company that will receive IPQs 

equal to roughly 15 percent of the Bering Sea crab under the Council plan, is also 

among the largest owners of Chilean salmon farms. They clearly have no interest 

in seeing Alaska salmon compete in the market place with their more expensive 

farmed product. How does Congress expect to ever solve the salmon problem if they 

allocate exclusive access and specific market share rights to the very same companies that dominate the dying salmon industry. We need to attract new and innovaVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
22 

tive processors in salmon. The Council plan just locks in the same old companies 

that have created the mess we are in. 

Perhaps the greatest irony is that if IPQs had been granted 30 years ago, two 

of the six AFA companies—Trident and Icicle—would never have come into existence. Both of these U.S. processing companies were formed by fishermen who were 

unhappy with the price being paid by the existing processors. In fact, many of the 

fishing companies operating in Kodiak and throughout Alaska were formed by fishermen who wanted to get a better price for their fish. The Council proposal would 

end that competitive market process for fish processing, because no new entrant can 

hope to compete against companies like Trident, Nippon Suisan, and Maruha when 

those companies have a closed class for pollock and an exclusive right to process 

crab. 

Despite the overlap in companies that benefit under the AFA and the Council’s 

proposal, it needs to be stressed that the benefits granted to processors under the 

AFA and the IPQ plan are not the same. The fact that Congress passed the AFA 

provides no basis for Congress to pass IPQs. IPQs confer more benefits, and far 

greater market power, to crab processors than pollock processors received under the 

AFA. Under the AFA Congress created a closed class of inshore processing facilities 

and linked the set aside of a coop’s fish to an agreement to deliver 90 percent of 

a coop’s harvest to a particular processing facility. But Congress did not guarantee 

the owner of each facility in the closed class a particular share of the inshore pollock 

harvest, nor did they force the fishermen to join the coops if they chose not to. In 

addition, each coop could deliver 10 percent of their collective harvest to another 

inshore processing facility, which means that each coop has the ability to let one 

or more boats transfer and take their history to another processor if they so choose. 

Under the Council’s IPQ plan each processing company is guaranteed a particular 

share of the crab harvest, which means that company can consolidate processing facilities and has no risk of losing market share if they don’t compete on price and 

terms. Further, each fisherman must deliver 90 percent of their catch to a company 

with IPQs, which makes delivery of the remaining 10 percent to a different processing company economically and practically infeasible. A more detailed summary 

of four key differences between the AFA and the Council’s IPQ proposal prepared 

by Dr. Robert Halverson of the University of Washington is also attached to my testimony. 

What is particularly troubling about this proposal is that neither the Council nor 

the State has ever provided any justification for the proposal other than that certain 

processors demanded it. IPQs are not used anywhere in the world. Dr. Scott 

Matulich of Washington State University is the only academic who has supported 

the IPQ proposal. He has promoted IPQs as the only way to ensure that all parties—processors, fishermen, and communities—benefit from rationalization of a fishery. The reality is that IPQs benefit only one party—the processors—at the expense 

of fishermen and communities. 

Independent reviews of Dr. Matulich’s work and the Council proposal have failed 

to find merit in the IPQ concept and have demonstrated the harm they are likely 

to cause. The National Academy of Sciences considered IPQs as part of their comprehensive review of individual fishing quota plans and recommended the use of 

other methods—for example allocating individual fishing quotas to processors, which 

the Council plan does already—instead of IPQs. The Council’s own independent 

analysis by Drs. Milon and Hamilton of the University of Central Florida found that 

crab IPQs were anti-competitive and would have adverse impacts on fishermen. 

Independent reviews of Dr. Matulich’s work by the General Accounting Office and 

Dr. Robert Halvorsen of the University of Washington have concluded that the analysis done by Dr. Matulich for the State of Alaska used a flawed methodology and 

cannot be validated. Yet the Council persists in pushing IPQs as necessary for crab 

rationalization to occur. 

Congress does not lightly create monopoly markets. When Congress does, they 

create regulatory commissions to oversee those monopolies, complete with investigative authority and detailed enforcement powers, in order to protect the public from 

the adverse economic impacts of those monopolies. None of those safeguards are included in the Council proposal. The binding arbitration provision is enforced, if at 

all, through private contract. The right of first refusal offered to protect communities is ephemeral at best—the reality is that no community could ever expect to 

meet the conditions the Council has set. There is no appeal to a government agency 

if problems arise. The Council plan makes no provision for oversight and enforcement by the Secretary of Commerce or any other government agency. The Council 

has neither the expertise nor the legal ability to oversee the monopoly market structures they are asking Congress to create in the name of fishery management. AntiVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
23 

trust remedies would simply not exist, because Congress will have legislatively created these monopolies. 

The simple truth is that IPQs are nothing more than economic allocation of markets. They are a ransom that processors are demanding before they will allow the 

crab fishery to be rationalized to improve conservation and fishing safety. There is 

no fishery management or community protection justification for IPQs. In fact, IPQs 

are precisely what National Standard 5 of the Magnuson-Stevens Act expressly prohibits they are a measure that has economic allocation as its SOLE purpose. 

Congress needs to realize that the push for IPQs will not stop with crab. The 

Council is already considering plans to rationalize the Gulf of Alaska groundfish 

fisheries, and some Gulf of Alaska fish processors are demanding that IPQs be included. Further, a recent report on the crisis in the salmon fisheries suggested that 

IPQs may be needed for the salmon fisheries. Congress has already passed special 

legislation for pollock, and is being asked again to pass special legislation for crab. 

If Congress authorizes crab IPQs, the floodgates will be open and Congress will be 

besieged with requests for special legislation for each fishery off Alaska. Having 

Congress legislate fishery by fishery is precisely what the Magnuson-Stevens Act 

was designed to prevent. 

IPQs have dominated the Council’s discussion of much needed individual fishing 

quota proposals for far too long. Congress needs to send a clear message that IPQs 

will not be allowed. Once that message is delivered it will be easy for the Council 

to quickly implement an individual fishing quota program under its existing authority that will address the legitimate concerns of fishermen, communities, and processors. 

Thank you for the opportunity to present this testimony. I would be happy to answer any questions at the hearing, and ask that the hearing record be kept open 

for ten business days so that the City of Kodiak may submit additional information 

in support of our testimony. 

Attachments: Estimation of Losses to the Kodiak Community 

Major Differences Between the AFA and the Council’s IPQ Plan 

ATTACHMENT

Estimation of Losses to the Kodiak Community from Bristol Bay Red King 

Crab Rationalization 

During the past several years a number of Kodiak crab fishermen have delivered 

their Bristol Bay red king crab to Kodiak rather than a port closer to the grounds. 

This is due to a number of factors including investments some have made in a local 

processor, responses to higher prices offered in Kodiak and relationships with local 

processors. 

Under the NPFMC proposed crab rationalization program, crab processors will be 

granted a processing quota based on their activity during 1998–9. Harvesters will 

be granted corresponding quota of which 90 percent (‘‘A’’ shares) must be delivered 

to processors holding processing quota and the remaining 10 percent (‘‘B’’ shares) 

may be delivered to any processor. Analysis of the rationalization program suggests 

that the ‘‘B’’ quota deliverable to any processor will initially equal about 12.9 percent of each independent (i.e., non-processor controlled) harvester’s allocation. 

The impact of the reduction in deliveries to Kodiak can be estimated based on information provided by NPFMC. The following table lists the landings and value to 

Kodiak, overall landings, and the estimated impacts to the Kodiak community based 

on first sale of processed products. 

Year 2000 2001 

Based on 

1999 

Based on 

1990 

Kodiak BBRKC deliveries (lb) 824,780 817,916 

Overall BBRKC harvest (lb) 7,546,145 7,786,420 11,000,000 20,000,000 

Kodiak percentage 10.93% 10.50% 10.72% 10.72% 

3.8% of total harvest ‘‘A’’ share harvest 258,078 266,296 376,200 684,000 

3.8% plus 12.9 percent of ‘‘A’’ shares (IQ) 291,370 300,648 424,730 772,236 

Difference between actual (projected) and IQ 533,410 517,268 754,152 1,371,185 

Ex-vessel prices $4.80 $4.92 $4.86 $4.86 

Converted to first wholesale product value $5.48 $5.60 $5.54 $5.54 

Difference in value processed products $2,921,379 $2,895,047 $4,175,587 $7,591,977 

Community weighted average multiplier 1.232 1.232 1.232 1.232 

Foregone community multiplied impact $3,599,138 $3,566,698 $5,144,324 $9,353,316 

Total Kodiak deliveries ($ million) all species 94.5 80.5 87.86 88.82 

Difference % of total deliveries 2.709% 3.161% 4.172% 7.503% 

Total fisheries taxes $1,287,344 $796,393 $1,041,869 $1,041,869 

Fisheries taxes on difference $34,879 $25,177 $43,464 $78,167 

Total Effect (Wholesale + Multiplier + Taxes) $3,634,017 $3,591,876 $5,187,788 $9,431,483 

24 

In 2000, 824,780 lbs of Bristol Bay red king crab were delivered to Kodiak from 

a total harvest of 7,546,145 lbs. This represents 10.93 percent of the total harvest. 

Kodiak processors will receive only 3.8 percent of the processor IQs (which are 90 

percent of the total harvest) which would have translated into 258,078 lbs of deliveries in 2000. In addition, harvesters making those deliveries would have received 

12.9 percent of that amount in non-processor specific IFQs. If this amount is also 

assumed to be delivered to Kodiak a total of 291,370 lbs would have been delivered 

in 2000—a difference of 533,410 lbs less than actual deliveries. The fishery average 

ex-vessel price was $4.80 per pound in 2000. The round weight equivalent average 

difference between ex-vessel and wholesale product value is $0.6867 per lb for a 

wholesale price of $5.48/lb. This results in potential product loss of $2,921,379 to 

processors. The best available economic multiplier for Kodiak is 1.232 or a local increase of 23.2 percent for every new dollar into the community. Total deliveries to 

Kodiak in 2000 from all fisheries were valued at $94.5 million. The proposed loss 

in BB red king crab deliveries would amount to 2.709 percent of the total. Kodiak 

collected $1,287,344 in fisheries landing and business taxes for 2000 landings. The 

straight percentage of that simply allocated to the crab difference is a loss of 

$34,879. This calculated total loss to the community of Kodiak from regulatorily prohibited Bristol Bay red king crab is $3,634,017. For 2001 the same calculation estimates a loss due to processor restrictions of $3,591,876. 

The same calculation can be used to estimate loss to the Kodiak community when 

crab harvest levels increase from current low levels. In 1999, 11,090,930 lbs of Bristol Bay red king crab were harvested overall and in 1990 20,362,342 pounds were 

harvested. Rounding these numbers to the nearest million pounds and projecting 

the 2000/2001 averages for other variables (Kodiak percentage of landings, ex-vessel 

price, conversion to wholesale price, total Kodiak deliveries, and total taxes modified 

only by the increase in crab landings) allows derivation of losses to Kodiak. As the 

amount of crab harvest increases its relative importance to the Kodiak economy 

likewise increases. For instance, recent delivery percentages applied to 1990 crab 

harvest levels suggest that Bristol Bay red king crab would contribute over 7.5 percent of the total value of deliveries of all species to Kodiak. Restrictive processor 

quotas applied to the 1990 harvest would cause an annual loss of $9.4 million to 

the Kodiak community. 

Background 

When product is prohibited from delivery to a community the result is an economic loss not only to the persons buying the product for further processing but also 

to the community as a whole. Since the local industry is not able to manufacture 

processed product it is not able to employ workers or to purchase other local goods 

and services required in the manufacturing process. In turn, there are lower wages 

and profits throughout the community due to economic multiplier effects. This analysis derives these cumulative impacts based on readily available information. Since 

the restrictions on trade due to crab processor quotas can only be estimated, and 

since market trends have shown increased economic crab processing activity in Kodiak in recent years, these estimates are viewed as conservative and at the lower 

end of probable impacts. 

Estimating the economic impact to the Kodiak economy from reduced king crab 

deliveries must be based on processed product value. Processed product value is derivable from deliveries and comparison between ex-vessel and processed product 

prices. 

Fishery purchases by Kodiak processors have decreased dramatically, both in 

terms of volume and value, during the past few years. This is related to changing 

ocean conditions, changing world markets, and regulatory changes designed to protect Seller sea lions. 

Recent deliveries to Kodiak 

Accurate data for 2002 deliveries are not yet available from A. However, the 

change between 1997 and 2001 is illustrative. Both overall landings at Kodiak and 

ex-vessel value of all species combined are similar between 1997 and 2001. However, 

the relative importance of species, such as Bristol Bay red king crab, have changed. 

Red king crab changed from 0.1 percent of overall landings and 1.5 percent of overall value in 1998 to 0.3 percent of overall landings and 4.8 percent of overall value 

in 2001. 

25 

1Fishery Information Packet for the Bristol Bay Red King Crab Fishery, 2002. ADF&G RIR 

4K02–45. Kodiak data—NMFS data as presented at http://www.kodiak.org/seafood.html. 2 Communication from NPFMC staff Dr. Mark Fina. Includes one additional processor for confidentiality reasons. 3 North Pacific Fishery Management Council (NPFMC). 2002. Bering Sea Crab Rationalization 

Program Alternatives: Public Review Draft. May, 2002. Table 3.4-27. 4 NPFMC, 2002. Table A3-32. 

Ex-Vessel Landings of Seafood at Kodiak, 1997–2001 

[Millions of Pounds] 

Species 1997 1998 1999 2000 2001 

Bristol Bay King Crab 0.4 

(0.1%) 

0.3 

(0.1%) 

0.5 

(0.2%) 

0.9 

(0.3%) 

0.8 

(0.3%) 

Total Crab 1.1 1.2 1.4 2.7 1.4 

Pollock 83.3 165.8 130.5 102.2 90.8 

Pacific Cod 73.1 72.0 85.0 64.9 54.7 

Total Groundfish 184.2 263.4 237.6 200.4 176.3 

Salmon 57.8 105.6 70.5 61.8 78.8 

Halibut 11.0 9.1 9.9 9.3 8.5 

Sablefish 3.9 3.6 3.2 3.4 2.2 

Other Species 8.7 5.7 4.1 3.3 3.3 

Total All Species 267.0 388.6 326.7 281.0 270.5 

Source: McDowell Group. 2002. Analysis of Economic Impacts From Fishing Restrictions on the Kodiak Island Borough Economy. 

Prepared for Kodiak Island Borough. November 2002. Table 11. 

Ex-Vessel Landings of Seafood at Kodiak, 1997–2001 

[Millions of Dollars] 

Species 1997 1998 1999 2000 2001 

Bristol Bay King Crab $1.3 

(1.6%) 

$1.2 

(1.5%) 

$1.7 

(1.6%) 

$1.7 

(1.8%) 

$3.9 

(4.8%) 

Total Crab 3.1 2.0 2.8 3.4 4.9 

Pollock 8.1 11.6 13.1 8.7 12.7 

Pacific Cod 15.5 13.7 25.5 24.0 15.9 

Total Groundfish 27.8 28.6 41.2 36.8 32.5 

Salmon 18.8 29.8 31.1 21.5 18.8 

Halibut 21.0 10.0 20.6 23.1 16.2 

Sablefish 8.0 5.2 5.7 7.0 6.9 

Other Species 4.2 3.7 2.7 2.7 1.2 

Total All Species $82.9 $79.3 $103.9 $94.5 $80.5 

Source: McDowell Group. 2002. Analysis of Economic Impacts From Fishing Restrictions on the Kodiak Island Borough Economy. 

Prepared for Kodiak Island Borough. November 2002. Table 12. 

Total Bristol Bay red king crab harvests and Kodiak deliveries for 2000 and 2001 

are available from ADF&G.1 In 2000, 10.93 percent of the Bristol Bay red king crab 

were delivered to Kodiak and in 2001, 10.5 percent were delivered there. Kodiak 

processors are expected to be allocated slightly less than 3.8 percent of the Bristol 

Bay red king crab IPQ.2

Deliveries to Kodiak under crab rationalization 

Thirty-one red king crab harvest vessels are reported to be affiliated with processors.3 This represents 12.1 percent of the total 256 harvest vessels which qualify.4

The cumulative quota due these 31 vessels amounts to 12.6 percent of the red king 

crab IFQ. Using the data from the analysis, a maximum of 225 vessels will be eligible to receive the ‘‘B’’ shares. This number is likely to be lower since there continues 

to be consolidation in the harvesting fleet. This consolidation will only become greater under the proposed buyout program. Likewise, ‘‘control’’, when defined, will be 

more restrictive than the 10 percent ownership ‘‘affiliation’’ criteria used in the 

NPFMC analysis. 

26 

5 NPFMC, 2002. Appendix 2-3, Table 2. 

6 Chuck Crapo, Brian Paust, and Jerry Babbitt. 1988. Recoveries and Yields from Pacific Fish 

and Shellfish. Alaska Sea Grant, Marine Advisory Bulletin No. 37. King crab, raw-whole, converted to cooked sections. 7 ADF&G data by year http://www.cf.adfg.state.ak.us/geninfo/shellfsh/shelhome.htm#catch 

Supposing for this analysis that the percentages listed above are correct, the independent harvesters will control86.4 percent of the ‘‘A’’ shares (77.76 percent of all 

IFQs) and all 10 percent of the ‘‘B’’ shares. Therefore, each independent harvester 

will receive ‘‘B’’ shares in an amount equal to 12.9 percent of their ‘‘A’’ shares (rather than 11.1 percent if all harvesters received ‘‘B’’ shares). Conversely, these ‘‘B’’ 

shares will equal 11.6 percent of their total annual harvest allocation (rather than 

10 percent). 

In order to simplify the analysis of probable loss to Kodiak, it is assumed that 

the full3.8 percent of the overall ‘‘A’’ share harvest would be delivered to Kodiak 

along with the ‘‘B’’ share deliveries associated with that IQ (an additional 12.9 percent of the ‘‘A’’ shares). This equates to 3.86 percent of the overall harvest. The difference between deliveries and the percentage that would be allocated to Kodiak 

processors in 2000 and 2001 is calculated at 533,410 lbs and 517,268 lbs, respectively. 

Wholesale processed product value 

In order to calculate the economic impacts of reductions in processed crab to the 

Kodiak economy, it is first necessary to determine the value of crab and how that 

value relates to ex vessel value. The following table derives the difference of crab 

value between first sale of wholesale product (sections) and ex-vessel value. Shellfish sections represent 98 percent or more of the processed product type for red king 

crab from 1996–2000.5 Therefore, the first wholesale crab prices for shellfish sections is used as a proxy for all first wholesale prices. In order to convert wholesale 

prices into equivalent delivered prices it is necessary to multiply by the product recovery rate. In this case, a product recovery rate of 60 percent is used. 6 Comparing 

these back cast, delivered wholesale prices to actual ex-vessel prices allows a difference or processor markup to be determined. This difference varies year to year 

but an average of the five most recent years available is $0.6768 per pound delivered weight. 

Wholesale 

1st Sale 

(Sections) 

$/lb 

Backcast 

Delivered 

(Whole) 

$/lb 

Actual 

Weighted 

Ex-Vessel 

$/lb 

Difference 

$/lb 

1996 $ 8.53 $5.12 $4.01 $1.11 

1997 $ 6.15 $3.69 $3.26 $0.43 

1998 $ 5.52 $3.31 $2.61 $0.70 

1999 $11.25 $6.75 $6.26 $0.49 

2000 $ 9.11 $5.47 $4.81 $0.66 

Average $0.6768 

Sources: First wholesale crab price—NPFMC, 2002, Appendix 2–3, Table 1. Conversion ratio of 60 percent for whole fresh crab to sections—Crapo, 1988. Ex-vessel average price—NPFMC, 2002, Table 2.5-1. 

The reported average ex-vessel prices for BB king crab in 2000 and 2001 are $4.80 

and $4.92, respectively.7 Converting these to processed sections and back calculating 

a wholesale price results in estimates of $5.48 per delivered pound at the wholesale 

level for 2000 and $5.60 per pound for 2001. Based on these estimated processed 

product values, the foregone value at the first wholesale level would have been 

$2,921,379 in 2000 and $2,895,047 in 2001. 

Economic multiplier impacts 

Gross revenue received from the sale of processed crab at the first wholesale level, 

is termed a direct effect (output value). In addition to these direct effects of revenue, 

a community also incurs indirect and induced effects from the sale of crab. ‘‘Indirect 

effects are changes that occur because producers change the amounts of goods and 

services they purchase, such as raw fish, fuel, utilities and packaging supplies. Induced effects are generated as income from direct and indirect expenditures work 

their way through the economy. An example of an induced effect would be a reduction in restaurant sales as processing plant workers choose to cut back on personal 

expenditures. . . . [I]t is assumed that there is an overall U.S. multiplier of 2.0 for 

all direct effects—with indirect and induced effects that accrue either inside the 

local economy or leak out to non-local economies. In other words, it is assumed that 

27 

8 Northern Economics. 2001. Assessment of Economic Impacts of Federal Actions to Protect 

Steller Sea Lions on Alaska Groundfish Fishery Participants. Prepared for Southwest Alaska 

Municipal Conference. August 2001. Section 8.4. 9 Estimated using IMPLAN impact analysis software by Northern Economics, 2001. 

10McDowell Group. 2002. Analysis of Economic Impacts From Fishing Restrictions on the Kodiak Island Borough Economy. Prepared for Kodiak Island Borough. November 2002. Table 17. 11McDowell Group, 2002. Table 17. 12The City of Kodiak currently has a 6 percent sales tax. 13 Harvests of 3 million pounds in 1982, 4.2 million pounds in 1984 and 1985, and 7.4 million 

pounds in 1988. Fishery Information Packet for the Bristol Bay Red King Crab Fishery, 2002. 

Table 1. 

for every dollar of direct output effect, there is an additional dollar of indirect and 

induced effects that is generated somewhere in the U.S. economy.’’ 8

The most recent estimate of community wide economic impacts for Kodiak Island 

are a weighted average aggregate multiplier of 1.232. This compares to similarly derived multipliers of 1.185 for the Aleutians West Census area and 1.085 for the 

Aleutians East Borough.9 Applying this economic multiplier to the potential value 

of foregone wholesale processed product results in a cumulative impact of $3,599,379 

for 2000 and $3,566,698 for 2001. 

Local fisheries taxes 

Taxes are derived directly from the fishing industry both via a shared landing tax 

and a fisheries business tax. A simplified method is used to determine the amount 

related to a difference in crab landings. Total landing and fisheries business taxes 

for Kodiak are reported as $1,287,344 in 2000 and $796,393 in 2001.10 Total landings for all seafood products in Kodiak during the same two years were valued at 

$94.5 million and $80.5 million, respectively.11 The potential loss in ex-vessel value 

is calculated at 2.709 percent of the overall landings for 2001 or $34,879. The same 

calculation for 2001 results in a potential loss of $25,177. 

There are other taxes and municipal income associated with crab processing and 

with indirect and induced economic activity that are not accounted for in this analysis. For instance, reduced processing and the concomitant reductions in purchases 

and spending result in lower overall sales tax revenues.12

Cumulative potential impacts to Kodiak, 2000 and 2001 

The estimated total effects of prohibiting crab deliveries to Kodiak processors includes, at a minimum, the loss of wholesale product, multiplied community impacts, 

and foregone taxes. The estimated potential minimum impacts for 2000 and 2001 

are thereby calculated at $3,634,017 for 2000 and $3,591,876 for 2001. 

Cumulative impact to Kodiak based on historic crab harvest levels 

The Bristol Bay red king crab harvests in 2000 and 2001 were at the low end 

of recent harvests. There was no fishery at all during 1983, 1994 and 1995. The only 

years during the past three decades when the harvest was lower than 2000/2001 

was in 1982, 1984, 1985, and 1988. During the past three decades, harvests have 

ranged from 4.2 million pounds to 130 million pounds.13 The harvests from 1990 

through 2002 have averaged 11.6 million pounds. 

In order to arrive at a more realistic expectation of economic losses to the Kodiak 

community under crab rationalization it is illustrative to analyze recent delivery 

rates compared to crab rationalization restrictions using examples from the last ten 

years of harvest. In order to make the analysis within current trends, the projection 

uses several simplifications. Overall Bristol Bay red king crab harvests are rounded 

off to 11 million and 20 million pounds as proxies for actual harvests in 1999 

(11,090,930 pounds) and 1990 (20,362,342 pounds). The average harvest delivery 

percentage to Kodiak from 2000 and 2001, 10.72 percent, is used to compare to restricted deliveries under crab rationalization. The average ex-vessel value from 

2000/2001 of $4.86 is used to derive a first wholesale back calculated price of $5.54 

per delivered pound. Likewise, total deliveries to Kodiak are assumed to be the 

same as average in 2000/2001 except for the increase in deliveries that would be 

made to Kodiak due to the increased crab harvest. Total taxes are under-estimated 

at the average of 2000 and 2001. 

The analysis projects that an 11 million pound crab harvest with processor quotas 

would result in a loss to the community of Kodiak of $5,187,788 million. A harvest 

of 20 million pounds, based on that experienced in 1990, would result in a loss to 

Kodiak of $9,431,483 million. The losses would represent 4.172 percent and 7.503 

percent of overall value of landings to the community, respectively. 

These calculations are, at best, conservative estimates. They derive expected 

losses based on actual deliveries to Kodiak during 2000 and 2001 compared to proVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
28 

jected deliveries. However, the expected deliveries are likely to be even less than 

used in this analysis and therefore the impacts greater. For example, processors are 

free to transfer processing quota between processing plants. It is entirely possible 

that processors with larger plants in Unalaska/Dutch Harbor would direct deliveries 

to those plants at the expense of deliveries to Kodiak. Likewise, vessels that are 

‘‘controlled’’ by processors, such as several fishermen who have investments in both 

crab harvesters and a processor at Kodiak, would not receive ‘‘B’’ harvest shares and 

therefore crab deliveries to Kodiak would decrease accordingly. 

MAJOR DIFFERENCES BETWEEN AFA INSHORE COOPERATIVES AND THE COUNCIL’S

PROPOSED RATIONALIZATION PROGRAM FOR THE BSAI CRAB FISHERIES

Robert Halvorsen, Professor of Economics, Department of Economics, 

University of Washington Seattle, Washington 

I. Protection of Processors’ Market Shares 

Under the proposed rationalization program for the crab fisheries, a processor 

would receive processor quota share equal to 90 percent of its historic processing 

share. This amount would be guaranteed to the processor because harvesters could 

deliver their Class A allocation only to processors holding processing share. Therefore the only way that a processor could lose more than 10 percent of its historic 

market share would be if it set the ex vessel price so low that vessels would prefer 

to forego fishing rather than deliver fish to it, because that would be their only alternative. 

Under the AFA, each processor has the right to process 90 percent of its cooperative’s total harvest, but this does not guarantee that it will receive 90 percent of 

its historic processing share, because vessels have alternatives to remaining in the 

cooperative. One alternative for a vessel is to fish in the open access portion of the 

fishery and deliver its fish to another processor. It could then either remain in open 

access or join the cooperative of that processor. Another option is to qualify for another cooperative without going through open access by delivering its fish to the alternative processor as part of the 10 percent of the cooperative’s total harvest that 

can be delivered to any processor. And if enough vessels defected, the cooperative 

itself might be dissolved, eliminating any processing rights under the AFA. 

Therefore protection of processors’ market shares would be much greater under 

the proposed program for the crab fisheries than under the AFA, thereby giving the 

processors much greater bargaining power. In particular, under the AFA a processor 

will retain market share only if it offers an ex vessel price that is competitive with 

the price being offered by other processors, whereas under processor quota shares 

a processor could retain 90 percent of its market share even if it offered a price just 

slightly higher than the cost of catching fish. 

II. Regionalization 

Under the proposed rationalization program for the crab fisheries, Class A harvest 

shares and processor shares for each crab fishery would be regionally designated, 

whereas under the AFA the entire inshore sector is treated as a single region. This 

difference has important implications both for the net economic benefits that can be 

realized from rationalization and for the distributional consequences of rationalization. 

The Council itself recognizes that regionalization reduces net economic benefits by 

restricting consolidation of activities that are desirable for reducing capacity and 

gaining efficiency in both the harvesting and processing sectors under rationalization (Report to Congress August 2002, page 18). The lack of such constraints under 

the AFA increased the total net economic benefits that were available to be shared 

by harvesters and processors. 

Regionalization also has implications for the distributional consequences of rationalization because it subdivides the markets for crab and thereby increases the already high degree of concentration among processors. It also creates an incentive 

for processors to consolidate their market shares on a regional basis, which would 

increase the degree of concentration still more. The greater bargaining power attained by processors can be expected to adversely affect the price received by harvesters for Class B allocations as well as for Class A allocations, both because it 

might be difficult logistically to deliver to different markets and because processors 

might be able to require bundling deliveries of the two classes of fish. 

III. Complexity 

The ‘‘three-pie voluntary cooperative program’’ being recommended for the crab 

fisheries is much more complex than the rationalization program implemented 

29 

under the AFA. The greater complexity can be expected to have serious negative 

consequences both with respect to the cost of management and with respect to the 

functioning of the market for fish and for quota shares. 

Implementation of the proposed rationalization program for the crab fisheries 

would require the determination of share allocations in each region of each fishery 

for each individual vessel and processor. Ongoing management measures would include annual monitoring and enforcement measures at the same level of detail. 

Eventual formation of voluntary cooperatives might reduce some of the management 

costs with respect to harvesting, but the extra costs of managing processing activities would continue. 

More importantly, the increased complexity of the system might make the determination of prices through a decentralized market structure impracticable. For each 

regional market in each fishery the prices that would have to be determined include 

the ex vessel price of Class A fish, the ex vessel price of Class B fish, the price of 

Class A harvesting quota, the price of Class B harvesting quota, and the price of 

processing quota. 

Attaining equilibrium prices in such a complex system would be difficult in even 

in large, well-functioning, markets, and the markets in the crab fisheries would be 

both thin and imperfectly competitive. In addition, the large fluctuations in total allowable catch would complicate the determination of equilibrium prices and hinder 

the ability of the system to converge to stable values. In recognition of the possibility of the price system breaking down, the rationalization plan includes a binding 

arbitration program. However, the necessity of such a procedure increases the cost 

of managing the fisheries under the proposed rationalization plan, and even a welldesigned arbitration procedure is not an adequate substitute for a well-functioning 

market. 

IV. Net Benefits from Rationalization 

Rationalization of the pollock fishery under the AFA created large net economic 

benefits for the inshore sector, which made it feasible for both the harvesting and 

processing sectors to benefit from the program. As already noted, the regionalization 

requirement under the proposed plan for the crab fisheries would decrease the potential net economic benefits to be obtained by rationalization. But even if this provision did not exist, the total net economic benefits of rationalization in the crab 

fisheries could not be expected to be as large as they were under the AFA, because 

participants in the inshore pollock fishery benefited both from a large increase in 

the sector’s total allocation and from large rationalization benefits from the formation of cooperatives. 

The sector’s total allocation was increased first by an increase in its share of the 

total directed pollock fishery from 35 percent to 50 percent, and subsequently by an 

increase in the total allowable catch for the pollock fishery. The combined result was 

that the inshore sector’s total allocation has increased by 80 percent from the preAFA level in 1998 to the present. 

Large efficiency benefits were realized from the formation of the AFA cooperatives. Rationalization under the AFA permitted improved targeting of pollock during 

the peak roe season, resulting in greatly increased ex vessel prices during this season. The value of output was also increased because slowing the race for fish permitted an increase in the recovery rate and a shift to higher valued products. Harvesting costs have been reduced by the transfer of quota shares from less efficient 

vessels to more efficient vessels, and easy transferability of allocation within a cooperative has facilitated the full harvesting of the available allocations. 

In contrast, the proposed rationalization program for the crab fisheries does not 

include an increase in the total allocations available to these fisheries. It does incorporate a buyback program, but the efficacy of the buyback program has yet to be 

determined, and in any case could not result in benefits equivalent to the 80 percent 

increase in total allocation experienced by the inshore pollock fishery. Similarly, increases in the value of output due to rationalization are not anticipated to be as 

large for the crab fisheries, and increases in harvesting efficiency are likely to be 

hindered by the restrictions imposed by the proposed program. 

Senator STEVENS. Yes, we can keep the record open for 10 days. 

We are going on recess on Friday, so that would be—we should 

make that so it would be a week from the coming—not the coming 

Monday. I forget the date that will be, but that is the date we will 

come back into session. That would be the date we will close the 

record. 

30 

Ms. FREED. Thank you. 

Senator STEVENS. The second of June. 

Ms. FREED. Thank you. 

Senator STEVENS. Thank you very much. 

Our next witness is Dave Fraser, Captain of the fishing vessel 

Muir Milach. 

STATEMENT OF DAVE FRASER, CAPTAIN, 

FISHING VESSEL MUIR MILACH 

Mr. FRASER. Thank you, Mr. Chairman, Members of the Committee. I appreciate the opportunity to testify on behalf of the Crab 

Rationalization and Buyback Group. 

The Crab Group represents over 100 crab vessels, and the Crab 

Group strongly supports rationalization of the Bering Sea and 

Aleutian Island crab fisheries. We agree that the status quo system 

has left harvesters on the brink of bankruptcy, it has led to the demise of most of the non-AFA crab processors already, and it is also, 

and worst of all, been a murderous management system. We lose, 

on average, five fishermen a year. And that is clearly unacceptable, 

and we need to move forward into a rationalized fishery. 

That said, Mr. Chairman, the Council has recommended to you 

two distinct programs, one of which is a crab-management program 

that manages the harvest of crab. It includes skipper and crew provisions. It includes CDQ provisions, regionalization, a number of 

other protections for processors inherent in the program. But separate from that, they have recommended to you a different program. 

It is one to manage markets, manage the marketplace for crab and 

the sale of crab. And that is what requires congressional authorization. That is the program to which the Crab Group objects. 

Mr. Chairman, after the June meeting, I went home and was explaining to my neighbor, who is a plumber, what the Council had 

recommended, and just started out at the very basics and explained 

that they were recommending a program that divided up the right 

to buy crab from fishermen and assign each processor, or actually 

a small handful of processors, specific amounts of crab they could 

buy. He interrupted me after about 30 seconds and said, ‘‘Well, you 

are going to get paid less for your crab that way, are not you?’’ 

Now, neither Harold, my neighbor, nor I are economists, but I 

think he is right. 

In 1996, Mr. Chairman, you, in reauthorizing the Magnuson-Stevens Act, asked for advice, and you did not ask for it from a plumber or me; you asked for it from the National Academy of Sciences. 

The National Academy of Sciences spent a long time preparing its 

advice, and they looked specifically, on the basis of your direction, 

at crab processing quotas, or at processing quotas. And they said, 

quote, ‘‘We find no compelling reason for establishing a separate 

processor quota system.’’ 

Mr. Chairman, the Council, at your direction, was also, as you 

pointed out at the beginning of this session, asked to analyze the 

impacts of processor quotas in looking at crab rationalization. Now, 

the Council staff new a hot potato when they were handed one, and 

they contracted out that portion of the crab rationalization analysis 

to two independent economists from Florida. Those economists 

said, quote, under a processor quota system, ‘‘processors will do 

31 

better and harvesters will do worse as the ratio of A to B shares 

increases.’’ 

Now, that did not go over real well, and the Council took that 

out of the analysis and put it in an appendix, but that was the only 

analysis done on the impact of processor quotas; and the rest of the 

document was about four pages out of several hundred pages devoted to the issue of processor-quota impacts. 

Mr. Chairman, when the Council got to June and made its recommendation, it did not have any analysis of the impacts of processor quota before it, and it did not make any motions to consider 

any other alternatives, such as 50–50 or 70–30 or anything other 

than 90–10 split on processing quotas. The argument—there was 

no debate over this, but the argument essentially boils down to, ‘‘It 

is our way or no way.’’ Processor quotas must be included or processors will block rationalization of the crab fishery and these lives 

will be held hostage. 

What the economists that were contracted by the Council described as ‘‘monopsony ex-vessel pricing,’’ I described as a game of 

musical chairs. If you, as a fisherman, are unhappy in the situation 

you are in with a processor and want to move to a different processor, under an IPQ system you have got to move somebody else 

out of their chair, and they have to agree to go to someplace else. 

The only other open chair is the one you left that you found intolerable. 

Now, Commissioner Duffy has suggested that 10 percent B 

shares, open-market shares, are enough to correct the problem, and 

he has also equated that, and others have equated that, to the 10 

percent rule in the AFA. I think it is absolutely critical that you 

realize the essential difference between the AFA, which is an excellent program, and the IPQ program for crab, which is not. And that 

is the under the AFA, you do have stability. Processors have a 

planning horizon. They contract with members of their coop on an 

annual basis. But it is not musical chairs. If a harvester chooses 

to move to another processor by going through a year of open access, he can do so and take his chair with him. No processor under 

the AFA is guaranteed any fixed amount of quota from year to 

year. And that is what keeps the marketplace honest. It is the element of competition. 

Mr. Chairman, the Council did recognize the impacts of processor 

quota and what it would do to a competitive marketplace. And as 

a result, in recognizing that, they initiated a couple of trailing 

amendments. Those were to deal with community protections and 

the binding arbitration program. As Ms. Freed has suggested, the 

community-protections element ended up being—ephemeral, I 

think that was the word she used, or a sham. Likewise, the binding-arbitration provisions were the only basis on which some harvesters were willing to swallow the idea of processing quota. 

The Council set up a committee. It worked for several months, 

came back with two models, one of which was supported by processors, the other by harvesters. And the bottom line, Mr. Chairman, is that the Council, on a 6–5 vote, chose the one that the 

processors favored and rejected the one that the harvesters favored. 

And after that meeting, every single group of crab harvesters has 

expressed the fact that the binding arbitration model chosen by the 

32 

Council will not provide a meaningful safety net or the assurance 

of an outside option that equates to a competitive marketplace. 

Now, Mr. Chairman, Arni will testify later. They believe that this 

can be corrected, and will be corrected, but they are the only group 

that is taking that position at this point in time. 

So binding arbitration has not fixed the problem of destroying a 

competitive marketplace, and it becomes a tar baby. Arni will be 

asking for continual oversight by Council and Congress of the binding-arbitration process. Unless you write them a blank check, that 

means the Council has to come back to Congress for more authority 

if they want a different kind of binding arbitration than the one 

currently proposed. 

If Congress authorizes IPQs and gives broad authorization for 

changes in binding arbitration, it will transform the Council’s task 

from managing fisheries to managing markets, and they will need 

to invest the Council with the powers and experiences of the National Labor Relations Board, the Federal Trade Commission, Department of Justice Antitrust Division, and Public Utility Regulatory Commissions. 

It is a tar baby, Mr. Chairman, and I think it is a path Congress 

should think very seriously about going down, because the changes 

that will occur while attempting to fix the impacts from a flawed 

system are going to be irreversible changes. You cannot put Humpty-Dumpty back together again. 

Mr. Chairman, I suggested at the beginning that the Council’s 

program, absent processing quota shares, already does include elements to protect processors. We do not disagree with the need for 

protection of processors under a rationalized fishery, but some of 

the elements that are already embedded in the program for processors are separate classes of quota for catcher vessels and catcher 

processors so that catcher vessels cannot start processing their own 

catch; they have to use existing processors. There is regional restrictions on deliveries. Processors are allowed to acquire and own 

harvest quota; and, in fact, a processing company is allowed to hold 

five times as much harvest quota as any individual harvesting company is allowed to hold. That limitation for harvesters of only 1 

percent, versus the processors’ 5 percent, means that there will be 

a diverse supply on the harvest side for processors. 

Mr. Chairman, I think that the AFA provides a workable alternative to PQs, but the AFA is not equivalent to processor quotas. 

Congress should reject the Council’s request for a radical expansion 

of its duties beyond fisheries management and into market regulation represented by the request for authorization to adopt the processor-quota element. If Congress does, in fact, authorize processor 

quotas, it is critical to do so in a manner that guarantees improved 

community protections and a better binding-arbitration system, 

and that those elements are done first. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Fraser follows:] 

33 

PREPARED STATEMENT OF DAVID FRASER, CAPTAIN, FV MUIR MILACH, 

CRAB RATIONALIZATION AND BUYBACK GROUP

Executive Summary 

1.0 What Happened in Dutch Harbor and Why the 11–0 Vote? 

2.0 Are Processor Quotas Necessary or Prudent? 

2.1 National Academy of Science Recommendations 

2.1.1 ‘‘Sharing the Fish’’ on Processor Quota 

2.1.2 Distribution of Benefits of Quota Shares—Initial Allocation 

2.1.3 Distribution of Benefits and Consolidation 

2.1.4 Foreign Ownership 

2.2 Economists’ Views on Processor Quotas 

2.2.1 The GAO On Matulich 

2.2.2 Economists on Processor Quota—Milon and Hamilton 

2.2.3 Economists on Processor Quota—Halverson 

2.2.4 Economists on Processor Quota—Christy and Anderson 

3.0 Do We Believe in the Value of a Competitive Marketplace? 

3.1 Price Formation Under Status Quo versus Under Processor Quota 

3.1.1 Price Formation Under Status Quo 

3.1.2 Price Formation Under Processor Quota 

3.2 The Nature of the Right or Privilege represented by the Processing Quota 

4.0 Making a Square Wheel Round—Fixing the Impacts of PQs 

4.1 Will 10% B Shares Serve Their Intended Purpose? 

4.1.1 A Simplified Answer 

4.1.2 The Missing Analysis 

4.2 Binding Arbitration—A Substitute for Competition? 

4.2.1 Need for Arbitration 

4.2.2 Contrasting the Alternatives 

4.2.2.1 What’s In a Name?—Fleetwide Arbitration 

4.2.2.2 What’s In a Name?—Last Best Offer Arbitration 

4.2.2.4 Dr. Plott’s Analysis 

4.2.2.5 Information available to the arbitrator(s) 

4.2.2.6 Arbitration timelines 

4.2.2.7 Arbitration administration 

4.2.3 Quality issues 

4.2.4 Data Verification 

4.2.5 The Council’s Revised LBO Model 

4.3 Community Protections 

4.4 Government in the Marketplace 

5.0 Alternatives to Processor Quotas to Protect Processors 

5.1 Existing Programs 

5.1.1 AFA Pollock in the Shoreside Sector 

5.1.2 Halibut & Sablefish IFQs 

5.1.3 British Columbia’s IVQ Groundfish 

5.1.4 Newfoundland Crab 

5.2 Alternatives discussed in the NPFMC’s Advisory Panel 

6.0 Public Comment—Who Supports Processor Quotas 

7.0 Where Angels Fear to Tread 

Executive Summary 

The CRAB Group supports rationalizing the Bering Sea/Aleutians Islands crab 

fisheries. The status quo system has left harvesters on or over the brink of bankruptcy, and has led to the demise of most of the non-AFA (American Fisheries Act) 

crab processors. Worst of all, the murderous ‘‘race for fish’’ in the middle of winter 

kills an average of five fishermen a year. We are also aware that asking Congress 

to overrule a unanimous Council request puts us in a difficult position. 

However, we believe a fair rationalization program can be developed without resorting to Processor Quotas (PQs). Processor quotas will result in a segmented monopsony and require endless government regulatory involvement to simulate a competitive market. 

It is the position of the CRAB Group and hundreds of others that Congress should 

reject the Council’s request for a radical expansion of its authority. 

34 

The harvester component of the crab rationalization program is legal now. It can 

be adopted together with the CDQ provisions, the regionalization provisions, and 

the skipper and crew provisions designed by the Council, but without PQs. 

IFQs allocate access to a share of a public resource, which becomes private property only after it is captured. PQs grant a right or privilege to process a fixed portion of the harvest. Thus PQs direct the disposition of private property, rather than 

a public resource. 

IFQs insure that public resources are harvested in a safe and efficient manner. 

PQs eliminate or restrain competition among processors and create a regulated marketplace which requires creating a substitute mechanism for price formation. 

The crab rationalization process included nearly two years of committee meetings 

in which the various elements were crafted. Both harvesters and processors participated in these meetings. Throughout this process, the processing sector was adamant that rationalization was not going forward without processor quota. In the end 

all the arguments for PQ come down to this: ‘‘Our way, or no way.’’ 

The Council spent three days debating nearly all the proposed elements. In the 

end it created a balanced harvester IFQ system with regional delivery requirements, 

skipper and crew provisions, and a balance of recent and historic participation credit. 

However during this time, not a single motion was made regarding the allocation 

of 90 percent or the procession rights. There was no debate regarding the impacts 

of creating this system in spite of considerable testimony opposing processor quota 

shares. 

It is our firm belief that an effective lobbying effort cannot substitute for building 

a low cost and effective rationalization program within the current framework of the 

Magnuson-Stevens Fisheries Management and Conservation Act. 

National Academy of Science Recommendations 

Congress should heed the advice it requested from the National Academy of 

Science. In the NAS report, ‘‘Sharing the Fish,’’ they said there was no: 

‘‘. . . compelling reason to establish a separate, complementary processor quota 

system (the ‘‘two-pie’’ system).’’ 

It also noted with regard to foreign ownership: 

‘‘If there is a consistent congressional policy, it can be characterized as resistance 

to foreign ownership of fishing vessels and foreign exploitation of fish resources 

with the U.S.’’ 

The heart of the controversy over PQs is the impact on price formation. PQs destroy 

the harvesters’ ability to benefit from collective bargaining under the 1934 Fishermen’s Marketing Act. 

Ninety percent of a harvester’s crab must be delivered to a processor holding unused PQ. The result is a game of musical chairs which encourages harvesters to accept a sub -optimal price to avoid being the last one standing. In order to change 

processors, a harvester must find a new chair . Such harvesters must sell at a lower 

price than the person they are displacing in order to buy this chair. Clearly this 

creates a downward price spiral. 

Issuance of PQs divides the market and takes competition for product out of the 

equation. My neighbor owns a plumbing business and has no experience with fishing, but it took him less than thirty seconds to figure out that PQs will serve one 

purpose well . . . and that fishermen will be paid less for their crab as a result. 

Lower ex-vessel prices mean lower crew wages and reduced landing taxes for the 

State of Alaska. 

The Magical 10 percent Solution?—B Shares 

The State of Alaska’s Issue Paper has states that giving harvesters ‘‘B’’ shares to 

sell 10 percent of their crab on an open market will restore harvesters bargaining 

power and guarantee a fair price for all crab deliveries. 

The Issue Paper also claim the 10 percent B shares allow new processors to enter 

the fishery and increase the share of communities like Kodiak with limited qualified 

‘‘A’’ share processors. 

Simply asserting that a 10 percent of the crab can do all this doesn’t make it so. 

Indeed, these assertions lack supporting analysis. Unless B shares are like the biblical loaves and fishes, it is impossible to believe these shares will provide enough 

crab to leverage price by offering them to PQ endowed processors and provide a pool 

of product for disenfranchised processors and communities. 

35 

In fact, the Council recognized 10 percent was inadequate and initiated a series 

of trailing amendments to deal with community protections and with price formation 

through binding arbitration. 

Trailing Amendments—Binding Arbitration 

PQs would segment and allocate 90 percent of the Bering Sea crab market. Without specific legislative permission, that allocation would constitute a per se violation 

of antitrust law, equivalent to price fixing. It is a ‘‘hard-core cartel agreement’’ that 

would otherwise be prosecuted criminally by the Department of Justice. This inherently anti-competitive effect of PQs is the problem that requires Binding Arbitration. 

The Council Chairman appointed a committee of fishermen and processor representatives to address the issues of binding arbitration. Over several months of 

meetings committee developed two distinct approaches. 

The Council chose the version supported by processors on a 6–5 vote. That version 

fails to provide a meaningful safety net. Nor does it provide assurance of an outside 

option approximating a competitive marketplace. 

Real Time Oversight 

The Council has repeatedly stated its intent to modify the program to respond to 

unintended or unanticipated impacts. To do so will require far broader authority 

than simple legislation to implement the preferred alternative. It is also naı ̈ve to 

imagine that some of the effects will be reversible. 

Without additional authority, the Council lacks the tools required to address 

many of the problems that will arise. It is difficult to imagine that Congress will 

relish taking on the role of real-time program manager. It is also difficult to believe 

that additional authority should be granted outside the context of the MagnusonStevens Fisheries Conservation Management Act. 

If Congress authorizes PQs, it will transform Councils’ task from managing fisheries to managing markets. They will need the powers and experience of the National 

Labor Relations Board, Federal Trade Commission, Department of Justice Anti-trust 

Division, and Public Utility Regulatory Commissions. 

Alternatives to Processor Quotas 

There are many alternative approaches that have been utilized to deal with the 

concerns of processors in a variety of rationalized fisheries. Even without PQs, the 

crab rationalization plan gives processors substantial protection by program elements. These include: 

• Separate Catcher Vessel and Catcher Processor classes of quota, so fishermen 

can’t process their own crab. 

• Regional restrictions on deliveries. 

• Processors are allowed to acquire and own harvest quota. 

• Limits on consolidation of harvest quota, preserving a diverse supply for processors. 

The Council’s Advisory Panel also offered a number of alternatives to PQs which 

didn’t receive adequate consideration. If analysis did show there was further necessity to protect processors, there are less-damaging alternatives. 

The American Fisheries Act provides one such workable alternative to PQs. The 

critical difference is that while the AFA coops provide a large measure of stability 

through the requirement for annual coop contracts with an eligible processor, no 

processor is guaranteed a fixed share of the harvest for more than one year, and 

ultimately it is competition that governs whether a vessel will remain with a processor or move its quota to another processor. 

Legitimate processor concerns can be addressed without authorizing PQs and segmented markets. 

Recommendations: 

Congress should reject the Council’s request for a radical expansion of its duties 

beyond fisheries management and into market regulation represented by the request 

for authorization to adopt the Processor Quota element of their preferred alternative. 

If Congress does authorize PQs it is critical to do so in a manner that guarantees 

that improved community protections and a better binding arbitration process are accomplished first. 

Introduction 

The CRAB Group supports Crab Rationalization including measures to protect 

communities and processors. The status quo system has left harvesters on or over 

the brink of bankruptcy, and has already led to the demise of most of the non-AFA 

36 

crab processors. Worst of all, the murderous ‘‘race for fish’’ in the middle of winter 

kills an average of five fishermen a year. 

We believe a fair rationalization program can be developed without resorting to 

Processor Quotas (PQs) which will result in a segmented monopsony and require 

endless government regulatory involvement to simulate a competitive market. 

Our concerns are detailed in the following discussion. 

1.0 What Happened in Dutch Harbor and Why the 11–0 Vote? 

The North Pacific Fisheries Management Council staff prepared a 436 page analysis for the crab plan of which just four pages were devoted to the impacts of Processor Quotas. Recognizing the controversial nature of PQs, the Council contracted 

outside economists Milon and Hamilton from Florida for further analysis of the impacts. These economists produced a 35 page document which highlighted the negative impacts on harvesters. Unfortunately, the Council chose to remove it from the 

analysis. 

At the June meeting where the Council picked its preferred alternative, it passed 

20 amendments (and considered many more) to the proposed plan over three days 

of debate on the element and options of the program dealing with the harvest sector. 

Not a single motion was made on the regarding the level of PQ, and so there wasn’t 

a word of debate regarding the impacts of creating a PQ system governing the marketing of 90 percent of the crab. 

Aside from the PQ element, the Council did an excellent job of putting together 

a balanced IFQ system with regional community protection, skipper and crew provisions, a reasonable balance of recent and historic participation credit, and excessive 

share provisions for the harvest sector. All of which could be adopted without the 

PQs now the IFQ moratorium has lapsed. However, the processing lobby made it 

quite clear throughout the process that nothing was going to happen unless and 

until they got processing quota. In the end all the arguments for PQ come down 

to this: ‘‘Our way, or no way.’’ 

This powerful group has made it clear to everyone seeking to rationalize fisheries, 

that regardless of the economic cost to other non-diversified processors, fishing communities, vessel owners, or, indeed, the cost in human life for those who work in 

the nations most dangerous occupation, they will block any action that doesn’t give 

them control of the harvester’s market choices. 

It’s my opinion that the Council, tired of having blood on its hands, chose what 

they hoped would be the lesser of two evils. Since the Council vote last June Congress allowed the moratorium on IFQs to expire. It is now up to Congress to decide 

whether Processor Quotas are good policy. 

2.0 Are Processor Quotas Necessary or Prudent? 

2.1 National Academy of Science Recommendations 

In the 1996 Magnuson-Stevens Reauthorization Congress directed the National 

Academy of Science to provide advice and recommendations on IFQ programs and 

specifically directed the evaluation of processor allocations. Section 303(d)(5) of the 

M–S Act directs Councils to consider the recommendations for the NAS report 

(Sharing the Fish). 

2.1.1 ‘‘Sharing the Fish’’ on Processor Quota 

Page 205 of ‘‘Sharing the Fish’’ contains a two part recommendation relative to 

processors and quota. The first part speaks to allocating a portion of the IFQs to 

processors; the second speaks to creating a ‘‘two pie’’ or PQ system: 

‘‘On a national basis, the committee found no compelling reason to recommend 

the inclusion or exclusion of processors from eligibility to receive initial (fishing) 

quota shares’’ 

‘‘Nor did the committee find a compelling reason to establish a separate, complementary processor quota system (the ‘‘two-pie’’ system).’’ 

Page 153–155 of ‘‘Sharing the Fish ’’ provides a more extensive and very useful discussion of the issues surrounding processor quota allocations. The NAS concluded: 

‘‘The committee was not convinced, however, that the solution to the perceived 

problems lies in the allocation of either harvesting or processing quota to processors.’’ 

2.1.2 Distribution of Benefits of Quota Shares—Initial Allocation 

‘‘Sharing the Fish’’—the report to Congress by the National Academy of Science 

recommended a broad distribution of the benefits of Quota share programs. The benefits are broadly distributed in the initial allocation under the harvester IFQ portion 

37 

of the Council’s plan. However, the benefits of the Processor Quota are highly concentrated. 

• About 250 harvester vessels would get allocations as IFQs. 

• Only 21 of the 80 processors who operated in opilio in the last 10 years would 

receive PQs. 

• According to the Council’s analysis ‘‘the top 12 would receive more quota allocation than they historically processed (96.4 percent compared to 75.66 percent).’’ 

• The top four opilio processors will be guaranteed 57.6 percent of the PQ. 

2.1.3 Distribution of Benefits and Consolidation 

In contrast to the harvest sector where caps were set at levels that would maintain a minimum fleet size of about 100 boats, processing caps were set so as to allow 

consolidation to only 2 processing facilities. 

Though the processor ownership cap is set at 30 percent, the action would also 

grandfather in initial recipients of IPQ, not as of the date of Council action in June 

of 2002, but as of a date in the future when IPQ is actually issued—thus inviting 

consolidation in the interim. 

Use caps were set for only one fishery in one region, (opilio in the northern region) 

at 60 percent of the IPQ. There was no definition of the duration of ‘‘use’’ (i.e., leasing) as time limited. Thus even if the 30 percent ownership caps did provide for a 

minimum of 4 processors per fishery, the lack of ‘‘use’’ caps allows the ownership 

caps to be neatly circumvented by 99 year leases. 

In addition to the lack of meaningful consolidation limits for PQs holders, individual processing companies are allowed to own up to five percent of the harvest 

quota, while harvesting companies are limited to one percent. 

The Council’s lack of meaningful action on ownership and use caps opens the door 

to unconstrained consolidation of the processor sector before and after implementation. There is a fundamental inconsistency between the concerns imbedded in the 

MS–FCMA over excessive shares and promoted in the NAS report, and the creation 

of PQs. 

2.1.4 Foreign Ownership 

On page 155 of ‘‘Sharing the Fish’’ the NAS notes: 

‘‘If there is a consistent congressional policy, it can be characterized as resistance 

to foreign ownership of fishing vessels and foreign exploitation of fish resources with 

the U.S. EEZ (e.g., 16 U.S.C. 1812[a], 1824[b][6]). The concerns giving rise to the 

exclusion of foreign interests fall within several categories: 

• Fear of foreign domination of the maritime industry and fisheries; 

• Difficulties in regulating foreign-owned businesses; 

• Threats to the social values of U.S. fishing communities; and 

• Loss of potential economic benefits. 

The Council’s analysis (page 393) showed that between 37 percent and 49 percent 

of Processor Quota would be allocated to foreign processors. This does not take into 

account the amounts to be allocated to domestic ‘’shell’’ corporations, formed to qualify vessel ownership under MARAD rules. [e.g., Peter Pan Seafoods, a Japaneseowned company, would receive an estimated 14 percent of initial PQS for opilio. A 

subsidiary which owns a processing ship, Steller Sea, would receive as much as 5 

percent additional allocation, which has not been accounted as allocation to foreign 

processors. 

It is unlikely that foreign owned processors could be precluded from being issued 

Processor Quota, because they would rely on treaty protections to demand equal 

treatment (as occurred under the AFA). It is ironic that we restrict the allocation 

of IFQs to U.S. citizens only, when Processor Quota would require some of those 

U.S. citizens to sell their property/catch to foreign owned processing companies. 

Processor Quotas are inconsistent with the recommendations of the National Academy of Sciences found in ‘‘Sharing the Fish.’’ 

2.2 Economists’ Views on Processor Quotas 

The entire theoretical underpinning of Processor Quotas rests on the work of one 

economist—Scott Matulich. It is his belie f that in a free market, fishers with IFQs 

will ‘‘expropriate the quasi-rents rightfully belonging to processors’’ because harvesters would no longer fear that company owned boats would pre-empt their catch 

if they were to go on strike. 

Matulich has been able to parlay this diagnosis into a prescription for a particular 

cure of his own design called the ‘‘2-pie’’ or PQ system. The Council bought off on 

38 

this prescription at a particular dosage level PQs for 90 percent of each catcher 

boats’ harvest. Unfortunately there is no FDA to require testing on this new medicine to determine a safe dosage level, before it is administered to the crab fleet. 

To judge whether the side effects of Matulich’s cure are likely to be worse than 

the disease, it is necessary to turn to other economists. As noted in the preceding 

section the National Academy of Science considered and rejected Matulich’s prescription. They were not alone. 

2.2.1 The GAO on Matulich 

In December of 2002 the GAO provided this committee with a report on IFQs 

which contained a very critical review of a paper by Matulich purporting to provide 

an empirical basis for his theory in the context of the existing Halibut and Sablefish 

IFQ program. They questioned the methodology and the potential for bias in the 

survey design for gathering data. 

2.2.2 Economists on Processor Quota—Milon and Hamilton 

In a paper prepared under contract for the Council by Florida economists J. Walter Milon and Stephan F. Hamilton (A Comparative Analysis of Alternative Rationalization Models for the Bering Sea/Aleutian Islands Crab Fisheries—March 2002) 

the authors describe the impacts of a ‘‘segmented monopsony.’’ 

In discussing the IPQ model Milon and Hamilton noted: 

‘‘The (PQ) quota allocation defines a property right of each processor to serve 

a perfectly segmented market, and, with a fixed quantity of harvest, each processor maximizes his profits by paying the lowest ex-vessel price that supports 

harvester delivery of this quantity. The outcome is regional monopsony ex-vessel 

pricing . . . Accordingly, the delineation of processor quota rights subsumes all 

economic rent from the ITQ program in the harvest sector . . . With a two pie 

permit distribution that allocates the full processing quota, the value of harvester permits are driven to zero . . . With completely defined property rights 

in the processing sector, the allocation of property rights in a harvest sector ITQ 

program becomes redundant.’’ 

The Council stopped just short of completely defining property rights in the processing sector, leaving 10 percent of the catcher boat harvest in an open market. 

Milon and Hamilton went on to observe that in a system where some percent of 

the harvest share remains ‘‘free market’’ (such as the 10 percent recommended in 

the Council action) the outcome is a blend that: 

‘‘. . . results in a continuum of market segmentation levels. Consequently, all 

possible two-pie permit distributions have identical implications for economic efficiency, but differ in the degree to which the policy rent is shared between market participants. Processors are likely to fare better, and harvesters fare worse, 

as the ratio of A to B permits increases in the proposed fishery management system.’’ 

Cartels are precluded by existing anti-trust laws. It is ironic that the same outcome (monopsony pricing) would be legally achievable under Processor Quotas. The 

only functional difference is that when a legal Processor Quota system segments the 

market, it will be more effective than if a group of processors had conspired to set 

prices. In the latter instance there is always hope that a new processor could enter 

destabilize the cartel by offering competitive prices. 

2.2.3 Economists on Processor Quota—Halvorsen 

Economist Dr. Halverson, who was contracted by the Council for an earlier analysis of the distribution of bargaining power under different ‘‘game’’ rules for American Fisheries Act coops, was also critical of the Matulich 2 Pie theory. Dr. 

Halvorsen presented a paper to a hearing of the U.S. House Resources Committee 

explaining the theoretical deficiencies of the Matulich theory. Additional analysis by 

Dr. Halvorsen have been submitted to this committee by Mayor Freed. 

2.2.4 Economists on Processor Quota—Christy and Anderson 

Two other very prominent fisheries economists served on the NMFS Advisory 

Panel to the NAS when ‘‘Sharing the Fish’’ was prepared, Lee Anderson (chairman 

of the NMFS East Coast AP) and Francis Christy. Christy, who worked in fisheries 

for many years for the UN–FAO, is considered to be the economist who came up 

with the idea for IFQs. Lee Anderson, who wrote a seminal text book on IFQs and 

economic theory, was a member of the Mid-Atlantic Fisheries Management Council 

when the 1st IFQ program was adopted. Both economists have been very critical 

of the Matulich theory and of the idea of PQs. While Anderson recognizes the potential for negative impacts on processors from IFQs to the extent that their capital 

39 

is non-malleable, he doesn’t advocate PQs as the appropriate fix for that potential 

problem. 

3.0 Do We Believe in the Value of a Competitive Marketplace? 

3.1 Price Formation Under Status Quo versus Under Processor Quota 

The heart of the controversy over Processor Quota goes to its impact on price formation. 

3.1.1 Price Formation Under Status Quo 

Given the depressed state of crab stock, the last Bristol Bay Red King Crab fishery lasted just over three days. The last opilio season was a matter of weeks. These 

are the two major crab fisheries. Price has been negotiated pre-season by a marketing association. The derby nature of the fishery makes it difficult to ‘‘shop 

around’’—crabbers have generally been price takers in a world market for crab. 

The opilio catcher boat fleet has gone on strike the last couple years. However, 

because there are a number of catcher processors who fish a common quota with 

the catcher boats, striking means foregoing a portion of the harvest. One of the 

major processing companies owns 4 of the catcher processors, so their reaction to 

a strike is ‘‘throw me in the briar patch.’’ 

With three day seasons in the Red King crab fishery, strikes would be economic 

suicide for catcher boats. Matulich is right about one thing, shortened seasons are 

better for processors than they are for harvesters. 

3.1.2 Price Formation Under Processor Quota 

The program the Council passed and has requested Congress to make legal is very 

different. It allows harvesters to sell 10 percent of their catch to the processor of 

their choice. The other 90 percent must be delivered only to a processor holding unused IPQ. This results in a game of ‘‘musical chairs’’ where the ‘‘last man standing’’ 

has no choice about where to sell—and as a consequence there is an urgency to ‘‘sit 

down’’ early at a sub-optimal price to avoid being the ‘‘last man standing.’’ 

If a harvester wishes to move to a different processor because they are unhappy 

with the way they are being treated, there is only one way to do it. They must displace someone who is working for a different processor. The only way to do that is 

to offer to fish at a lower price than the person you are displacing. This fundamental 

alteration of the dynamics into a game of musical chairs destroys the ability of fishers to benefit from collective bargaining as provided under the 1934 Fishermen’s 

Marketing Act. 

3.2 The Nature of the Right or Privilege represented by the Processing 

Quota 

There is a fundamental difference in purpose between IFQs and PQs. The purpose 

of PQ is to direct the transfer of private property. The purpose of IFQs is to allocate 

access to a share of free swimming critters, which up to the point of capture, are 

a public trust resource. 

IFQs are generally understood to be a privilege to harvest a fixed portion of the 

common property public trust resource. The result of being allowed to harvest that 

resource is that it is converted to private property at the point of harvest. 

A PQ is a right or privilege to process a fixed portion of the harvest. Congress 

has been clear that they regard Harvest Quota shares as a privilege, but there is 

a spectrum between ‘‘privilege’’ and ‘‘right’’ that has yet to be debated with regard 

to PQs. The wrinkle here is that crab, once harvested, have been converted to private property. Thus, it appears that the PQ directs the disposition of private property, rather than the disposition of a public resource. 

The introduction of PQs for the purpose of eliminating or restraining competition 

among processors creates a regulated marketplace and the need to provide a substitute mechanism for price formation. 

4.0 Making a Square Wheel Round—Fixing the Impacts of PQs 

The Council failed to analyze and debate the impacts of a 90/10 PQ system up 

front and made the assumption that allowing 10 percent free market or ‘‘B shares’’ 

would serve to simultaneously allow opportunity for disenfranchised processors and 

communities as well as provide harvesters leverage for obtaining a fair price. The 

Council also set in motion a process of ‘‘trailing amendments’’ to address price formation through ‘‘binding arbitration’’ and ‘‘community protections.’’ 

4.1 Will 10% B Shares Serve Their Intended Purpose? 

The State of Alaska’s Issue Paper has said that ‘‘B’’ shares will 

40 

• Protect harvester’s bargaining power and guarantee a fair price for all crab deliveries. 

• Provide a pool of product for new processors to enter the fishery. 

• Increase the share of communities which have limited qualified ‘‘A’’ share processors. 

The National Environmental Policy Act requires the evaluation of regulatory actions by examining contrasting alternatives, so that decisions rely on analysis rather 

than unsupported assertions. 

In order for the above assertions to be possible, it must be plausible that being 

a non-PQ endowed processor is a viable business. This raises the threshold question, 

‘‘How does a non-PQ endowed processor attract B share deliveries?’’ 

4.1.1 A Simplified Answer 

The following is a very simple modeling exercise that shows the answer is ‘‘no.’’ 

Assume a base ex-vessel price of $1/lb in the PQ sector. 

Assume a Processor 1 is PQ endowed with 1,000,000 lbs and takes A share deliveries from 10 vessels with 100,000 lbs each. 

Assume Processor 2, not PQ endowed needs 100,000 lbs to justify operating a crab 

line. 

In order to attract deliveries from 10 vessels with 10,000 lb each of B share crab 

Processor 2 will have to pay some sort of incentive bonus. If Processor 2 determines 

it can pay $1.10 (a 10 cent ‘‘competitive bonus’’) and still show a profit, will doing 

so attract deliveries of B shares? 

In order to retain the deliveries of the 100,000 lbs of B share crab from its 10 

vessels Processor 1 will have to pay some sort of ‘‘loyalty bonus.’’ If Processor 1 determines it is willing to pay $1.01 (a 1 cent ‘‘loyalty bonus’’) pro-rated over both A 

and B deliveries, why would the vessels deliver B shares to Processor 2? 

Both Processor 1 and 2 are paying an ‘‘extra’’ $10,000 to get the B share deliveries. The difference is that Processor 1 is amortizing that $10,000 over 1,000,000 

lbs and Processor 2 is amortizing over just 100,000 lbs. This gives the PQ endowed 

processor a 10:1 advantage over the non-PQ processor. (If B shares had been set 

at 20 percent the PQ endowed processor would still have a 5:1 advantage, or about 

a 3:1 advantage if B shares had been set at 30 percent) 

Entry by a non-PQ endowed processor is unlikely to occur unless PQ endowed 

processors are indifferent to retaining B share deliveries. If any new processors did 

enter, they would quickly be driven out by the endowed processors price leverage. 

When the game is this clearly rigged, very few will make the mistake of playing. 

If there are no non-PQ endowed B share processors, they can’t fulfill the variety 

of functions asserted in the ‘‘Issue Papers.’’ 

4.1.2 The Missing Analysis 

One of the stated purposes of PQs is to address the transitional costs associated 

with non-malleable capital in the processing sector. The analysis currently lacks any 

quantitative analysis of the crab specific fixed capital (malleable or otherwise) in the 

processing sector. 

Part of the reason for the lack of analysis is that Section 303(b)(7) of the M-S Act 

exempts processors from the requirement to submit economic data. As a result they 

are free to claim harm, but the analysts don’t have the ability to verify their claims. 

If analysis shows that there is only 10 cents on the dollar of bargaining power 

at stake in the choice between PQs at levels between 0 percent to 100 percent, that 

difference represents a difference of $10–50 million per year in ex-vessel revenue. 

That difference in revenue in turn affects the raw fish tax collected by the state of 

Alaska as well as wages for crew flowing into communities. The analysis should 

have included an evaluation of the level and duration of the PQ necessary to compensate the transitional costs of the processing sector; but again, processors have 

hidden behind the lack of data. 

4.2 Binding Arbitration—A Substitute for Competition? 

The Council recognized that PQs would have a profound impact on price formation and so they initiated a trailing amendment to deal with Binding Arbitration. 

The NPFMC Chairman appointed a committee of fishermen and processor representatives to address the issues of binding arbitration. This committee developed 

two distinct approaches. 

4.2.1 Need for Arbitration 

Binding arbitration is necessary to address the inherently anti-competitive effect 

of the PQ component of crab rationalization. The magnitude of the problem is proVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
41 

1 By contrast, fishermen have had an exemption from antitrust law that allows them to collectively harvest, process, market and/or sell their catch since the adoption of the Fishermen’s Collective Marketing Act in 1934. Through a qualifying fishermen’s cooperative, it is legal for fishermen to allocate among themselves harvest shares of a fishery, and to collectively negotiate 

the prices at which they are willing to sell their catch. It is also legal for Councils to adopt individual fishing quota programs which allocate harvest shares by regulation. 

portionate to the A/B share split, and at 90/10 the Binding Arbitration process plays 

a crucial role in substituting for the removal of a competitive market for harvesters. 

PQs would effectively segment and allocate 90 percent of the market into which 

crab harvests will be delivered. That action would radically shift negotiating leverage between harvesters and processors relative to status quo. Without a specific legislative exemption, that action would constitute a ‘‘per se’’ violation of antitrust law 

equivalent to price fixing. It is a ‘‘hard-core cartel agreement’’ that is prosecuted 

criminally by the Department of Justice.1

Binding arbitration is intended to address failed price negotiations, and to reintroduce parity lost through processor market segmentation. Binding arbitration is not 

intended to be a substitute for consensual price negotiation, and we expect and intend that most if not all crab delivery contracts will be settled through negotiation. 

However, all negotiations are conducted against the parties’ outside option if negotiations fail, which in this case is the price that would be set under arbitration. 

Therefore, the results of the model chosen will directly condition the results of such 

negotiations. 

While it is not panacea that will undo the anti-competitive impact of PQs, the 

‘‘Fleetwide’’ conventional arbitration model more appropriately addresses the negotiation leverage shift associated with the Council’s preferred rationalization alternative. T he segmented ‘‘Last Best Offer’’ model, does not. 

4.2.2 Contrasting the Alternatives 

The Council tasked the Binding Arbitration Committee with developing an arbitration program, and the committee came back to the Council with two models referred to as the ‘‘Fleetwide Minimum Price’’ (FW) and the ‘‘Last Best Offer’’ (LBO) 

models. 

The names of the two Binding Arbitration models don’t capture the range of differences. 

4.2.2.1 What’s In a Name?—Fleetwide Arbitration 

We believe the FW model works better than the segmented LBO model in part 

because it is more closely models the current price formation process, by setting 

price before a harvester is required to make an irrevocable commitment to deliver. 

As its name implies the ‘‘Fleetwide’’ arbitration model is designed to create a minimum price that is available to the whole fleet as a ‘‘safety net.’’ It allows the arbitrator to ‘‘cut the baby’’ and establish a minimum price that is between the positions 

taken by either processors or harvesters in the preliminary negations. 

4.2.2.2 What’s In a Name?—Last Best Offer Arbitration 

Under the segmented LBO model, harvesters must irrevocably commit to deliver 

their crab to a processor to trigger a price arbitration. This is a highly unusual departure from standard commercial practice. It is akin to entering a contract to buy 

a house before the price has been revealed. It will have adverse economic and psychological effects on harvesters entering the negotiation process. 

Given that the purpose of Binding Arbitration is to compensate for the creation 

of a segmented market, providing a reasonable outside option makes more sense 

than stripping the harvester of the right to strike. 

The ‘‘Last Best Offer’’ model involves separate isolated arbitrations for each processor and for individual harvesters or groups of harvesters delivering to a particular 

processor. While LBO arbitration forces parties to narrow the range of proposals 

submitted to the arbitrator(s), also disadvantages the more risk averse party, and 

invites strategic gaming by processors. Crab harvesters, who typically depend heavily on their crab revenues for survival, are likely to be much more risk averse in 

crab price negotiations than crab processors who have other sources of income (such 

as AFA pollock processors). 

Harvesters in these circumstances have proportionately more to lose than their 

processor counterpart. As a consequence, they may well have a strong incentive to 

buy their way out of arbitration at a discount, rather than enter a process under 

which an arbitrator is constrained to accepting one or the other of the parties’ price 

proposals, rather than having the latitude to frame an equitable result. 

42 

4.2.2.4 Dr. Plott’s Analysis 

The FW model was deliberately designed to produce an environment in which the 

parties are encouraged to collaborate to produce additional value. In Dr. Plott’s experimental analysis for the Council, it appears to have done so On the other hand, 

the segmented LBO model fractionalizes parties, and in Dr. Plott’s experiments produced a more contentious negotiating environment, with fewer well timed deliveries, 

and at least one instance of a harvester choosing not to ‘‘deliver.’’ This is an important consideration, if we are hoping to obtain additional value from our crab resources through rationalization. 

4.2.2.5 Information available to the arbitrator(s) 

It is critical under either model that the arbitrators have access to data concerning historical and current crab transactions. Under the FW model, all arbitrations are conducted by the same arbitrator or arbitration panel. However, under the 

segmented LBO model there is no assurance of such information exchange. 

This is important, as there are unresolved legal and policy issues which may prevent the arbitrators from accessing the database being established in connection 

with the program to verify the accuracy of information submitted in the discrete arbitrations. Section 303(b)(7) and 402(b) of the M-S Act prevent the collection of necessary verification data from processors, and would prohibit its release to an arbitrator even if it were collected. 

4.2.2.6 Arbitration timelines 

The FW model was designed to prevent the arbitration process from being time 

constrained. The segmented LBO system has set what we perceive to be an extremely tight time frame within which all arbitrations would take place. We are 

concerned that the resulting time constraint may shift negotiating leverage inappropriately, and prevent an effective exchange of data between arbitrations. 

The compressed 15 day timeline for LBO arbitration is likely to require separate 

arbitrators as well. This means that any individual arbitrator will have a limited 

information base to evaluate the market. A single Arbitrator with access to a broad 

view of the full market under the FW model is better situated to determine a fair 

minimum price. If each PQ owner’s arbitrations are happening in a vacuum, the arbitrator will have a narrow frame of reference for ground-truthing the PQ owner’s 

data. 

4.2.2.7 Arbitration administration 

Given the significance of bin ding arbitration in the context of a segmented and 

allocated processing market, we think it is far more critical that the system function 

well than be cheap. In any case, we do not believe that the relative costs of the two 

systems would be substantially different. The FW model would generally use one 

arbitrator or a single panel over a longer time, while the segmented LBO model 

would use more arbitrators or arbitrator panels over a shorter time frame. 

4.2.3 Quality issues 

Quality affects price, and in the absence of well defined quality standards and a 

quick, efficient and equitable enforcement system, quality issues could skew negotiating leverage notwithstanding arbitration system design. This remains as an issue 

that needs to be referred to the Binding Arbitration Committee for further work. 

4.2.4 Data Verification 

The Analysis states on page 3.7-8 that the arbitrator will need to invest substantial time and effort into development of the historic division of revenues standard, 

and to determine both historic ex vessel prices and first wholesale prices. It notes: 

‘‘The magnitude of this problem is not likely to be fully understood until the arbitrator begins the process of calculating the division of revenues.’’ 

The Analysis points to a long list of complicating factors in the arbitrators’ task. 

It states that determining the historic first wholesale prices and revenues division 

will also be: 

‘‘complicated by the lack of uniformity of processors and the different products 

those processors sell into different markets.’’ 

‘‘complicated by vertical integration of the processing sector.’’ 

‘‘complicated by several other factors . . . 

‘‘. . . sensitive to the production levels of specific products . . .’’ 

‘‘. . . sensitive to changes in total harvest . . .’’ 

43 

‘‘. . . (and) location of landings’’ 

‘‘complicate(d) . . . (because) Commercial Operator Annual Reports (COAR) 

. . . distinguish species, but not fishery.’’ 

Without the ability to access the Data Collection system, it is imperative that the 

Arbitrator will not have the ability to ‘‘ground truth’’ information provide by participant. There is a need for retroactive gathering of data to establish a baseline for 

measuring impacts of PQs and the efficacy of Binding Arbitration. Unfortunately 

this may be an impossible task. 

NOAA–GC has said that the Data Collection program will be unable to either provide the necessary data, or even verify the accuracy of data provided to the Arbitrator 

by participants, without changes to section 303(b)(7) and 402(b) of the M-S Act. 

4.2.5 The Council’s Revised ‘‘Last Best Offer’’ Model 

The Council ultimately adopted a revised LBO model which incorporated a watered down version of what is called the ‘‘Steele amendment.’’ The Steele amendment would have utilized the highest arbitrated price (reflecting a minimum of 7 

percent of the market) resulting from the LBO process to establish a fleetwide price. 

In one significant way this reflects current practice where the Alaska Marketing Association negotiates with a number of processors and signs a contract with the processor with the best offer, and then that offer is ultimately matched by other processors. 

The success of the Steele amendment version of LBO would have depended on the 

continued survival of a number of processors in the 7 percent market share range. 

Under the consolidation rules, these smaller IPQ holders may disappear over time, 

and with them the potential of the revised LBO to achieve its goal of a quasi-competitive fleetwide price. 

However, the Council’s revised LBO alternative merely uses the information on 

the highest price representing 7 percent of the market as information available for 

the arbitrator’s consideration in the subsequent year. 

The Binding Arbitration process recommended by the Council fails to provide a 

meaningful safety net. It does not provide assurance of an outside option approximating a competitive marketplace. 

4.4 Community Protections 

The second set of trailing amendments dealt with community protections. The 

CRAB Group concurs with the testimony of Mayor Freed of Kodiak. 

The supposed ‘‘right’’ of first refusal is an ephemeral and unworkable ‘‘protection’’ 

to a problem that would not exist but for the inclusion of PQs in the program. 

PQs facilitate consolidation and the lack of meaningful processor consolidation 

limits in the program ultimately means plant closings in remote Alaskan coastal 

communities. 

4.4 Government in the Marketplace 

The Council has repeatedly stated its intent to modify the program to respond to 

unintended impacts. If it is to do so it will need far broader authority than legislation which simply implements the preferred alternative. This implies the Council is 

asking for a blank check from Congress. If Congress doesn’t provide a blank check, 

then Congress must exercise real time oversight of the program as only Congress 

will have the power to amend it. It is naı ̈ve to imagine that Congress can micromanage the impacts of PQs in real time, or that the impacts will be reversible. 

When government steps it to try to simulate the function of a competitive market 

it is sticking its foot in a tar baby. If Congress authorizes PQs, it will transform 

Councils from fish management bodies into a hybrid of, or delegating the authority 

of, the National Labor Relations Board, Federal Trade Commission, Department of 

Justice Anti-trust Division, and a Public Utility Regulatory Commission. Council 

members are not selected for their competence in these areas, which is why they 

do not currently have the authority to adopt PQs. 

5.0 Alternatives to Processor Quotas to Protect Processors 

There are many alternative approaches that have been utilized elsewhere to deal 

with the concerns of processors in a variety of rationalized fisheries. These include 

elements in a number of existing programs, as well as proposed alternatives that 

didn’t receive adequate consideration by the Council. 

In the crab rationalization plan, processors were given substantial protection by 

various program elements including the following: 

• Processors are allowed to own and acquire IFQs. 

44 

• Catcher Vessel IFQ holders must deliver their crab to processors rather than 

processing themselves as Catcher Processors. 

• Regional restriction on deliveries, which favor existing processors. 

• Limitations on consolidation of IFQ ownership at 1 percent each for harvesters, 

which preserve a diverse supply for processors. 

• Processors are allowed up to 5 percent each of the harvest IFQ, in contrast to 

1 percent limit for harvesters. 

Without analysis of the adequacy of these provisions, nor discussion or debate, the 

NPFMC added the provision of Processor Quota. If analysis shows there is further 

necessity to protect processors, there are less-damaging alternatives in existing programs such as the AFA. 

5.1 Existing Programs 

5.1.1 AFA Pollock in the Shoreside Sector 

• AFA shoreside processors were collectively guaranteed an increased share of the 

pie. 

• AFA shoreside processors were provided a closed class. 

• AFA shoreside processors were provided with a degree of stability in the design 

of the coop rule. 

AFA catcher vessels are only guaranteed their history as a member of a coop with 

a processor partner. 90 percent of the catch history of the coop had to be delivered 

to the processor partner in a given year. Though vessels are able to move between 

processors annually, disincentives were built in that discouraged movement between 

coops, where the alternative to being in a coop was an open access derby for one 

year. 

The critical difference between the AFA processor protections and PQs is that 

while the AFA coops provide a large measure of stability through the requirement 

for annual coop contracts with an eligible processor, no processor is guaranteed a 

fixed share of the harvest for more than one year, and ultimately it is competition 

that governs whether a vessel will remain with a processor or move its quota to another processor. 

5.1.2 Halibut & Sablefish IFQs 

Halibut and sablefish shoreside processors were protected from competing with 

freezer boats. 

5.1.3 British Columbia’s IVQ Groundfish 

In the BC Canada groundfish ITQ, the allocation of 10 percent of a vessel’s catch 

history is conditional on community and processor concerns. 

5.1.4 Eastern Canada Opilio Crab 

In the ‘‘harvester only’’ IFQ program for snow crab, binding arbitration was instituted to set a base price. It is worth noting that crab processing there is still profitable enough that it has attracted a number of new entrants. 

5.2 Alternatives discussed by the NPFMC’s Advisory Panel 

The Council’s Advisory Panel offered a number of alternatives to Processor Quotas 

which didn’t receive adequate consideration. 

• Processors could be allocated a portion of the harvest ITQ commensurate with 

their relative proportion of fishery specific non-malleable capital. 

• A quasi closed class of processor, guaranteeing a percentage of the harvest to 

be delivered to the class of eligible processors based on their aggregate processing history. 

• An AFA style coop with disincentives for not joining or for leaving a coop. 

There are many options for addressing processor concerns without adopting PQs 

and a segmented market. 

6.0 Public Comment—Who Supports Processor Quotas 

Letters submitted to the Council concerning Crab Rationalization at the June 

2002 meeting were overwhelmingly against Processor Quota. 

The single harvesters association endorsing Processor Quota was Alaska Crab Coalition, who supported it at the 80 percent level, with the remaining 20 percent to 

be ‘‘free market.’’ Their written rationale for limiting PQs to 80 percent provided to 

the Advisory Panel at the June Council meeting makes an excellent case as to the 

45 

problems with Processor Quota at any level. Their recent (albeit temporary) retraction of support for the PQ program following the April Council action on Binding 

Arbitration stated: 

‘‘The ACC cannot accept the arbitration approach adopted by the Council, and 

accordingly is forced to oppose statutory authorization of the BSAI rationalization plan, until and unless the Council adopts a system that protects harvesters 

against market distortions that would otherwise result from processors shares. 

Whether that can be achieved within the context of the 90/10 formula is an 

open question.’’ 

Though ACC is now ‘‘confident that crab harvesters will be provided the comfort 

level they expect and deserve’’ in the ongoing process. The open question of the moment is what changes ACC expects w ill be adopted, but it is clear that they recognize the reality that Processor Quotas will result in ‘‘market distortions’’ and that 

even they question whether 90/10 isn’t going too far. 

The CRAB Group, representing over 100 vessels, supports rationalization of the 

crab fishery but is opposed to PQ for all the reasons outlined in this document. 

There are several associations representing segments of the crab fleet in addition 

to ACC and the CRAB Group. 

• United Fishermen’s Marketing Association, Inc. (UFMA) based in Kodiak 

strongly opposes PQs in the crab fishery or any other fishery. 

• Tom Casey, representing the 30 crab vessels in the Alaska Fisheries Conservation Group (AFCG), has stated that their members find the 90 percent PQ program so untenable that they would prefer status quo. 

• Jake Jacobs representing the Alaska Marketing Association testified at the 

April Council meeting that ‘‘Last Best Offer Arbitration is an open sore.’’ 

A petition signed by over 1,000 Alaskans was published this week in the Anchorage Daily News. Other petitions circulated in the Seattle area with several hundred 

signatures were submitted to members of this committee by Fishermen’s Finest 

company. 

Changing the M-S Act to allow for Processor Quotas in the Bering Sea crab fishery is only the allowing the camels nose into the tent. If it is allowed in this fishery, 

the pressure to allow it in all federally managed fisheries is inevitable. Does Congress really want to open up this can of worms and transform fisheries management 

Councils in to bodies with the authority to regulate trade? If so, then expect the 

amount of public comment on how to regulate markets to escalate exponentially. 

7.0 Where Angels Fear to Tread—Recommendations 

It is the position of the CRAB Group and others that Congress should reject the 

Council’s request for a radical expansion of its duties beyond fisheries management 

and into market regulation represented by the request for authorization to adopt the 

Processor Quota element of their preferred alternative. 

The harvester component of the crab rationalization program is legal now that the 

moratorium on IFQs has expired. It can be adopted together with the CDQ provisions, the regionalization provisions, and the skipper and crew provisions designed 

by the Council, but without PQs. 

The need for the complex elements on binding arbitration and additional community protections are largely a response to the impacts of market segmentation resulting from PQs. 

If Congress does authorize PQs it is critical to do so in a manner that guarantees 

that improved community protections and stronger binding arbitration process are 

all done at the same time and done right. 

Thank you for the privilege of submitting this testimony to your committee. 

August 2, 2002 

THE BERING SEA CRAB RATIONALIZATION PREFERRED ALTERNATIVE OR ANTI-TRUST: 

WHY OPPOSITION TO THE PROCESSING QUOTA PLAN IS GROWING

Summary: During the North Pacific Fisheries Management Council’s (NPFMC) 

June meeting, the State of Alaska presented a comprehensive crab rationalization 

motion, which with surprisingly few amendments, was unanimously approved. This 

plan contains several elements that require congressional approval, so a report to 

Congress is being drafted detailing the council’s preferred crab rationalization plan. 

46 

One of the elements that will require congressional action is Processor Quota (PQ). 

This element is also being debated in the Magnuson-Stevens Act reauthorization. 

Recommendation: 

CONGRESS SHOULD NOT AUTHORIZE PROCESSING QUOTA FOR THE CRAB PLAN OR

IN THE MSFCMA. 

Because of Processor Quota, the crab plan is opposed by more than half the vessels in the affected fisheries, and three of the four associations of vessel owners in 

these fisheries. Because of processor quota, one community publicly supports the 

crab plan while two Boroughs, two native associations, three cities and more processors than not—oppose it. We expect that as the salmon seasons wind down, more 

communities, native associations, and fishing groups will join the opposition. 

Discussion: 

The State of Alaska has circulated a document containing a number of issue papers describing the Bering Sea Crab Rationalization Plan in glowing terms. 

In fact, the plan actually provides a new mechanism for complete control of the 

market by a single processor. 

Consolidation of so-called excess processing capacity is guaranteed. Many of the 

processors involved have already benefited from the American Fisheries Act. 

Proponents urge that Congress, should not attempt to second guess the NPFMC. 

They compare the NPFMC plan to a three-legged stool, which is designed to balance. However, a relatively small group of interests dominated the stool’s construction. Those who would not concede that processor quota was an essential element 

were completely subsumed to those interests represented at the NPFMC table. 

Background: 

The Council could not properly design the ‘‘processor leg of the stool,’’ because the 

processors represented at the Council table acted in concert to frustrate Council implementation of a rationalization plan for the BSAI crab fisheries. 

Rationalization proceeded in incremental steps beginning with the 1992 moratorium on new vessels entering the Federal fisheries in the North Pacific. In 1995 the 

council adopted a limited entry program, followed by a recency requirement in 1998, 

and in 2001 by a not yet implemented buyback program. 

Individual Fishing Quotas, a controversial element of this long-range plan, have 

become generally accepted by the crab fleets. In developing a consensus on appropriate crab rationalization measures, IFQ resistance has been mitigated by including provisions for elements imposition of strict ‘‘caps’’ on ownership and use of IFQs. 

Processor representatives made it clear that they would not allow rationalization 

of the crab fisheries without Processing Quota. At a NMFS workshop on IFQ programs in Galveston this summer, these interests declared that they would block any 

IFQ programs, if they were not given Processing Quota in the BSAI crab fisheries. 

Processing Quota became the price that fishermen had to pay in order to slow 

down the world’s most dangerous of fisheries. It’s not surprising, therefore, that a 

small group of fishermen became willing to pay this price. 

Part I—The Case of Processor Quotas—Is it Reasonable? 

Why Processor Shares Are Not Necessary: 

The market division and consolidation sought by proponents of processor quota 

are not allowed under the Sherman Act, and consequently would require special enabling legislation. What is the justification for this? 

Processors have offered several justifications for Processor Quota in the BSAI crab 

fisheries. These include issues of: 

• stranded capital, 

• lower profitability, 

• potential impacts on isolated rural communities, 

• compensation for those who will leave the industry because of excess processing 

capacity, 

• concerns about competition with new processors attracted to the rationalized 

fisheries. 

None of these arguments ultimately hold up to scrutiny. 

Stranded Capital 

Advocates claim that processing quota is justified on the grounds that a transition 

from open access to an IFQ program in the halibut/sablefish fisheries caused problems for processors. 

47 

The National Academy of Sciences report to Congress, Sharing the Fish stated 

that: 

‘‘Adversely affected processors assert that harvester-only IFQs may result in 

stranded capital, lower profitability and significant impacts on isolated rural 

communities.’’ In addition, ‘‘The arguments for allocating harvesting or processing quota to processors derive from a desire to compensate those who will 

leave the industry because of excess processing capacity.’’ 

However, rather than accept the assertion that processing quota was a reasonable 

solution to the problems expressed, the NAS panel recommended: 

‘‘If the regional councils determine that processors may be unacceptably disadvantaged by an IFQ program because of changes in the policy or management 

structure, there are means, such as buyouts, for mitigating these impacts without resorting to the allocation of some different type of quota . . . For example, 

coupling an IFQ program with an inshore-offshore allocation would preserve the 

access of shore-based processors to fishery resources.’’ 

Stranded Capital is also a Function of the Derby 

The Council analysis notes: 

‘‘The problem of stranded capital in the processing sector is difficult to assess. 

. . . In recent years, some crab processing facilities have been removed from 

service and are currently idle. This suggests that crab rationalization (and the 

current low stocks) have fishery declines and crab rationalization, however, is 

somewhat problematic. Since support facilities are often developed for use in 

multiple fisheries, it [sic] changes in crab fisheries might not be the sole cause 

of stranded capital. Declines in crab fisheries, however, are certainly a contributor to stranded capital in the processing sector.’’ 

Successful rebuilding of the fisheries, a key element of the rationalization plan, 

will produce a need for far more processing capacity than is presently utilized. 

Under an IFQ, smaller, currently closed, fisheries can be safely opened. 

Impacts on Isolated Rural Communities 

The Council accomplished this by partitioning the allocation of IFQ into Northern 

and Southern shares. This regionalization in the crab plan partially addresses the 

problem of potentially significant impacts from an IFQ on isolated rural communities. Regionalization doesn’t require IPQs to function. 

Compensated Exit 

How well does the NPFMC crab plan compensate those who will leave the industry because of excess processing capacity? 

• The plan qualifies 21 processors in the opilio fishery, even though 80 different 

processors worked in the fishery between 1991 and 2000. 

• The plan reallocates history from the smaller processors to the largest. 

• Compensation for forced exit in the processing industry resulting from excess 

capacity is not provided by the crab plan. 

• Forced exit is institutionalized by the crab plan. 

Fear of New Competition 

Processors claim that facilities will become surplus because there will be new 

processors attracted to the rationalized fisheries. These processors, it is said, will 

operate low cost operations, because there will not be a necessity to handle the volumes that were formerly required. 

This fear of competition by new entrants is itself an indication that there is potential profit for processors in a rationalized fishery without Processor Quotas. 

Ending the Race for Fish 

Processors have claimed representative the race for fish was driven by processors 

as well as fishermen, and therefore there would not be an end to the race for fish, 

unless processors also stopped competing. He advocated that Processing Quota was 

the way to end processor competition. 

Experience of the halibut sablefish IFQ programs and other IFQ fisheries clearly 

shows PQs aren’t necessary to end the race for fish. 

The desire of processors to end competition by segmenting the market has one objective—to provide the mechanism for paying a lower price to harvesters. 

48 

Power to Control the Process 

Justifications of Processor Quota in the BSAI crab fisheries based upon the reasonable arguments of stranded capital, lower profitability, potential impacts on isolated rural communities, and compensation to for exit due to excess processing capacity, do not stand up to scrutiny. 

Processor representatives have repeatedly told the fleets that they ‘‘will not allow’’ 

rationalization of the crab fisheries without processing quota. Power, rather than 

reason, carried the day with the Council. 

The motion to allocate processor quota passed with out any discussion of alternative methods to mitigate processor concerns. 

Part II—The State of Alaska Issue Papers—Facts or Fallacies? 

It is important to distinguish between the expressions of intent set forth in the 

State of Alaska’s compilations of Issue Papers and the probable impacts that legislation of this crab plan would produce. In a number of instances the impacts were 

examined, and are at variance with the conclusions drawn by the State of Alaska, 

and consequently, with the expressed intent of the crab plan. 

Discounted Processing History—Fallacy 1: 

The Issue Papers refer to the effect of the 10 percent open market or B shares 

as ‘‘discounted processing history’’ since PQ is allocated for only 90 percent of the 

harvest. 

‘‘No processor will receive 100 percent of their processing history. They will receive 90 percent, leaving each processor to have to compete with other processors to secure the remaining 10 percent of processor shares.’’ 

providing opportunities for new processors and increased harvester leverage in the 

price formation process,’’ and ‘‘The intent of this discount is to counteract any potential gain in processing power.’’ [Emphasis in the original.] 

Discounted Processing History—Fact: 

The Council’s own analysis states: 

‘‘the top 12 [processors] (with one exception) would receive more quota allocation than they historically processed’’ (99.4 percent compared to 75.66 percent) 

• A narrow qualification window for processors, excludes over 50 processors who 

have bought crab in the last 10 years. This reallocates ‘‘processing history’’ to 

the ‘‘top 12’’. 

• Nearly one quarter of the processing history is first redistributed from smaller 

and disqualified processors to the largest processor quota share holders. Only 

then is it ‘‘discounted’’ by 10 percent. 

• The allocation of processing history’ is a reduction of broader market opportunity, and a bonus above the historic share for the largest of the processors. 

• By contrast, the harvester program reallocates shares from those with greater 

history, to those with less, leaving the average harvester with about 88 percent 

of their own historic catch. 

• The Council had no discussion, and built no record, for their unanimous selection of this skewed allocation of processing shares, or of the 90/10 split between 

A and B harvest shares. 

Discounted Processing History—More Fallacies: 

The Issue Papers refer to the effect of the 10 percent open market or B shares 

as ‘‘discounted processing history’’ since PQ is allocated for only 90 percent of the 

harvest. 

• ‘‘the remaining 10 percent of processor shares . . . [provide] opportunities for 

new processors and increased harvester leverage in the price formation process,’’ 

• ‘‘The intent of this discount is to counteract any potential gain in processing 

power’’ 

• ‘‘Based on the cost and wholesale data provided by crab processors, it does not 

make sense to discount processor history any more than the 10 percent level 

selected by the Council. Data . . . shows processor margins are very thin, . . . 

With these low margins, processors will be hungry for all deliveries of crab, especially the crab delivered last.’’ 

49 

Discounted Processing History—More Facts: 

The writer makes several critically flawed statements: 

• That a ‘‘discount’’ of Processor Quota shares actually exists.—Which the Council 

Analysis shows is not the case. 

• That any such market competition would be permanent, not ephemeral.—But, 

if processors ‘‘compete’’ to buy the ‘B’ quota shares for themselves, rather than 

B share harvest from fishers, competitive market behavior ceases. 

• That the data received from processors was definitive.—However, this ‘‘data’’ 

presented confidentially to the NPFMC, without public review. 

• That processors have ‘‘thin margins.’’—By contrast, harvesters had testified that 

recent crab fisheries had resulted in losses for those with mean (average) catch, 

or less. Thin margins’ are certainly better than none 

• That ‘‘processors will be hungry for all deliveries of crab, especially the crab delivered last.’’—This statement ignores the impact of a fixed market share. To 

the first crab delivered is no different than the last—the processor receives exactly the amount of ‘‘A class’’ harvest for which he owns PQ. This for increased 

margins by relieving the processor of the need to compete based on price. 

IFQs Result in Fewer Processors—Fallacy 

The Issue Paper, Council Action on Processor Shares,’’ claims that, 

‘‘only 25 of the 67 pre-IFQ firms survived the harvester-only allocation of [sablefish] quota according to thorough analysis done by Washington State University. . . . Experience to date shows that harvester only allocation of shares results in fewer processors.’’ 

IFQs Result in Fewer Processors—Fact 

This is conclusion not supported by the ‘‘WSU study’’, which showed new processors entering following the halibut IFQ or other real world experience. 

• The study, itself, cautions that the ITQ allocations ‘‘may not be causal.’’ 

• Attrition of processors in ‘‘open access’’ crab fisheries occurred at a similar rate 

during the same time frame. 

• The NPFMC analysis shows 80 different processors operated in the opilio fishery during the same period as that of the WSU study. 

• The Council crab plan qualified only 21 processors in the fishery. 

• Processors fared better under the halibut/sablefish IFQ plan, than under either 

the ‘‘open access’’ fishery regime for crab, or in the NPFMC crab IPQ plan. 

• The allocation of processor quota invites consolidation, it does not require that 

recipients actually process in the future. 

Processing Quota = Legal Monopoly of Domestic Supply: 

Processing Quota, as defined in the NPFMC crab plan, is presently prohibited 

under U.S. law. The prohibition occurs under terms of antitrust statute, and Congressional authorization of the crab plan would provide, intentionally or otherwise, 

exemption from current antitrust provisions. The specific nature of the exemption 

and the impacts that such exemption could be expected to produce has not been examined by the NPFMC in the rush to produce a report to Congress. 

‘‘AFA Coop Analogy’’—Fallacy: 

The State of Alaska document includes a one page Issue Paper titled ‘‘Antitrust 

Issues’’, which states: 

‘‘The same anti-competitive issues that were brought up under consideration of 

the American Fisheries Act (AFA) are being raised under crab rationalization’’ 

‘‘AFA Coop Analogy’’—Fact: 

The AFA did not create a fixed market division between processors, as the crab 

plan does. The vessels were only allowed to enjoy the benefit of this catch history 

within the operation of a cooperative. 

Vessels are required to form a cooperative with a specific processor, depending 

upon the deliveries of the vessel in the year prior to coop formation. A vessel may 

leave the coop and move to another, following a year in the ‘‘open access’’ fishery, 

reducing the amount of market share of one processor, and increasing the market 

share of the new processor. 

In contrast to AFA, under the crab plan vessels are to receive a direct allocation 

of fishing history. As a consequence, processor-owned vessels will also receive a diVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00053 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
50 

rect allocation, whereas under the AFA processor-owned vessels could only operate 

in a rationalized manner if they were allowed to participate in a coop. 

‘‘Dooley Hall’’ and ‘‘Wild Claims’’—Fallacy: 

The Issue Paper on ‘‘Processor Shares’’ states, 

‘‘Immediately after AFA passage, many harvesters tried to get the Council to 

amend the AFA agreement. They did so under the Dooley-Hall proposal, using 

precisely the same rhetoric, like company towns and surfs [sic] working for feudal lords. There were all sorts of wild claims the processors would capture all 

the profits.’’ 

‘‘Dooley Hall’’ and ‘‘Wild Claims’’—Facts: 

The Issue Paper writer misses the very important balance that was achieved, and 

which constitutes the dynamic point about which the AFA shoreside agreements operate. The fears of the harvesters were genuine, and were justified. 

Without a mechanism for harvester movement between AFA coops, harvesters 

would have been critically disadvantaged. The ability of a coop to collectively allocate some or all of that ‘‘10 percent’’ to effectively accommodate the movement of 

a vessel, allowing the vessel to transition without enduring the ‘open access’ year, 

had not yet been established. The precise role of ‘processor association’ with cooperatives had not been determined, and one of the issues was whether a processor could 

act, within the coop, to block such internal allocations. 

The interplay of this collective 10 percent ‘‘open market’’ allocation and ability of 

vessels to move between cooperatives was a very important determinant in the balance that has been achieved under the AFA. 

The Dooley-Hall proposal, which would facilitate freedom of movement of harvesters, was not rejected by the Council, it was tabled. This action created a potential sword, which remains in place, hung above the table. The Issue Papers do not 

recognize the finesse with which the Council resolved this particular difficulty. 

There were also wild claims at the time by Scott Matulich, the processors’ favorite 

economist and author of the WSU study. He claimed that AFA as passed by Congress would cause Unisea to got out of business, because the AFA gave harvesters 

too much power. However, Unisea, an AFA processor, supported the removal of the 

AFA sunset, which suggests they are happy with the benefits the AFA gives them. 

Antitrust Relates to AFA Coops—Fallacy 

An antitrust issue that did arise under the AFA is related to coop formation. The 

Issue Paper ‘‘Antitrust Issues,’’ breezes past this: 

‘‘The 1934 Fisherman’s Marketing Act contains an explicit statutory exemption 

from the antitrust laws allowing fishermen to bargain collectively in price negotiations with fish processors. The fishermen are allowed to decide, as a group, 

on their bargaining position, an activity that would violate Federal antitrust 

laws without the exemption.’’ 

‘‘Since the processor provisions of the AFA had no anti-competitive effects, then 

the less restrictive processor elements included in the Council motion on BSAI 

Crab Rationalization should be viewed similarly.’’ 

Antitrust Relates to AFA Coops—Fact 

A Congressional Research Service memorandum [CRS memo] prepared at the request of Sen. Murray’s staff, references a court opinion which underscores the importance of the protections of the Fishermen’s Collective Marketing Act to harvesters. 

In United States v. Hinote, 823 F. Supp. 1350 (S.D. Miss. 1993), the court, concluded that catfish processors could not take advantage of the antitrust exemption 

under the FCMA solely by purchasing or leasing some interest in a catfish farming 

operation. Id. at 1359. The court reasoned that if it were to come to the opposite 

conclusion, 

‘‘large integrated agribusinesses organized to market and sell agricultural products could exempt themselves from the antitrust laws by the simple expedient 

of purchasing and/or leasing some interest in a farming operation, no matter 

how de minimis the interest. Such a result, however, would undermine Congress’ express purpose in enacting both the Sherman and Capper-Volstead Acts’’ 

While the ‘‘intent language’’ of Senators Stevens and Gorton, the makers of the 

AFA, indicated that processor owned vessels were intended to participate in the 

coops, the final Department of Justice letter ruling on the issue provided that the 

implicit exemption was by not a blanket one: 

51 

‘‘footnote 6. Our conclusion that processor-owned vessels may participate in 

FCMA cooperatives under the AFA is therefore unlikely to lead to anticompetitive results. Nevertheless, to minimize the possibility of negative effects on the 

fishing industry, Congress included within the AFA several provisions designed 

to eliminate potentially adverse economic consequences. See, e.g., §§ 213(c)(1) 

(granting the North Pacific Council the authority to recommend conservation 

and management measures ‘‘that supersede the provisions of this title . . . to 

mitigate adverse effects in fisheries or on owners of fewer than three vessels 

in the directed pollock fishery caused by . . . fishery cooperatives in the directed pollock fishery’’); see also 144 Cong. Rec. S12,708 (daily ed. Oct. 20, 1998) 

(statement of Sen. Murray) (‘‘In the inter est of ensuring that small, independent 

fishermen are the true beneficiaries of fishery cooperatives, the bill includes a 

number of requirements for fishery cooperatives in all three sectors which are designed to provide these small, independent fishermen with sufficient leverage in 

the negotiations to protect their interests.’’). Thus, should shoreside processors in 

the BSAI fishery affiliate with catcher vessels for no purpose other than to engage in anticompetitive conduct under the umbrella of antitrust exemption, the 

AFA would appear to give the Council the authority to check such abuses.’’ 

Crab Coops vs AFA Coops—Fallacy 

An important feature of the potential legislation should not be hidden under the 

Issue Papers gloss: 

‘‘The Department of Justice has not found any anti-competitive effects in the 

division of . . . pollock allocations among AFA Coops. It is expected that the 

Department will view the crab plan in a similar light.’’ 

The crab plan includes a provision for the formation of cooperatives of harvesters 

‘‘in association with a processor.’’ This should not become a means of allowing processor owned crab vessels to join 1934 FCMA coops. 

Crab Coops vs AFA Coops—Fact 

It is clearly evident that processor-owned vessels already enjoy the benefits of 

vertical integration. Since these vessels are also directly allocated their catch history 

under the crab plan, there is no necessity for the processor owned vessels to participate in the crab plan coops. 

There should be no exemption, direct or implied, granting processor owned vessels 

participation in crab coops. 

Antitrust Issues Under Crab—Fallacy 

There are other anti-trust issues that are unique to the crab plan. The Issue Papers radically understate the anti-competitive effects of the action that the NPFMC 

is recommending to Congress. 

Antitrust Issues Under Crab—Fact 

Among the issues ignored, is the manner in which the NPFMC crab plan creates 

a horizontal division of the entire market for the domestic production of harvest vessels of snow crab, and more than 97 percent of the domestic production of harvest 

vessels of king crab. This type of horizontal division of the market would represent 

a per se violation of the Sherman Act, under existing law, if it were not exempted 

by congressional action. This was never an issue under the AFA. 

Authority to Give Processors Antitrust Exemptions—Fallacy 

The Issue Paper on ‘‘Antitrust Issues’’ concludes: 

‘‘If Congress says yes to the Council’s crab rationalization plan, this is a nonissue.’’ 

Authority to Give Processors Antitrust Exemptions—Fact 

Congress could enact legislation that would exempt the NPFMC from prohibitions 

on almost any otherwise illegal activity. The question is, not whether Congress can, 

but why should Congress do such a thing? 

This is certainly true that: 

• It is within the power of the NPFMC, as a Federal advisory body, to recommend 

a program that would otherwise be prohibited. 

• It is within the power of Congress to provide this exemption. 

If it ‘‘says yes,’’ then Congress will have enacted legislation which provides an implied antitrust exemption allowing BSAI crab processors: 

• to divide up the market, 

52 

• to consolidate control over that market to a single entity, 

• despite provisions of the Sherman Act and other antitrust statutes. 

It is that this power to reverse the present antitrust protections that is of concern. 

If Congress says ‘‘yes’’ without a more rigorous examination of the issues, the results could be a irreversible disaster for harvesters, communities, and the public. 

The ‘‘Antitrust Issues’’ Issue Paper states that there is no ‘‘closed class’’ of processors [as is recognized to exist, under the AFA] because new processors can ‘‘purchase ‘open delivery’ B shares or allocated shares from a qualifying processor.’’ 

No Closed Class of Processors?—Fact 

This is a semantic device word play. The crab plan does result in a closed class 

relative to A shares. 

• Under the NPFMC crab plan, as in the AFA, new entrants to the processing 

sector must purchase a ‘‘right’’ from a ‘‘closed class’’ of processors in order to 

buy ‘‘A share’’ deliveries. In the AFA, membership in the ‘closed class’ does not 

guarantee market share. 

• In the NPFMC crab plan, closed class (‘‘qualified’’) processors would be gifted 

with permanent market share, due to participation in processing activity during 

a very narrowly defined qualifying period. 

• The crab plan is more restrictive upon new entry of processors, because the 

market share, as well as the right to process, must be acquired from ‘qualified’ 

processors. 

The ‘‘open delivery’’ B shares referred to as source of product for ‘‘new’’ processors. 

It is true any processor (except catcher processors) can legally purchase B share 

harvests. However, B share fail to represent a viable basis for a new processor to 

enter the fishery for several reasons : 

• This is a 10 percent market share segmented into more than 250 pieces, in each 

of the major fisheries. 

• Many of these pieces are already in control of the ‘‘closed class’’ of processors 

that will receive Processing Quota under the plan. 

• Processors are allowed, under the plan, to purchase and control B shares. 

• B shares are intended to be used as leverage to obtain a ‘‘fair price’’ from the 

processor for A share deliveries. 

• B shares are intended to enhance deliveries to communities such as Kodiak. 

No Direct Linkage of Harvester to Processor?—Fallacy 

The ‘‘Antitrust Issues’’ Issue Paper argues that the crab plan is less restrictive 

than AFA for harvesters, stating: 

‘‘there is no direct linkage between fishermen and processors (fishermen are 

free to deliver to any processor holding processor shares).’’—and that the plan, 

‘‘assures multiple processors in each crab fishery,’’ 

No Direct Linkage of Harvester to Processor?—Facts 

• NPFMC has provided a system that is ultimately even more restrictive than the 

AFA. 

• The AFA provides specific provisions to accommodate harvester movement from 

one processor to another. 

• The crab plan requires harvesters to match quota shares with a processor for 

100 percent of the harvester’s ‘‘A’’ designated quota shares. 

• The bar to movement is that a harvester wishing to move must identify a processor willing to discharge another harvester already delivering to that processor, in order to ‘‘free up’’ Processing Quota shares, to accept delivery. 

• The crab plan allows processors to transfer PQ freely, without effective caps 

upon the consolidation of quota shares to a processing facility. Thus, a harvester 

may be directed by the terms of a processing quota share trade, to deliver to 

a processor, without the harvester having choice. 

• The Council action, in fact, allows consolidation of control over all processing 

to a single entity. 

Consolidation Rules Ensure Multiple Markets?—Fallacy 

The Issue Paper, ‘‘Council Action on Processor Shares,’’ states: 

‘‘The Council instituted caps on the amount of consolidation that may occur 

among the processors. The consolidation rules are far more restrictive than 

53 

what would be required under the normal antitrust laws, and they are intended 

to ensure multiple market opportunities.’’ 

Consolidation Rules Ensure Multiple Markets?—Facts 

The disparity between this unsupported assertion, and the reality of the mechanism of the crab plan, was enough to cause the Alaska Fishermen’s Journal to write 

an editorial titled: ‘‘Earth to Council: Abort! Abort!’’ 

Dealing with the fallacies of this claim in the Issue Paper requires a full review 

of the Analysis and the actual options selected by the Council. 

The NPFMC Analysis of Antitrust Issues—and the NPFMC Motion: 

The Analytical Document prepared for NPFMC consideration of the program developed in the Council motion contains the following brief reference titled: ‘‘Antitrust Issues Related to the Issuance of Processing Shares and Regionalization of the 

Fishery.’’ 

‘‘Generally speaking, congressional action will be needed to resolve any potential anti-trust issues associated with the regionalization and processor share 

provisions. Antitrust issues, however, could also arise in a harvester IFQ program, if constraints are not placed on consolidation of QS. These issues are discussed with more specificity in the appropriate sections below.’’ 

What are ‘‘the appropriate sections below?’’ 

• the section on QS ownership caps and excessive share issues (3.4.1.2), 

• the section on processor caps (3.4.2.6), 

• the discussion of regionalization (3.6), and 

• the discussion of competition in the fisheries (3.16). 

Section 3.4.1.2 Ownership and Use Caps 

This section discusses the role of ownership and use caps in regulating the degree 

of consolidation of harvester shares (QS, in the analysis): 

‘‘As noted in the NRC study ‘Sharing the Fish,’ ownership and use caps are generally favored as a means to prevent excessive shares. . . .’’ Further on, ‘‘The 

options for capping the ownership of QS [in the] Bristol Bay red king crab, the 

BS opilio, the BS bairdi [crab fisheries] . . . are 1, 5 and 8 percent of the QS 

pool. These caps would limit consolidation of the fishery to 100, 20, and 13 QS 

owners, respectively, if all QS holders own quota amounts equal to the cap.’’ 

The Council’s discussion of harvest caps cited the necessity to start with ‘‘very 

conservative guidelines.’’ 

• NPFMC settled the ‘‘ownership caps’’ for these fisheries at 1 percent of total allocated. 

• ‘‘Use caps’’ allowing additional quota to be leased, provide that a total ‘‘use’’ 

(owned and leased) of 2 percent of QS. 

• However, processors are also allowed to own up to 5 percent of the fishing quota 

in a given fishery, despite that all other owners are restricted to the 1 percent 

caps earlier referenced. 

• This ‘‘control on vertical integration’’ establishes that processors are entitled to 

a larger portion of fishing quota than any other QS holders. 

Section 3.4.2.6 Consolidation 

This section discusses the role of ownership and use caps in regulating the degree 

of consolidation of processing shares 

‘‘Caps on ownership and use of processing shares could be used to prevent consolidation of market power in a few firms. These caps might be favored as a 

means to ensure competition in the processing labor market. In addition, share 

concentration could influence the market power of processors with respect to 

harvesters. Harvesters are concerned that if processing shares become consolidated in the hands of a few firms, those firms could have the ability to control 

the ex vessel price of crab. In addition, caps on ownership could be used to facilitate a market for processing shares, contributing to entry of processors to 

these fisheries.’’ 

A footnote to the analysis states: 

‘‘Ownership and use caps, together with an allocation of processing shares, are 

the only options that would guarantee a minimum number of participants in 

the processing sector.’’ 

54 

Another footnote to the analysis states: 

‘‘Some of the companies listed in Appendix 3–3 have common owners . . . Depending on the rules chosen for determining ownership for purposes of applying 

caps, these companies with common owners might be considered a single entity.’’ 

Application of the Rule 

The NPFMC action provides ownership and use caps that do not guarantee a minimum number of participants in the processing sector. 

The Council didn’t choose the rule that would implement caps that ‘‘apply individually and collectively.’’ The NPFMC chose that ‘‘No ownership [is] to exceed 30 percent of the total PQS . . . at the company level.’’ In general, this allows an individual entity to own 60 percent of the total PQS pool, provided the ownership is 

held in at least two separate companies. 

Use Caps 

With respect to processing ‘‘use’’ caps, the NPFMC motion applies three rules: 

• ‘‘In the Northern Region, annual use caps will be at 60 percent for the opilio 

crab fishery.’’ 

• ‘‘50 percent of the WAI IPQ brown king crab QS shall be processed in the WAI 

region.’’ 

• ‘‘Custom processing would continue to be allowed within this rationalization 

proposal.’’ 

Taken together with the ownership cap rules, this means: 

• While ‘‘ownership’’ may not exceed 30 percent of the total PQS, this calculation 

is made at the ‘‘company level.’’ Thus, provided companies are not ‘‘merged,’’ an 

individual may acquire ownership of ALL PQS. 

• With only two exceptions and there are no ‘‘use caps’’ on IPQS. Thus, all PQS 

may be processed in one facility, whether or not ‘‘companies’’ are owned in common. 

• For the Northern Region opilio crab fishery, there must be at least two processing companies to which harvesters may sell crab. 

» However, these companies, may be owned by the same individual. 

» Also, these companies may also be allowed to operate from the same processing facility, if amounts delivered above the ‘‘60 percent use cap’’ are processed according to ‘‘custom processing’’ agreements. 

• For the Western Aleutian Islands IPQ brown king crab fishery, 50 percent of 

the catch must be processed in the region. This IPQ could be processed by the 

same company. 

Other Sections of the Council Analysis 

Section 3.16, particularly 3.16.2 which contains a brief survey of the literature of 

conflicting accounts of competitive impacts projected by economists. It includes a 

summary of a discussion paper prepared for the NPFMC by economists Milon and 

Hamilton. They conclude that: 

• Segmentation of the market limits harvester negotiating power, and 

• PQs ‘‘could allow processors to capture efficiency gains realized by the harvesting sector since harvesters would be required to deliver harvests to processors holding processing shares.’’ 

Are Harvesters Willing to Accept Processor Quota as the Price of IFQs?—Fallacy: 

In the Issue Paper, ‘‘Council Action on Processor Shares,’’ the writer asserts that 

the Council ‘‘asked crabbers which they would prefer? Answer: the Council motion 

is preferred to open access.’’ 

Are Harvesters Willing to Accept Processor Quota as the Price of IFQs?—Fact: 

This recollection is inconsistent with the tapes of record. 

• The Council motion had not yet been made at the time public comment was 

taken. 

• Only one of four harvester associations endorsed Processing Quota. 

The C.R.A.B. Group’s testimony to the Council opposed processing quota and supported rationalizing the fisheries, that we represented nearly half of the crab harVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00058 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
55 

vesters, and that the Council decision would determine whether opposition to Processing Quota would grow. Opposition to Processing Quota is growing. 

An Unrecognized Conflict of Interest by the State of Alaska 

Nowhere in the praises heaped upon the crab plan in the Issue Papers is there 

a hint of a direct financial interest in the outcome by the Alaska Department of Fish 

and Game [ADF&G]. Perhaps it is through a lack of self-consciousness by the author of the Issue Papers, but an undeclared conflict of interest is glossed over. Consider the NPFMC motion: 

‘‘Section 5, Program Elements, Option 5. A proportional share of fees charged 

to the harvesting sectors and processing sectors for management and enforcement of the IFQ/IPQ program shall be forwarded to the State of Alaska for use 

in management and observer programs for BSAI crab fisheries.’’ 

This is likely to be a sum considerably exceeding the amount presently authorized 

by the Alaska Legislature. It is certain that ADF&G needs the money. The fishing 

industry has supported the budget requests of ADF&G to the Alaska Legislature for 

years, only to experience debilitating cuts, year after year. 

Part IV—Our Request to Congress 

The Council has recommended two distinct programs to Congress in a single package, a harvester IFQ and a Processor Quota program. However, the two programs 

are not equally well supported by the record. 

The Harvester Program 

After a day-and-a-half of discussion, the NPFMC chose a suite of options that determined the harvester elements of the crab plan. These elements were based upon 

years of experience with the halibut/sablefish plan, were selected from a broad array 

of possibilities, and included provisions that would mitigate each of the impacts 

noted by the Select Panel in ‘‘Sharing the Fish’’ including options for skippers and 

communities, and the prevention of accumulation of excessive shares of fishing 

quota. 

The Processor Program 

After discussions ranging from little to none, the NPFMC chose a suite of options 

that determined a Processing Quota provision. There were no real alternatives presented, there was no effective cap on consolidation, no practical experience except 

for tenuous analogy to provisions of the American Fisheries Act, theoretic guidance 

based on highly controversial and unproven assertions, and no demonstrated understanding of the anti-competitive aspects of the provision. The NPFMC crab plan has 

been billed as bold step into new territory. It is instead, a reactionary slide into a 

system that has not been seen in Alaska since the Seward Purchase—a State sanctioned monopoly of fisheries resources. 

Is the Ultimate Question ‘‘Processors Shares or Nothing?’’ 

Finally, consider the question actually asked of crabbers: ‘‘Which would you prefer—Processor Quotas, or nothing?’’ This is an industry that is in collapse, and the 

lives, the vessels and the homes of many harvesters are right there on the line. Was 

this not really the question of Solomon was asked to judge? 

The Issue Papers claim that the baby was cut in thirds. Instead, the NPFMC has 

given the whole baby to the processors, who declared they had the power in Congress to block any programs, no matter the cost to life or resource, to have their 

way. 

Conclusion 

• We ask Congress to reject the Council’s recommendation to legalize Processor 

Quotas and by implication undo the antitrust provisions of existing statutes. 

• After rejecting Processor Quotas, we hope Congress will use its wisdom to judge 

the rest of the Council’s program to end the deadly race for crab, to improve 

safety and to improve conservation of the resource, on its merits. 

• We ask that Congress allow and encourage the Council to develop a rationalization plan for crab that doesn’t include Processor Quotas. 

Senator STEVENS. Our next witness is Frank Kelty, the Natural 

Resources Manager of the City of Unalaska. 

Mr. Kelty? 

56 

STATEMENT OF FRANK KELTY, RESOURCE ANALYST, 

CITY OF UNALASKA 

Mr. KELTY. Good afternoon, Mr. Chairman, Members of the Committee. Thank you for inviting me to testify before the Committee. 

My name is Frank Kelty. I am the Resource Analyst for the City 

of Unalaska. With me from Unalaska today—we have traveled, I 

think, it must be about 7,000 miles to get here—is the Honorable 

Mayor Pam Fitch, city council members Marcort, Meeks, and Mr. 

Graves, and also our City Manager, Chris Latik. 

Previously, I worked for 30 years in the Alaska seafood industry 

as a crab plant manager for two operations in Unalaska. I also 

served as the city’s Mayor for 10 years. The City of Unalaska 

strongly supports the Bering Sea crab-management plan because it 

recognizes the investment of all participants in the Bering Sea crab 

fishery, including harvesters, processors, and communities. My oral 

testimony will focus on the following issues—community dependence, safety, and the lessons we have learned from AFA. 

Mr. Chairman, we have a crab resource and industry in the Bering Sea that is in trouble. That is why we are here today. The fisheries in the Bering Sea have excess harvesting and processing capacity, resource conservation and management problems, lack of 

economic stability for harvesters, processors, fishery-dependent 

communities, as well as major safety concerns. The crab plan is 

strongly supported by the Cities of Unalaska, Akutan, St. Paul, 

and St. George. These communities process in excess of 85 percent 

of the king and opilio snow crab of the Bering Sea. And I might 

like to point out that City of St. Paul passed one of the first resolutions over a year ago in support of this plan. 

Mr. Chairman, I would like to emphasize the following point. The 

communities that have been dependent on crab are, in fact, supporting the plan. The plan, Mr. Chairman, guarantees that the 

vast majority of the crab resource will stay onshore in Alaska. I repeat, this plan is a shore-side plan that guarantees the resource to 

Bering Sea communities. This has long been your stated goal for 

the Alaska fisheries, and it is implemented in this crab plan. 

The North Pacific Council was extremely careful to recognize historic dependence and to protect our stake in the fisheries. Alaskan 

communities are protected through a requirement that 90 percent 

of a processor’s history stays in the community within the region 

that they earned it and assures us access to the resource during 

good times and bad. 

The City of Unalaska has seen firsthand the benefits of a rationalized fishery under the American Fisheries Act. The race for pollock in the Bering Sea has stopped. We have seen increased economic stability for pollock harvesters, processors, and fishery-dependent communities, as well as longer fishing seasons that benefit 

both employment in the industry and in the community, improved 

resource management, new product development, improved revenue streams for the community, and increased safety. 

As many of you know, the Bering Sea crab fishery is the most 

dangerous in the world. As a crab plant manager, I cannot count 

the number of times I have had vessels return to Unalaska for crab 

unloading in January and February, March, that were covered in 

a foot of ice or more. Sometimes the boats returned to port having 

57 

had two or three pilothouse windows blown out by rogue waves 

that destroyed all their electronics. Fortunately, the skipper can 

navigate blind for 2 days. I have had to make phone calls to family 

members to tell them that their loved ones were lost at sea during 

the crab season. 

This crab plan will stop the race for fish by giving harvesters the 

flexibility to pursue crab through longer fishing seasons. Harvesters will be able to base their decisions on accommodation of 

market, fishing, and weather conditions, rather than face the pressure to fish in bad weather because of such compressed seasons, as 

is certainly the case. There is no question in my mind that this 

plan will help save lives and reduce injuries. 

As you know, there is a small, but vocal, opposition from industry participants and community, most notably the City of Kodiak. 

Their opposition is primarily based by the plan’s allowance for 

processing quota shares and on the years used to determine processing and fishing history under the plan. These opponents, by and 

large, reduced their participation in the crab fishery some time ago 

rather than remain in the fishery, like Unalaska and others that 

ride through the ups and downs. They made their choice of their 

own free will and opted to diversity into other fisheries, fisheries 

that they have been successful at and have benefited from. Yet now 

they ask to be held harmless at the expense of those who kept their 

commitment to the crab fishery. 

The Council has ensured that 10 percent of the fishery will remain open access, so they will have an opportunity to participate 

in the fishery. And the harvesting of processing shares that they 

do hold from the late 1990s will have significant value. 

The Council, after careful deliberation, ratified the plan by a 

unanimous vote—ratified the plan by a unanimous vote—and followed up with the adoption of strong community-protection measures. We believe that the final plan treats Kodiak and a few other 

opposing communities fairly. 

In summary, Mr. Chairman, we believe that this plan was crafted by the Council in a deliberate, balanced, and open fashion that 

has taken almost 4 years to complete. The plan has measures that 

protect and enhance economic activity for both harvesters and processors that have invested hundreds of millions of dollars in their 

operations in Bering Sea communities. So I would encourage you 

to move forward with legislation to implement its provisions, and 

in a timely manner. 

Thank you for allowing me to testify, and I look forward to answering any questions you may have. 

Senator STEVENS. Thank you very much. 

[The prepared statement of Mr. Kelty follows:] 

PREPARED STATEMENT OF FRANK KELTY, RESOURCE ANALYST, CITY OF UNALASKA

Mr. Chairman, my name is Frank Kelty, and I am the resource analyst for the 

City of Unalaska. Unalaska strongly supports the Bering Sea Crab Management 

Plan developed by the North Pacific Council. We have submitted a written statement and supporting materials for the record. My oral testimony will focus on the 

following issues: (1) community dependence; (2) safety; and (3) the lessons we have 

learned from the American Fisheries Act. 

Mr. Chairman, we have a crab resource in the Bering Sea/Aleutian Islands that 

is in trouble, and that is why we are here today. The fisheries of the Bering Sea/ 

58 

Aleutian Islands have excess harvesting and processing capacity; resource conservation and management problems; lack of economic stability for harvesters, processors, 

and fishery-dependant communities; as well as major safety concerns. 

Community Dependence 

The crab plan is strongly supported by the cities of Unalaska, Akutan, St. Paul, 

and St. George. These communities process in excess of 85 percent of the king and 

opilio crab in the Bering Sea. Opilio is also referred to as snow crab. 

Mr. Chairman, I would like to emphasize the following point: the communities 

that have become dependent on crab are, in fact, supporting the plan. The plan, Mr. 

Chairman, guarantees that the vast majority of the crab resource will stay on-shore 

in Alaska. I repeat; this plan is a shoreside plan that guarantees the resource to 

the Bering Sea communities. It cannot be shifted to offshore catcher-processors, and 

it cannot be taken out of state for primary processing. This has been your long stated goal for the Alaskan fisheries, and it is implemented by this crab plan. 

The North Pacific Council was extremely careful to recognize historic dependence 

and to protect our stake in the fisheries. Unalaska believes that the plan itself is 

a community protective measure because it assures that 90 percent of the processors’ history stays in the community within the region and assures us of the resource during good times and bad. 

Community opposition to the plan is coming from Kodiak. They feel that the plan 

will impact their revenues, local processing plants, and the 35 resident crab vessels. 

Kodiak was a major player in the crab fisheries of the Bering Sea, but that was 

over 20 years ago, before the development of the processing plants in the Bering 

Sea communities. Between 1997 and 1999 (the qualifying years), Kodiak’s historical 

landings from the Bering Sea were very small, at less than 1 percent for opilio snow 

crab and 6 percent for Bristol Bay red king crab. 

Kodiak is 600 miles from Unalaska, and we are another 200 miles from the king 

crab fish grounds and further yet from the major opilio grounds. That distance 

means many days of running time to take crab back to Kodiak. Harvesters have to 

worry not only about weather, but deadloss of crab at unloading due to the length 

of time that the crab has been on board the vessel. 

Kodiak’s vessels are protected under this plan. Because a good harvesting history 

assures they will have great value, and Kodiak’s processors are granted their processing history. Kodiak’s processing companies will be able to compete for an additional ten percent of the resource that has been set aside as open access. We believe 

that Kodiak has been treated fairly by the North Pacific Council. 

The City of Kodiak has requested changes to the plan to give their community 

a greater stake in the fisheries. The crab allocation is a zero sum game. Any increased allocation to Kodiak comes out of the fish to be processed by Being Sea communities that have a far greater dependence on the crab resources of the Bering 

Sea. 

AFA 

Unalaska has seen first hand the benefits of a rationalized fishery. Under the 

American Fisheries Act, which rationalized the Bering Sea Pollock fishery and is a 

far more restrictive plan than the BSAI crab plan, the race for fish was stopped. 

We have seen increased economic stability for harvesters, processors, and fishery dependant communities, as well as longer fishing seasons that benefit both employment in the industry and the community. We have seen improved resource management, new product development, and increased safety. With a rationalized Bering 

Sea/Aleutian Island crab fishery, we will see many of the same benefits in all sectors of the Bering Sea/Aleutian Island crab industry. 

Safety 

I have worked in the crab industry for over thirty years, and I know that Bering 

Sea crab is the most dangerous fishery in the world. I cannot count the number of 

times I have had vessels return to Unalaska for unloading covered in a foot of ice 

in January or February. Sometimes the boats have returned to port having had two 

or three pilothouse windows taken out by rogue waves that destroyed all of their 

electronics, forcing the skipper to navigate blind for two days and barely making 

back to port. I have had to make phone calls to family members to tell them their 

loved ones were lost at sea during the crab fishery. This crab plan will help put a 

stop to that madness by making the fishery safer. The rationalized Pollock fishery 

in the Bering Sea has worked wonders for safety. Now, the Pollock fleet can wait 

out major storms. The North Pacific Crab Plan affords this same safety net to crab 

fishermen 

In summary, Mr. Chairman, we support the public process that this issue has 

gone through with the North Pacific Council, and we support the council process. 

59 

This plan has the support measures that protect and enhance economic activity for 

crab industry and the communities of the Bering Sea. The North Pacific Council’s 

Crab Rationalization Plan is vital to the long-term stability of the communities of 

the Bering Sea that have become dependent on this resource. 

Thank you for allowing me the opportunity to testify. 

PREPARED STATEMENT OF FRANK KELTY, RESOURCE ANALYST, CITY OF UNALASKA, ALASKA

Mr. Chairman and Members of the Committee: 

For the record, my name is Frank Kelty; I am the Resource Analyst for the City 

of Unalaska. Previously, I worked in the Alaska Seafood industry for 30 years in 

Unalaska, Alaska, as a manager for two processing companies running crab operations. I also served the community of Unalaska as and elected official for 19 years, 

until December of 2000, when I resigned to work as Resource Analyst. The last 10 

years of my time on Council, I served as the Mayor of Unalaska. I’m here today 

to testify on behalf of the City of Unalaska in support of the North Pacific Fishery 

Management Council’s Bering Sea/Aleutian Island Crab Rationalization Plan. 

Included in your packet of information is the City of Unalaska Resolution 2003– 

27 that was passed unanimously by the Unalaska City Council in support of North 

Pacific Council’s Bering Sea/Aleutian Island (BSAI) Crab Rationalization plan. Also 

included are resolutions and letters from other Bering Sea communities that support the plan. Those communities include the City of Saint Paul, City of Saint 

George, and the City of Akutan. These communities, as well as Unalaska, process 

in excess of 85 percent of the King and Snow Crab harvested in the Bering Sea Crab 

fisheries. The City of Unalaska is not only the largest crab processing community 

in the State of Alaska, but the nations number one commercial fishing port as well. 

The BSAI rationalization plan has been developed in a very open process. After 

three years of committee meetings and discussion by harvesters, processors, community representatives, and members of the public, came two years of intense discussion, analysis, and development by the North Pacific Council, its staff, and the council’s industry advisory panel, with assistance from NMFS, ADFG, and independent 

economists and fishery consultants. The plan was finally adopted by a unanimous 

vote of the North Pacific Council 11–0 in June of 2002. 

The current state of the Bering Sea crab fisheries is poor at best. Included with 

the information in the packet, I have provided a spreadsheet created by the Alaska 

Department of Fish and Game that that reflects the recent history of the Bering 

Sea Fisheries covered under this plan. As you can see, many of these fisheries have 

been closed for years, and three of them have been under rebuilding plans for the 

many years. The ones that have been open have had very small harvest quotas and 

a very limited amount of fishing time, with a large number of participants in these 

un-rationalized fisheries. 

This situation has led to economic instability in the crab industry as a whole and 

has caused major revenue shortfalls for many of the fishery-dependent communities 

in the Bering Sea/Aleutian Island area, especially smaller communities such as 

Saint Paul and Saint George that depend almost exclusively on the harvesting and 

processing revenues generated from the crab fisheries of the Bering Sea. With the 

continued race for fish in the BSAI crab fisheries, we have witnessed the continuous 

struggle that the State of Alaska fishery managers have in managing an un-rationalized fishery. A good example is the fact that the 2003 Opilio Snow Crab fishery 

might not have opened had a new regulation from the Alaska Board of Fish not 

been granted to enact a further reduction in the number of pots that harvesters 

could use during the season. Without that reduction in fishing gear, we may not 

have had a season, which would have been devastating to the harvesters, processors, and fishery-dependent communities. 

With the gear reduction regulation in place, we had a season that lasted ten days, 

and a fleet of almost 200 vessels harvested 26 million pounds of snow crab. This 

October, we will once again have another derby-type crab opening on the Bristol 

Bay Red King Crab fishery. It may last 4 or 5 days with a limited amount of harvest 

quota. This fishery will attract well over 200 vessels. As a consequence, for the 2003 

crab fishing season, the majority of the Bering Sea Crab fleet will have a total of 

14 or 15 fishing days. This type of scenario has been ongoing on for years. I think 

this points out the crisis situation this industry is in right now and why the Bering 

Sea Aleutian Island Crab rationalization plan needs to move forward and be implemented as soon as possible. 

This plan, which the City of Unalaska supports first and foremost, recognizes the 

investment of all participants in the Bering Sea crab fisheries, including the harVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00063 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
60 

vesters, processors, and communities. My community has seen first hand the benefits of a rationalized fishery with Bering Sea Pollock fishery under the American 

Fisheries Act. Under (AFA) the race for fish was stopped. We have seen a reduction 

in the size of the fleet, as well as longer fishing and processing seasons that benefit 

both employment in the industry and the community. It has also provided economic 

stability to harvesters, processors, fishery-dependent communities, and support sector business. 

Under AFA, we have seen improved resource management, new product development, and increased safety for the fleet. Included in the packet of information provided, you will see some revenue graphs that point out the increase in many of the 

City of Unalaska fishery-related revenue streams since AFA was enacted. With a 

rationalized BSAI crab fishery, we will see many of the same benefits in all sectors 

of the industry. The following is an overview of some of the main components of the 

plan that we support and that need to be pointed out. 

Harvester Sector 

Harvesters would be allocated quota shares (QS) in each fishery rationalized by 

the program. Harvester shares will be allocated in two classes of shares: Class A 

shares at 90 percent, and class B shares at 10 percent. Class A shares carry the 

regionalization tag and would have to be delivered to the designated region. Class 

A shares of crab would have to be sold to any processor in that region who has processor quota shares. The 10 percent, class B shares do not have any regionalization 

tag and can be sold to any processor in any region. 

Quota shares and IFQs would both be transferable under the program, subject to 

limits on the number of shares a person may own or use. Leasing of quota shares 

may be prohibited, except within a cooperative, after the first five years of the program. The transferability is necessary to reduce fleet size and remove capital from 

the fisheries under this plan. The limit on leasing of QS or sale of IFQs by persons 

not in cooperatives is intended to create an incentive for cooperative membership. 

The Captains share allocation of 3 percent quota shares are open shares for the 

first three years of the program and will be reviewed by the North Pacific Council, 

which will decide whether to make the shares either class A or a class B designation. A crewmember crew-loan program will be developed to assist crewmembers’ 

entry into the crab fisheries. 

This program would permit harvesters to form voluntary cooperatives with one or 

more processors holding processing quota shares (PQS). Cooperatives are intended 

to facilitate efficiency in the harvest sector by aiding harvesters in coordinating harvest activities among members of the cooperatives and deliveries to processors. A 

minimum membership of four unique QS holders would be required for cooperative 

formation. Under AFA, Pollock cooperatives have so effectively coordinated the harvest that less than 1 percent of the TAC is un-harvested. We have also seen formation of profit sharing agreements between harvesters and processors under AFA 

that have been very successful in maximizing revenues for both sectors. I believe 

we would see the same types of programs under a rationalized crab fishery. 

Harvesters also have a binding arbitration program in place, which will be used 

to settle price disputes between processors. 

Processing Sector 

The allocation of processor shares is easily the most controversial part of the plan. 

However, their contribution and investments in the BSAI crab fisheries cannot be 

ignored, as they are the economic anchor for fishery-dependent communities in remote locations in the Bering Sea area. Their investments in Unalaska are in the 

hundreds of million of dollars. They provide employment and markets for a wide variety of harvesters in different fisheries, and the importance of the revenue they 

generate in the millions of dollars annually for both for local governments and the 

State of Alaska cannot be understated. 

The processing sector will be allocated PQSs in each fishery rationalized by the 

program. These annual allocations of processing privileges are referred to as Individual Processing Quotas (IPQs). IPQs would be issued annually for 90 percent of 

the allocated harvests corresponding to the 90 percent allocation of class A harvester shares. Leaving the remaining 10 percent of processing unallocated and, 

therefore, deliverable to any processor is intended to strike a balance of bargaining 

power between the harvesting and processing sectors. In addition, this 10 percent 

unallocated processing amount would allow for new entry to that sector. 

PQS allocations would be based on processing history during a specified qualifying 

period for each fishery. A processor’s allocation in a fishery would be equal to the 

processor’s share of all qualified processing in the qualifying period. All allocations 

will be made to the buyer of record on ADFG fish tickets, by the State of Alaska 

61 

Commercial Operators Annual report, and by fish tax records. This rule reflects the 

intention to allocate shares to the entity that purchased the crab and funded the 

processing activity. 

Processor shares would be transferable, including leasing of PQS, subject only to 

use and ownership caps, and restrictions that apply during the two-year cooling-off 

period. 

Ownership of PQS will be limited to 30 percent of the outstanding PQS in a fishery. An exception to this would be in the Northern Region where PQS shares in the 

Opilio Tanner fishery would be capped at 60 percent due to the limited number of 

processors in that region. 

Community Protection 

This is a very important part of the crab rationalization plan. I maintain that it 

shows that the importance of the processors having quota shares is their designation by region. The most important part of the community protection provision is 

the regional designation of shares, which will apply to processor allocations north 

of 56 20′ N Latitude. The South region will be all areas not included in the North 

region, and all the corresponding 90 percent of the harvest allocations, distributing 

landings and processing between specific regions. Included in the handouts, are 

spreadsheets and graphs that show landings, State of Alaska fish tax information 

for Opilio Snow crab between the North and South regions, and community designations. I have also included landings by community and percentages of landing over 

a four-year period for Bristol Bay Red King Crab. These are currently the two major 

Bering Sea fisheries. This information clearly shows the connection between the 

communities of the Bering Sea and the dependency of these communities on the 

crab fisheries of this area, and it shows the importance of the processing plants in 

their communities. It also points out the lack of dependency by some communities, 

such as Kodiak, which is located in the Gulf of Alaska, over seven hundred miles 

from the nearest Bering Sea crab fishery. 

For the first two years of the plan, a cooling-off period is currently in place. During this time, the processing quota earned in a community may not be used outside 

of that community. 

First Right of Refusal options apply for communities with at least 3 percent of 

the initial PQS allocation in any BSAI fishery, based on history in a community. 

Exception will be made for those communities that receive a direct allocation of any 

crab species; currently, the only exception is Adak. This right allows qualified communities, or community groups, and CDQ groups a first right of refusal to purchase 

processing quota shares that are based on the original processing history of the community. 

Safety 

This is one area under a rationalized fishery in which we will see major improvements. Fishing in Bering Sea Crab fisheries, as many of you know, has been labeled 

the most dangerous profession in the Nation. Approximately 25 fishermen lost their 

lives in the Bering Sea during the 1990s. This rationalization plan will provide a 

safer fishery in much the same way as we have seen in the Halibut and Sablefish 

IFQ fishery and the AFA rationalized Pollock fishery in the Bering Sea. In my previous employment in the crab industry, I saw first hand the havoc that the Bering 

Sea can wreck on people and on vessels in an un-rationalized fishery. I cannot count 

the times I have had vessels return to Unalaska for unloading covered in a foot of 

ice in January or February. Sometimes they have returned to port having had two 

or three pilot house windows taken out by rogue waves, and had all there electronics and navigation gear destroyed and had to hand steer for two days, barely 

able to make it back to town. I only had to deal with the ultimate tragedy once, 

and that was enough for a lifetime. Having to deal with the tragedy of a vessel lost 

with all hands, and having to tell loved ones and friends that their family member 

or friend will not be coming back was one of the toughest things I have ever had 

to deal with in my life. The improvement that we will see in safety with a rationalized fishery is something we cannot put a dollar value on, and we should never forget that. 

There are those who oppose this plan. Many of them do not have any involvement 

with the crab fisheries of the Bering Sea, but are worried that sometime in the future elements of this plan could impact their fishery. We heard the same concerns 

during the implementation of the American Fisheries Act (AFA) by the same folks 

that weren’t involved in the Pollock fishery, that it would cause problems for them 

in their fisheries, but it has never happened. There are crab harvesters that also 

do not support the plan. Many of their concerns might be due to the qualifying years 

that are in the plan. Some vessels do not have very much poundage or history durVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00065 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
62 

ing those years. These people might hope to keep the derby fisheries going, thinking 

they may be better off financially. We have heard the concerns that with processor 

shares, their ex-vessels prices will be impacted. However, under AFA Pollock cooperatives we have not seen that. What we have seen is ex-vessel prices increase 

for the harvesters with profit sharing agreements and other incentive programs. 

We also have strong opposition to the plan from Kodiak. They feel the plan will 

impact their revenues, their local processing plants, and the 35 vessels that are 

home ported there. At one time, Kodiak was a major player in the crab fisheries 

of the Bering Sea, but that was over 20 years ago, before the development of the 

processing plants in the Bering Sea communities. Between 1997 and 1999, which 

were the qualifying years in the plan, Kodiak historical landings from the Bering 

Sea are very small, at less than 1 percent for Opilio Snow crab and 6 percent for 

Bristol Bay Red King crab. That does not show much dependency on the major crab 

fisheries in the Bering Sea, especially when compared to the communities located 

in that area. This is due, in part, to the distance they are from the crab grounds 

of the Bering Sea. 

Kodiak is six hundred miles from Unalaska, which is another 200 miles from the 

King crab fishing grounds and further yet from the major Opilio snow crab fishing 

grounds. That distance means many days of running time to take crab back to Kodiak. Harvesters have to worry not only about weather, but deadloss of crab at unloading due to length of time that the crab has been on board the vessel. In addition, they have to deal with the fishing gear that they may have left on the fishing 

grounds, and they have increased cost of expenses just to make that run. 

I believe their current historical crab landings can be met under this plan through 

the processor quotas shares that the local processing plants will receive and through 

the open access 10 percent share of the quota for the harvesters that can be delivered to any processor in any community. 

Unalaska supports this rationalization plan, as do other communities located in 

the Bering Sea/Aleutian Islands, and the crab processors and many of the harvesters that fish these fisheries. We believe that the rationalization plan as proposed will address many of the serious concerns facing all sectors involved in the 

crab industry of the Bering Sea/Aleutian Islands. In Unalaska, we will see many 

of the same benefits in a rationalized crab fishery that we have seen in the rationalized AFA Pollock fishery. We support the public process that this issue has gone 

through with the North Pacific Fishery Management Council, and we support the 

council process. This plan has the support measures that protect and enhance economic activity for all sectors in the community of Unalaska. There is no doubt that 

everyone realizes that our mainstay for continued success as a City is linked to the 

fisheries from which we gain economic resources. 

In closing, I would like to read a paragraph from North Pacific Council Chairman 

Dave Benton’s August 5, 2002 letter to Congress that was attached to the North 

Pacific Council report to Congress on the Bering Sea and Aleutian Islands Crab Rationalization Program: 

‘‘This program is certainly not with its controversy. The adoption by the Council 

of processing quota shares as a fundamental part of the program is probably 

the most controversial aspect of the program. However, the Council believes, as 

is reflected in its unanimous vote, that the crab fisheries in the Bering Sea/ 

Aleutian Islands require this innovation, comprehensive management approach 

to adequately recognize and protect the interests of all participants. It recognizes all components of the fishery as a balanced, inextricably linked system, 

rather than individual, competing components. It may not be the appropriate 

model for other fisheries. We do believe it is the appropriate management approach for this fishery, and we respectfully submit that Congress should allow 

for such regionally tailored approaches in the management process. All Councils 

need such flexibility as we consider development of rationalization programs for 

63 

other fisheries, for the benefit of all user groups, and to sustain our precious 

fisheries resources for the Nation.’’ 

Thank You. 


520BAY1.eps 520BAY2.eps
64 


520BAY3.eps 520BAY4.eps

ChartH 

Fisheries Business Tax 

$3.$00,000 

I ~ 

0 """ - --- - AFAI~OCI 

$3,000.000 

S2,SOO,OOO 

$2,000.000 

SI,SOO.OOO -- ---- --- -

$1.000.000 

ssoo.ooo 

S· 

FY9S FY96 FY97 FY98 FY99 FYOO FYOI FY02 FY03P FY04B 

Opilio Harvest Five-Year Average in Pounds 1995-1999 

!50,000.000 ,----------------------------------

4$,01Xl,OOO 

40.000,000 1-------------------------------

30,000,000 [-------------------------------

30.000.000 

25.000.000 

20.000.000 

... 000.0001---------------------------------

St. A.EB l..kUown Trar&OUI IG'IgC:O.... TOQWc StOeorQe Kod'~ June~ Nwtan IJna&asU SLP'wl 

-
65 


520BAY5.eps 520BAY6.eps

Poft of Kodiak. oornmerti;al fl$htty (tatt 1990-2003 

8rlstol~red~CI8b --·- ~SN~c:rab 

YW Ves>eiS Uodedpouncf$' Tota1 Haf'Yfit .,_, Ve:ssel& ~.o.--· TotalttaNe$1 

1990 5 2fXJ/)OlJ 20.Je>.342 "'" 7 561,349 1$1.821,350 

IQ91 10 572,092 17, 177,894 3)% 12 921,472 328,6-47.26$ 

IQ92 9 326,455 8.043,018 41 ~ 10 374,596 315..302.034 

1993 10 314,765 14,628,639 22% 7 48-4,312 230,787,000 

1994 Season Clooed 2 m .ooo 149,715,7$$ 

1995 s-o.Ciooed 7 600i4S$ 7$,2$2,617 

1996 7 385,237 8 .405,614 4,6% e m.ooo 65,7 12,797 

1Q97 13 397,oe6 8 ,756,490 4,5% 2 100,0(10 119,543,024 

199$ • 300,000 14.233.063 2.1" • 400,000 243.3"1.381 

1999 12 545,1.47 11,090,930 49% 2 m.ooo 184,$29,821 

2fX)O 28 84$,2$0 7,54$,145 112% 13 1,451.&42 30,714,838 

2001 28 765,930 7.78$.420 101"' 4 <00,000 23,382,0<$ 

2002 25 783 ..399 8 ,856,828 8.8% 10 6S0,DQ) 30.252.501 

2000 1 <100,000 26,341,9S8 

TOTAL 5.455.391 126.887383 4)% 8.844.029 1.985.484.4&1 

~In Italics •r• ·~tot years ln wtlleh there w«e ies.s than trvee processotS. 

CITY OF UNALASKA 

UNALASKA, ALASKA 

RESOLUTION NO. 2003·27 

A RESOLUTION OF THE UNALASKA CITY COUNCIL SUPPORTING THE NORTH 

PACIFIC FISHERY MANAGEMENT COUNCIL'S FINAL RECOMMENDATIONS ON 

THE BERING SEA/ALEUTIAN ISLAND IBSAO CRAB RATIONALIZATION PROGRAM 

ADOPTED ON JUNE 10, 2002. 

WHEREAS, the North Pacific Rshery Management Council ha$ completed a.n in· 

depth and public four-year analysis of the rationalization alternatives that included 

the harvesters, processors and communities, as requested by Congress; and 

WHEREAS, the Unalaska City Council supports 1he economic, sociol, safety and 

conservation benefit$ as outlined in the North Pacific Fishery Management 

Council's final recommendations of the crab rationalizatlon plan; and 

WHEREAS,. the North Pacific Fishery Management Council's final recommendetions 

and trailing amendments are meant to balance the interests of harvesters, 

processors. communities and captains; and 

WHEREAS, the final recommendations are meant to ensure the protection of the 

economies of coastal communities involved in the SSAI crab fisheries; end 

WHEREAS, the City of Unalaska has seen first hand the bene:its of the rationalized 

Pollock: fishery through the American Fisheries Act, which has provided $COnomic 

$teb11ity, vessel safety and improved resource management; and 

WHEREAS, the North Peciflc Fishery Management Council adopted the p<eforrod 

alternative for the retionaJization of 'the BSAI fisheries by a unanimous vote of 11-0 

on June 1 o. 2002,. in Unalaska, Alaska; and 

WHEREAS, the North Pacific Fishery Monagement Council has recently adopted a 

suite of measures contained in the crab rationalization trailing amendment package 

that further defines the issues, community protection measures, binding arbitration, 

captains' quota shares, and data collection; and 

WHEREAS, the implementation of this program would follow its final approval 

through the Environmental Impact Statement (EISJ. which is currently. being 

prepared and Congressional authorization for this. program would also be necessary. 

Kodiak Percent 

dHIW\'eSI 

0)% 

0 )% 

01" 

02% 

0 .1% 

0 3% 

0.3% 

0 1" ().2% 

0. 1% 

'"' 

21"" " 

0.3" 

03% 
66 


520BAY7.eps

UNALASKA CITY COUNCIL 

RESOLUTION NO. 2003·27 

PAGE TWO 

NOW THEREFORE BE IT RESOLVED THAT the Unalaska City Council supports the 

final recommel'\dations of the North Pacific Fishery Management Council as it 

pertains to the BSAI crab rationalization plan; and 

BE IT FURTHER RESOLVED that the Unalaska City Council supports continuance of 

tile legislative process leading to final resolution and Implementation of the BSAI 

crab rationaliultion plan. 

PASSED AND ADOPTED BY A DULY CONSmTEO QUORUM OF 

UNALASKA CITY COUNCIL THIS .2::i:fL DAY OF ~ • 2003. 

~ 

THE 
67 


520BAY8.eps

1>.0 . 8o.x929 

St. Gcol;e. A.tas;ca 99S91-09l9 

T"' (901) 8$'-226) 'ti}J' fllC: (907Hl9-22 12 

Resolution No.2003-~ 

Whereas the North Pacific Fishery Management CoUMil bo.s approved a Bering Sea Crab 

Rationalization Plan; 

Whereas the City if St. George has mv.:sted over $40 million in Public and Private Foods 

for harbor and economic d<:velopm.ent infrastruerure; 

Wh= over 90 o/o of the City of St. George's income is based solel.y on the Bering Sea 

Crab Fishety; 

Whereas the City ofSl George bas issued Gcnc.al Obligation Bonds in excess of$3 

million and bas ooe of 1he highest per capi!a debt in th> St3te of AlaslGa; 

Whc:eas; tbe City of St. George bas no processing of Cod, Salmon, Herring Md Pollock 

\\ithin the CODUDWlity, 

Whereas passage of1be Crab Ratioooli7Ation Plan by CoJl81C$$ will lead to a more safer 

and efficient fishery; 

Now therefore be it resolved the City of St. George endot= the Crab Rationalization 

plllll adopted by the Nonh Pacific Fishery Maw~gement Council; 

Be it funhcr resolved that the City of St. Gco<ge requesu thet Cong1eSS adopt the CW> 

Rationalization Plea passed by the North Pacific Fishery MBllOgement Council 

Attest 
68 


520BAY9.eps

~e d 

CITY OF SAINT PAUL P.O.IOI(tOI SAI"r"'~JitNC). A.LAS~V< 

IJAJtCt0?)1.411-)t48 

(0:11')5At4UI 

--

A Rl!"SOLUTION OF THE ST. PAUL CITY COL'NCSL II' SUPI'ORT OF CRAS 

RATIONAUZATION FOR THBBWNO SEA ALEUT1AN ISLANOCRJ\8 FlSHER.IIlS 

Wlil!REAS, St. P•ul has S\IOC<..tl.ll)' developed a fi>herid bucd cconOQ1Y bated on rhc St. P1ul 

1-Wbo.t which, 5lnce l99S, ba! been the prinwy crab prooe!osirla loc.at.ion io the Serine Sea And 

l},c number two fi31Una port in AJu1ca tn tcn:JU orfbhc:ri() IP revenues; l.l'ld 

WUEJtEAS, Cl'l1b ddivcries to Sl Paul cxcccdccl 4C*. o! the total herve3t in ~an (997 and 

19'1$:>0<1 

WftE.REAS. St. Paul or•b landiap and ~in&: have ae<.ou:slccl for approxirMtt)y 8S% of the 

cub oct~& the eortt.O.luoity~ and 

WHEREAS. 8 ooUapx of the Beri.Dg See crab s1ocla CXCWTtd. 11'1 2000 resulting in an 86% 

rCltJc:tion jo lhc year 2000 Guidc.ti.N: flatYCSt rA\'CI) for Bering Sea 3now crab, anclll sSgnlficant 

ioN of rcvcn\lc tu l.hc commu.ni\1; o.nd 

WJI.£R.EAS, tbc coll-apse of tho Scrin& Sea cab SUdcs hu r~1.<cd in •n lndustty-widc dtort of 

ba.n•estcrs, procc:uon. an4 communtt:id to dcYdop • Tlliooalj1J.ltion ptOC."r...m; and 

\VHF..RE.AS. SL Pa.ul hal activdy partlelpsted ln the devtl<pmeot "fa M'i<.loaliuUon pcog.r;lJ:D in 

ord:.1 to protect ita: i.nvestmeas ln the lodu$try, which COCII_Uu¢$ to N.oo • seva-c downrum on crab tl<><ka o,,d his)> Jevcls o( 0Vtt<6pi..UZ.WOC in both~ and harvulina; otld 

WHER.6AS, tht si~u:ltion W*"lntl Jmme6iate le&l,laive reJic:f to eo:tb1e an altemaHve 

CQ.~RA&emool t.Oiution to encoun~1e resuntlon o( tbe r1oeks tDd to enable industry consolidatior.; 

ond 

WHEREAS. tho United St•t., C«w.,. authorited, tlroll&h the O<ccml>o< 2000 Omnibu• Appropritdions SUI. provbions which dito:t the North ·P.xUie Fisb«ie:s M::an~c:ment Council to 

<k' •n analysis of cNb ratiooali.z.Uioa options: and 

WMER.EAS. tbc analysis of any quota based progam I' spceitically hJ W:luck: hatvffi.er:s., 

pr«CU(Irs and eommw1itics.: a.nd 
69 


520BAY10.eps

2.0" 4 

RB&olulionOI-07 

Page 2ol2 

WUER.EAS, d» Nooh f~ifi.~; Pis.h<ry Manau•m~nl Ccwlril tw seated that h if scill committed 

tu tht overall n•lC\nalintiofl ~s for che crab Osht!rits; 1nd 

WHHR.BAS, the North P<)CjOc f'lshery Mo.nagemmt <:oancu tppolottd a cnb ration.a.litatil)n 

CDmmittec t.nd the City of SAint Paul h.ad a tepre~enuuin appointed to the: corn i~ that kept 

!he St. Pa:ul Cit)' CoUt\ei1 odvistd on the wm.rnitt«"$ proste.HI.ndi retOinmcndatiortlll ro •he North Patine Ficbcry MtM.iement Council: and 

WJi~S.. thcCouncf1 oft."-e CityofSJ.int.Pa.ul $Uppot(so.nd ~ecogn xcs: the rl«'d to prot~t the 

lnvC$tn:QlS ur 1;W"I"CI1t p;~.n;clpcantS, inc.luclina h.1rvesters. proecuot~ ,.,. a11d Lhe eomcnuuhy tH" 

St. hu1. as well u \.'thee artectcd fidline; convnuUtieJ. and the n«d foe a ta1i.onal 

d«apiWI:zatlou ofdl~ ind\L'itry: 

NOW lllSR.EFORE, J:SI! 17 RESOLVED THAT the Coua.cll oftbt- City of Salnt Pau1 supports 

the proposal fut a fillr and equitabLe qUOUt.-based p~snun of a l~fe JFQ :\lloe:adon r.o h:lrtc:s.tcn end prooenors tneludina tm rt:quire.nu:nt tha1 ~ Hve crab dellvutes be co proeeuon: 

In the ~iocu within Al<lSk.a io 3.CCOrdanco with retell(:)' req_uitcm.cn\.8: &n4 hisw•i.c dclivuy rAt.e.s; 

'""' 

BE IT PUR1"H£k flESOLV£0 tbat tbC' S\. PaW City Coune.i1 Ut:&C.S tb-: North PaciOc fisht:!ry 

Ma~ent Co~il to ('ornpfcll: their an.aly~i:r in a time-ly n:wuter u they Gxl t.hls Issue b. of 

u~t importanoc aocl forward their report on. to Congrc.sa DS socn N pouible. 

I'ASSED AND ADOPl"EO llY A DULY <:OliSnTVTED QUORUM OF THE COUNCil. OF 

ll!ECJTYSAJNTPAIJL THIS 23"" DAY OF MAY 2001. 

,.·rr£ST: 
70 


520BAY11.eps 520BAY12.eps

Kodiak Dependency I Based on the City of Kodiak's Written Testimony to Congress 

The BSAI crab industry is both capital-intensive and landings-intensive. By definition there are two types of "crabdependent communities" - chose that are primarily harvesting communities like Kodiak, and those that are heavily 

dependent on large-scale processing investments, like Unalaska/Dutch Harbor and St. Paul Island. 

This distinction is even made by the City of Kodiak in Linda Freed's testimony before the US Senate Committee 

on Commerce, Science and Transportation. The data below is quoted directly from Ms. Freed's testimony to 

illustrate that Kodiak is a crab-harvester community, not a crab processing community. 

In conclusion Kndiak has been appropriately awarded more than $100 million in harvesting rights under the 

NPFMC's program; while processing-dependent communities have likewise been appropriately granted their 

processing history in the form of community-based processor quota. 

Kodiak - Bristol Bay Red King Crab 1997 1998 1999 2000 

BBRKC as% of Landings 0.1% 0.1% 0.2% 0.3% 

BBRJ<C as % of Value 1.6% 1.5% 1.6% 1.8% 

Kodiak- AU Crab, including 1997 1998 1999 2000 

Non-Rationalized and GOA Species 

All Crab as % of Landings 1.1% 1.2% 1.4% 2.7% 

All Crab as % of Value 3.1% 2.0% 2.8% 3.4% 

Community Dependence Derby Share of IPQ LFQ Comments 

On BSAI Crab• Crab Share••• Share***• 

Landings•• 

Unalaska/ 14% 34.03%- Opilio 32.65°w0pilio 4% 

Crab Processing 

Town With 

Dutch Harbor Some Crab 

Ha rvesting 

Kodiak 3.15% 0.14%-0pilio 0.20%-0pilio 15% Crab Harvesting 

3.50°/o-BBRKC 3.80%- Town With 

BBRKC Almost No Crab 

Processing 

St. Paul Island 69% 40.02%- Opilio 39.0%-0pilio 0% 

Crab Pr ocessing 

Town With 

No Crab 

Harvesting 

• Ex<rapolaocd from Table 2.2-22, Table 2.2·23 (Uoaluka), Table 2.6-10 (Kodoak). and Table 2.5~ (SI Paul), NPFMC "Crab RaoO, .. Iizaoion 

Procnm lt~miMi~s"'. Appendix 2.6. Sc Paul ~tau undmuted due 10 coo fidcnti~lity restt'iecions an the analysis. 

•• 199S-19990ptboand BORKC. NPFMC and Stale or Alaska Data. Some rounding due toconfidcnttabtyJS.SOCS. 

• •• Table 3.6-4. NPf'MC"'Traihng Amendments'' analysis and oth« sources.. 

• • • • £xtrapolated (rom Table I .0-1, NPFMC "'CI'J.b ftaaionali.zation Prognm Altt:math•es'", Appendix 2.6, Pasc: 2 
71 

Senator STEVENS. Our last witness is Arni Thomson, Executive 

Director of the Alaska Crab Coalition, Seattle, Washington. 

STATEMENT OF ARNI THOMSON, EXECUTIVE DIRECTOR, 

ALASKA CRAB COALITION 

Mr. THOMSON. Good afternoon, Mr. Chairman and Distinguished 

Members. On behalf of the Alaska Crab Coalition, I would like to 

thank you for the opportunity to provide testimony on this vitally 

important subject of crab rationalization. I am Arni Thomson, Executive Director of the Alaska Crab Coalition. 

Mr. Chairman, the ACC speaks on this subject from long experience and deep conviction. Established in 1986, the ACC is the longest-standing organization of Bering Sea crab fishing vessel owners. 

I think it fair to say that among the several organizations of Bering 

Sea crab harvesters, the ACC has been the most consistent contributor to the efforts of Congress, the Commerce Department, and the 

North Pacific Fishery Management Council to provide for the improvement of our fisheries. 

The ACC applauded your inclusion in the Consolidated Appropriations Act of 2001 a directive that the North Pacific Council consider rationalization of the Bering Sea crab fisheries, including individual fishing quotas, processing quotas, and community quotas, 

and to report back to Congress on the outcome. This directive 

placed the Bering Sea crab fisheries on the Council’s priority list 

and guided the ensuing analysis and debate in a direction ensured 

that all interested parties a place at the table. Most importantly, 

this directive implicitly recognized that all three major groups— 

harvesters, processors, and communities—would have to be accommodated in order to ensure the viability of any rationalization plan. 

Mr. Chairman, the Council’s plan represents a fair balance of the 

effected interests, a compromise that promises to achieve, for the 

first time, the fundamental goal of ending the race for crab that 

has killed our fishermen, accelerated bycatch and discards to damaging levels, and devastated the economics of the fisheries for harvesters, processors, and communities alike. 

I would like to just stop briefly to point out that at the beginning 

of our rationalization efforts, that the industry took a real hard 

look at the AFA model in order to try to emulate the AFA model 

in the crab fisheries. However, there certain distinct characteristics 

between the fisheries, the fisheries being unique, it just would not 

work. Basically, the pollock fishery is a single-species fishery. 

There are long-established one-on-one market relationships and 

contracts between fishermen and specific processors. However, in 

the crab fisheries, we have multi-species fisheries when the fishermen oftentimes have multiple markets, and the fisherman very expressly stated that they did not want a closed class of processors. 

So this gravitated toward a request from the fishermen to the 

processors to produce a proposal of matching processor quota 

shares for the fishermen’s IFQs, and that is how we got started 

down the road of the processor shares. And then we added to that 

the regionalization concept which was proposed by the City of St. 

Paul in the Pribilof Islands. 

Going on, the following are six key elements of the plan. Quotas 

for fishermen, processors, and communities that will end the race 

72 

for crab, reduce bycatch and waste, and promote sustainability of 

the resources and economic stability for the industry and communities, improve safety by ending the derby fishery, preservation of 

the regional distribution of economic activity through regional 

share designations of harvester and processor quotas that will distribute landings and processing between specific regions, plus additional protections. 

Mr. Fraser mentioned to arbitration programs that were presented to the Council, one by the harvesters and the other by the 

processors. This is not entirely correct. The proposal that was developed, primarily by the crab group, of whom he represents, was 

a flawed proposal that did not commit the fishermen to a binding 

arbitration program. So, in good faith, the Alaska Crab Coalition 

could not support that program, because we had initially proposed 

an arbitration program, and a binding one. It was the only way 

that the arbitration would work. 

Having said that, a mandatory binding-arbitration program to 

settle price disputes between harvesters and processors and to ensure competitive market prices with a firm Council commitment to 

change the program if it does not work. This commitment is contained in the May 6th letter of the North Pacific Council to the 

Congress. 

Going on, initial harvest-share allocations to captains of 3 percent of the tack and the opportunity for skippers and crew to purchase shares with a low-interest loan program, an important precedent. 

Comprehensive data collection and program review to assess the 

success of the rationalization program and to provide oversight of 

revenue share ration between harvesters and processors. 

Processor quotas are, as we all know, the main point of the controversy. Some individuals and organizations would have the Council or Congress throw out processor quotas and leave it at that. 

But, Mr. Chairman, that would be repudiating the very directive 

that Congress enacted into law and that Council respected. 

As we all know, Congress did not establish any priority among 

the effected groups or among the various management measures to 

be considered. Why not throw out harvester community quotas and 

leave it at that? The question is rhetorical, and the answer is obvious. Because harvesters, communities, and processors all have the 

vital interests at stake and the right not only to be considered, but 

also to be accommodated in any rationalization plan. 

In closing, Mr. Chairman, I ask that you take account of the considered judgment of the ACC and other organizations that believe 

that the plan developed by the Council family is the only viable approach to restoring our Bering Sea crab fisheries in a fair, balanced, and effective way. I respectfully urge that you and your colleagues in Congress grant the authority that remains necessary to 

bring this critically needed plan to fruition. 

Finally, at the suggestion of the North Pacific Council, in its letter of May 6, 2003, we request that the Congress explicitly authorize and direct the Council to take immediate action to change the 

arbitration program if it does not work. 

That concludes my comments, Mr. Chairman. Thank you very 

much. 

73 

[The prepared statement of Mr. Thomson follows:] 

PREPARED STATEMENT OF ARNI THOMSON, EXECUTIVE DIRECTOR, 

ALASKA CRAB COALITION

Senator Stevens, Senator Murray, Distinguished Committee Members: 

The Alaska Crab Coalition (‘‘ACC’’), a trade association representing the owners 

of Bering Sea crab fishing vessels, as well as service and supply companies in the 

fishing industry, is grateful to have been invited to testify at this important hearing 

on the Bering Sea and Aleutian Islands (‘‘BSAI’’) crab rationalization plan (‘‘Plan’’) 

adopted by the North Pacific Fishery Management Council (‘‘Council’’) at its June 

2002 meeting. The ACC strongly supports the Plan. 

Since its inception in 1986, the ACC has worked closely with the Council, the Department of Commerce, and Congress in the development and implementation on 

an array of statutes, regulations, and policies aimed at the improvement of safety, 

conservation, efficiency, and fairness in the BSAI crab fisheries. The challenges 

have been enormous: the highest occupational fatality rate in the Nation, resources 

in severe difficulty, the industry on its financial knees, and communities at serious 

economic risk. What sets the Plan apart from all previous management responses, 

and what promises to deliver the long-sought after solutions, is its comprehensive 

approach to addressing the root cause of the problems plaguing these fisheries—the 

race for crab. Through implementation of the Plan, excess harvesting and processing 

capacity will be removed from the BSAI crab fisheries in a way that will be fair 

to harvesters and processors, alike, and will avoid economic dislocation of dependent 

communities. Through a carefully balanced system of harvester and processor quota 

shares and regional delivery provisions, a sustainable equilibrium of production capacity and resource availability will be achieved, markets will be stabilized, safety 

will be improved, and communities will be protected. 

Clouds of paper from one disgruntled special interest group or another must not 

be allowed to obscure the fact that the Plan represents the best collective judgment 

of the Council family, based on the wise guidance of Congress. Blaring opposition 

must not be permitted to drown out the chorus of support for this excellent Plan. 

Background and Need for BSAI Crab Rationalization 

The BSAI crab fisheries have long presented daunting challenges to fisheries 

managers, our industry, and dependent communities. Safety concerns have necessarily attended fishing operations in the extremely harsh natural environment of 

the Bering Sea and Aleutian Islands area. Conservation became an issue, as soon 

as major fishing fleets began to exploit the resource. Allocation issues arose for our 

fishermen, when we first sought to ‘‘Americanize’’ the fisheries, by wresting control 

from the foreign fleets, and later, after such issues arose again, when that goal was 

achieved and our domestic harvesting exceeded the available resources. 

As communities became dependent upon BSAI harvesting and processing, the 

scope and complexity of economic and social issues greatly increased. The full spectrum of these challenges became less and less manageable, as BSAI crab resources 

suffered declines and failures under enormous fishing pressures. 

Following much debate and the rejection of a harvester-only individual quota program, a license limitation program (‘‘LLP’’) was adopted in 1995 and implemented 

in 1998, with the objective of slowing, if not halting, increased harvesting capacity 

in the fisheries. Of course, this was only a halfway measure, as it failed to prevent 

‘‘capital stuffing,’’ that is, additional investments increasing the efficiency of the limited number of vessels that were permitted to operate in the fisheries. Limits on 

the number of pots per vessel and various other management measures, including 

time and area closures, also failed to solve the fundamental problem of excessive 

harvesting capacity. The race for fish intensified. 

In the superheated race for crab, these measures had perverse safety, conservation, and economic effects. Crab pots are designed to ‘‘soak’’ for long enough to allow 

all the bait to be consumed, and for the juveniles to leave, through escape panels, 

in search of other forage. Fishing seasons comprised of a few days, coupled with pot 

limits, led to a spiral of increased risk to the safety of fishermen and to the sustainability of the resources, as frantic efforts were made to maximize the numbers of 

pot lifts in short seasons. In these circumstances, juvenile crab feeding on bait, 

would still be in the pots at the time they were lifted, and a high percentage of juveniles would perish, as a result of the changes in temperature, when they ascended 

and descended the water column. The future of the crab fisheries was dying with 

its juveniles. Many independent vessel owners were left hanging precariously on the 

74 

brink of bankruptcy. Worst of all, the BSAI crab fishery remained the most dangerous occupation in the United States. 

In 1996, while the LLP was wending its way through the bureaucracy toward implementation, the Sustainable Fisheries Act was enacted. It included two measures 

first proposed by the ACC, new national standards to limit and reduce bycatch, and 

to improve safety, and a third measure supported by the organization, authority for 

the Federal Government to conduct industry-funded fishing capacity buybacks. 

However, to the disappointment of the ACC, the Act also included a four-year moratorium on new individual fishing quotas. 

Bering Sea pollock took center stage in the North Pacific, and in October 1998, 

the American Fisheries Act established a unique system of harvester/processor coops 

for that fishery, including a 90/10 formula for mandatory deliveries to exclusive 

processors. Most of the Council’s time during the ensuing 18 months was consumed 

with resolving those issues left to its jurisdiction by the new law. 

During the year 2000, the crab industry considered various forms of coops and a 

buyback. However, these potential management responses to the crisis in the BSAI 

crab fisheries achieved a critical mass of support. 

At the close of the year 2000, the moratorium on individual fishing quotas was 

extended for an additional two years. However, in the Consolidated Appropriations 

Act of 2001 (P.L. 106–554), Congress also enacted special legislation that served as 

a guidepost for future BSAI crab management: 

. . . 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, 

and quotas held by communities. The analysis should include an economic analysis of the impact of all the options on communities and processors as well as 

the fishing fleets. The North Pacific Council shall present its analysis to the appropriations and authorizing committees of the Senate and House of Representative in a timely manner. 

In January of the following year, the Council formally constituted a 21-member 

Crab Rationalization Committee that represented all affected interests, including 

the crab industry organizations, dependent communities, and the environmental 

community. The work of that committee culminated on March 23 of that same year 

with endorsement, by a two-thirds vote, of a system that would provide quotas for 

both fishermen and processors and regionalized landing requirements. This served 

as the basis for the Council’s eventual adoption of a ‘‘three-pie voluntary cooperative 

program.’’ 

On June 10, 2002, the Council adopted the Plan by a unanimous vote of 11-to0. The very fact that the long public debate leading up to this decision was spirited 

and even rancorous at times demonstrates that the Council proceedings were a 

model of public participation, with input received from every party who had a perspective to bring to the table. There were countless hours of deliberation in the 

Council and its committees, as well as within and among interested and affected 

individuals and organizations over a period of more than two-and-a-half years. Anyone who failed to offer his or her views cannot claim a lack of opportunity to have 

participated in the process. 

There was, it is true, a last-minute disagreement over a system of arbitration designed to resolve price disputes. No organization was more concerned than was the 

ACC, which withdrew support for the Plan, pending the outcome of efforts to resolve 

the crisis. Fortunately, the ACC was able to support the end-product, based on the 

expectation that the Council and Congress would critically and continually review 

the operation of the arbitration process, and that the Council would make changes, 

if that proved necessary to assure fairness. This expectation was proved correct, 

when the Council submitted its May 6, 2003, report to the Congress, with the following statement concerning arbitration: 

If the preferred arbitration program does not function as intended, the Council 

is committed to using a different arbitration structure to provide a fair price setting environment. Because of the completed analyses of these different structures, 

an alternative structure, such as the ‘‘Steele Amendment,’’ could be expeditiously 

adopted as part of the binding arbitration program should Council review of the 

program suggest that the arbitration program is not working as intended. If 

Congress approves this program, such explicit authority could be provided to the 

Council to ensure timely action to address problems that might arise . . . We 

hope that Congressional authorization of the program will provide explicit direcVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00078 Fmt 6633 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
75 

tion to the Council concerning its obligation to review and amend the program 

should any unanticipated negative impacts arise. 

The Plan 

While there have been concerns that the Plan somehow establishes unsuitable 

precedents for other fisheries, the fact is that it responds in a tailored way to a 

unique combination of circumstances: 

• Horrendous weather and ice problems on the fishing grounds, resulting in the 

highest occupational fatality rate in the Nation. 

• Extreme over-capitalization in both the harvesting and the processing sectors. 

• Heavy economic and social reliance of five communities, located in two regions, 

on crab production. 

• Unstable and declining crab resources, and excessive bycatch waste. 

• Foregone fishing opportunities, due to inability to manage small resources. 

The Plan responds, in a sustainable, fair, and balanced manner, to the complex 

resource, environmental, economic, social, and safety challenges confronting stakeholders in the major BSAI crab fisheries: 

• Vessel owners; 

• Skippers and crews; 

• Processors; 

• Communities; 

• The public at large. 

To achieve this goal, the Plan contains the following primary elements: 

• Harvest shares allocated to fishermen for 100 percent of the total allowable 

catch (TAC), with 90 percent of those shares to be delivered to processors holding processing shares, and the remaining 10 percent to be deliverable to any 

processor. 

• Processing shares allocated to processors for 90 percent of the TAC. 

• Regional share designations for processor allocations and the corresponding 90 

percent of the harvest allocations, distributing landings and processing between 

specific regions, plus additional community protections. 

• A mandatory binding arbitration program to settle price disputes between harvesters and processors and to insure competitive market prices. 

• Voluntary harvester cooperatives permitted to achieve efficiencies through the 

coordination of harvest activities and deliveries to processors. 

• Community Development Quota allocations of 10 percent of the TAC. 

• Initial harvest share allocations to captains of 3 percent of the TAC, and the 

opportunity for skippers and crew to purchase shares. 

• Low-interest Federal loan program for captains and crew to purchase harvest 

shares. 

• Comprehensive data collection and program review to assess the success of the 

rationalization program and to provide oversight on revenue share ratio between harvesters and processors. 

The Plan presents an impressive array of improvements over the prevailing situation. These included: 

Biological Benefits 

• Improved stock management through use of a TAC. 

• Reduced overharvests through individual allocations. 

• Reduced discards resulting longer soak times and better sorting of undersized 

crab through escape mechanisms in gear. 

• Improved handling of discards by ending the race for crab. 

Economic Benefits 

• Compensated reductions in capitalization through voluntary share transactions. 

• Economic stability for the harvesting and processing sectors and communities. 

Social Benefits 

• Preservation of regional distribution of economic activity. 

76 

• Facilitated entry to the fishery for crew. 

• Protection of historical interests of captains. 

Safety Benefit 

• Improved safety by ending the derby fishery. 

Conclusion 

The ACC commends Senator Stevens for his foresight in authoring the statutory 

guidance that was essential to the Councils’ work in developing the Plan. We likewise commend Senator Murray for her contributions to strengthening the statutory 

framework for management of our crab fisheries. We are deeply grateful for the impetus provided by Congress for us to overcome the crisis in our fisheries, and we 

respectfully request that the requisite, additional statutory authority be provided as 

soon as possible for implementation of the crab rationalization plan crafted by the 

Council family. 

Thank you. 

ADDENDUM TO THE STATEMENT OF ARNI THOMSON, EXECUTIVE DIRECTOR, ALASKA

CRAB COALITION

I. The unique differences between the Bering Sea Pollock fishery and the crab 

fishery, and the alternatives for rationalization that led to development of the threepie program with harvester, community, and processor shares: 

• Rationalization solutions for processors, as well as fishermen, begin with restricting entry. The pollock model found in the American Fisheries Act of 1998 

(AFA) was specifically designed for the pollock industry, where stocks were 

abundant, and long term single market contracts were in effect, particularly 

within the onshore sector, when the measure was enacted. The number of participants in both the harvesting and processing sectors was stabilized, and the 

startup costs for new entrants into the processing sector had become almost 

prohibitive. Processing was, in 1998, and remains today, at full capacity, so 

markets were not available to accommodate new harvester entrants. During negotiations on the AFA, processors insisted upon, and harvesters accepted, closed 

classes for both sectors. In addition, the processors requested, and the harvesters accepted, a statutory requirement to contractually bind particular vessels to particular processors, with very little practical flexibility for harvesters 

to change processors. The AFA was a grand experiment in fisheries management that everyone now agrees has worked very well for the participants operating in the unique circumstances of the pollock fishery. 

• In the initial crab industry discussions during the winter and spring of 2000, 

a proposal was considered, utilizing key elements of the shorebased AFA approach. This was a sincere attempt to arrive at a prompt solution in critical circumstances. However, there were several reasons the AFA model did not work 

for Bering Sea crab. Most importantly, crab fishermen preferred to avoid a 

closed class of processors and restriction of markets, and believed that the 

unique circumstances of their fishery justified and required a different approach. 

• In the crab industry, there are multiple fisheries and fishermen have multiple 

markets. With the exception of the Aleutians Islands brown crab fishery, the 

crab stocks are low. There is also gross overcapacity of fishing vessels and floating processors. Using the AFA model for Bering Sea crab would have eliminated 

small processors, as eligibility criterion called for fishermen to match up with 

the processor they had delivered the majority of their catch to in the previous 

year. Most fishermen delivered the majority of their product to the large companies, with the small companies being minor markets for partial loads. The small 

companies, some of which are price leaders, would have lost out on processing 

privileges under the AFA model. 

• A buyback of crab processors was also discussed, but this also meant closing 

the class of processors and limiting entry in the future. As noted above, fishermen were opposed to a closed class of processors. 

• Following failed attempts to adapt the AFA coops, crab fishermen, themselves, 

asked processors for a processor shares proposal. This was the point of departure for negotiations that led to processors shares, and eventually, regional delivery requirements to protect communities, as envisaged by provisions of the 

Consolidated Appropriations Act of 2001. 

77 

• The crab program, as structured with processor shares, contrary to what opponents have to say, is less restrictive than the AFA. There is no closed class of 

processors; new processors can enter the industry at any time. Unlike the situation for pollock harvesters under the AFA, crab fishermen under the crab rationalization plan can move from coop to coop, without a penalty year spent 

fishing in an open access fishery, and fishermen can belong to more than one 

coop at a time. 

• During the public process of considering alternatives, the industry also had discussions of a single-pie IFQ program, combined with regionalization of deliveries of crab—without processor shares or any AFA-style contractual relationship with processors. The technology needed for the processing of crab is much 

simpler and less costly than that required for pollock, which facilitates the transition of fishermen into the processing sector. This proposal continues to be very 

popular amongst fishermen. 

Due to the low status of the stocks, there is a significant amount of excess capacity in floating processors that can be purchased at rock bottom prices. Under 

this single-pie proposal, harvesters could form large fishermen’s cooperatives 

and either purchase a floating processor, or contract with one or more processors or catcher processors, to custom process their product. Under custom 

processing agreements, fishermen retain ownership of the product, and they can 

then market it themselves, enabling them to extract more rents from the fishery. In this scenario, harvesters would have the power to vertically integrate 

the industry, bypass the existing processing sector and disrupt the economics 

of the five communities that are dependent on established processing facilities. 

The reality of the outcome of this alternative proposal’s effects on efforts to 

maintain the historic revenue sharing ratio between the harvesting and processing sectors, and to maintain stability in coastal communities, contributed 

heavily to the development and adoption of the crab rationalization plan’s threepie quota share program. 

• The uniqueness of the crab fisheries cannot be overemphasized. They have the 

only processor shares and have the only regional delivery community protection 

requirement, as well as the only harvester-processor arbitration process to insure pricing fairness. 

II. Transcript of the testimony of the CRAB Group, Linda Kozak, Gordon Blue, 

Terry Cosgrove, Richard Powell and Jeffrey Stephan to the North Pacific Fishery 

Management Council on October 8, 2000 in Sitka, Alaska. At this time the CRAB 

Group requested (1) that the NPFMC begin a full BSAI crab rationalization analysis; (2) formally establish a BSAI crab rationalization committee; (3) direct the 

committee to assist the Council staff to identify the elements and options of an analysis for BSAI crab rationalization. 

In response to a question from a Council member during this testimony Ms Kozak 

stated on behalf of the CRAB Group that it was their belief that the Council is the 

only forum for developing an analysis for a program for crab IFQs, or crab co-ops. 

See the attached notarized transcript in electronic format, pdf file, from 

October 8, 2000. 

78 

ATTACHMENT


520BASI1.eps

NORTH PACIFIC FISHERIES ~AGEMENT COUNCIL 

BSAI CRAll co-OP AND BUY-SACK DEVELOPMENT 

October 8, 2000 

Si tka, Alaalta 

5 

Mr. Santon, Chairman, North Pacific Fisheries Managomont council 

Ms. Behnlcen 

6 Hr . .Aus.tin or. Fluharty 7 Kr. O'Leary 

Kr. Bundy 

a Mr. Dutty 

Dr. Balsiqer 9 Mr. Samue lson 

10 

11 

1) 

14 

15 

16 

18 

19 

20 

21 

23 

24 

25 

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110 I SMU t907JZ)7·0S7'Z/ha ll'4·191:2 

AIICIIOIACC, AUS(.l ~01 
79 


520BASI2.eps

l. 

2 LINDA KOZAl< 

GORDON BLUE 

TERR't COSGROVE 

6 RIOWU> I'Q.'EU. 

1 

8 

10 

11 

12 

13 

15 

16 

18 

19 

21 

22 

23 

25 

TABLI Ol CON1E'NI8 

1 t c 9 y t t l I ' 9 ! lEt$ 

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520BASI3.eps

8 

9 

10 

12 

P R 0 C E Z D I N G S 

C~IR BENTON: Ne have four individuals that 

wish ta comment on item D-2, crab manaqement. First up is 

Linda Kozak and company. After Ms. Kozak is Gordon Blue. 

MS. XOZAJ(: Good morning. Thank you, Mr. · 1 

Chairman. For the record, my name is Linda Kozak, and Yith me j. 

today is Dick Powell, Terry Cosgrove and Gordon Blue as well as 

Jeft stephan and Lynn Walton should be here as well. 

W~'re asking Helen to hand out an item that we 

originally itemized as under aqenda 0-3, and we're aski ng now 

that we address it under D-2(b), and then when you qet to your 

13 staff tasking, that hopefully thiG it~· will be recallad. And 

14 I will very briefly read the statQment, and then a few 

15 comments. 

16 Number 1. To begin a full BSAI crab rationalization 

17 analysis 'by initially tasking the council's stat! to develop a 

18 discussion paper that outlines the elements and options to be 

19 considered in the full an~lysis, and to present this discussion 

20 paper to the council at the February 2001 meeting. 

21 Number z. Formally establish a BSAI crab 

22 rationalitation eommittee4 

23 And, number 3 , direct the committee to assist the 

24 Council staff to identify the ele~ents and options of an 

lS analysis tor BSAI crab rationalization • 

• & S COU!T IIS',Ot lfi iS 

1~0 If S!UU 

c007l217•0SnJfax U4·~&a 

.UCIICUC£. AUS.U 99SO\ 
81 


520BASI4.eps

Kr. chait1DaJ1. tha paper t.'u.t is attaChed to this 

stateaent are the vessels who hav~ contracted. with me ~o 

present the c:r&l3 rationalization issue$ to you t oday. 

4 . 

Just a brief history. In Octob<Or of last year 1ndU•try 

came to the Council and asked the North Pacific council to 

beqin work on rationalizin<J the crab fishery. At that tir..e we 

were talking about co-ops. And l<avin O'Leary and Dave Fluharty 

volunteered to serve as tacilitators to i ndustry meetinqs that 

would be held. to boqin f lU$hlng ollt options that miqht be 

10 neod.e<l to be revieved by the council in an analysis. 1\nd we 

11 1 aat nearly •onthly until this sprinq when a f'onnal a<1 hoc 

12 coto.~~ittee was d·ecided that it was needed, because thttre were 

13 just too =any people co•ing to the meotinq:~. Xt wa& very well 

14 attended, very high intc.rest in the c:rab fleet. And the 

15 consensus amonq the crab fleet at that time, and still is, 

16 soTOethinq ne d~ to be done. 

17 Whe.n the ad hoc coui ttee wa.s approved by members ot 

18 indue try, there were toeveral addi tions to k!'lake sura that 

19 everyone's views were represented, and. with alternates to the 

20 individuals, thare were over 20 people that sorved on this 

21 cou.ittee. And the co~U~itiee initially beqan to addross 

22 e l ements that m.ig'ht be needed to be reviewed in analysis. 

23 1'he la$t co\lple of •eetin9s the coT.IJ'littee 1DOVG:d into 

2-4 attemptinq to reach a consensus acrreement on a laqislativo 

25 pael<ago , or an aqreeae:nt betveen ~r~tuabe.rs of industry to 

• & I SOUtt lC,O!f£tS 

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520BASI5.eps

finalize something very quickly for the crab industry. That 

vas not a co-op, that was more of an IFQ that was being 

a d dressed, as the st3ff report i ndicated t o you. 

Many of us were not c omfortabl e with agreeing to 

different allocations or issues that were being addressed in 

this arena without an analysis. We wanted to see what .tho 

potent ial impacts might be. That's why we're here today. We 

8 believe it's time for the council to begin formally putting 

9 this i nto the cycle, and beqin somethinq with relatioh to crab 

10 rationalization. We don' t know it co- ops woul d be best, we 

1~ don't know if IFQs would be best, we don't know what kind of 

12 systell\ would work bast for thi.s f l eet, but we do know that we 

13 need somethi ng in order to provide some relief. 

5 

14 I n that regard, those of us who are here have a l so been 

15 very actively work ing with the buy-back e f fort as well, and 

16 we'd be happy to answer any questions in regard to the status 

17 of that, if you woul d like to aSk those. 

18 But today what we are going to ask you to do is. to 

19 fornally establish a eowaittee,. and we're goin9 to ask you to 

20 please put on your staff tasking soAet hing that we believe is 

21 doable between now and February, and that is for elements and 

22 options to be considered for analySi$ and to be included in a 

23 discussion paper to tho Counci l at the February meeti nq. We' d 

24 like to ask tor a !ul l-bl own analysis to begin at this ~eeting, 

25 but we do recognize time constraints and other constrai nts on 

10. $1t(!T 

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1 the staff with expense and people moving around, so we're qoinq 

to ask that at least you get started, and it anyone else has 

any comments here? All right. We'd be happy to answer any 

questions, Mr. Chair. 

5 CHAIR BENTON: Okay. Thank you very much. Any 

6 questions? Mr. O'Leary? 

MR. O'LEARY: Linda, then is it my sense that 

8 it -- the folks that are at the table nov feel that the council 

9 is the better forum to -- or is the appropriate foru~ to 

10 develop An analysis and for a program for lFQs, or crab co-ops, 

11 if that would ..... 

12 MS. KOZAK: Well, Mr. Chai~~n, Mr. O'Leary, 

13 i t's our belief that it's the only forum. 

14 MR. O'LEARY: Okay, 

15 CHAJ:R BENTON: Mr. Bundy? 

16 MR. BUNDY: Thank you, Mr. Chairnan. Linda, 

17 you're asking the Council to appoint a co:mmi'ttee now. I mean, 

ra very -- now. Do you have any comment5, does the qroup have any 

19 comments as to wbat that committee ought to look l ike in terms 

20 of who's represented? 

21 MS. KOZAK: Wall, Mr. Chairman, Mr. Bundy, 

22 think that it's important to recognize that the ad hoc 

23 committee has really fleshed out a lot of things, and that 

24 but it's just very bulky, and I think maybe the committee 

25 should be streamlined a bit. And the co~mittee has not ever 

110 11 sunr c007>277·GSnttu 214 6~82 

AMC-II()IAG(. A\A$~ 99S01 
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520BASI7.eps

1 been formally task ed with anything, and so we would very much 

2 like the committee t o be answerable , if you wi ll, accountable 

to the Council with regard to specific tasking, and I think 

4 that it would be very easy to streamline the committee and 

5 still allow tor full representation. 

6 CHAXR BENTON: :'1r. Penney? 

7 

7 MR. PENNEY: Mr. Chairman, I'm prepared to make 

8 such a motion as contained in p~int 2. I move that we formally. 

9 establish a BSAI .. .. . 

lO CHAIR BENTON: Mr. Penney, that's out of order. 

11 We've got to go through public comment and go through ..•. . 

12 

13 

14 

15 

16 

17 

18 

19 

20 

MR. PENNEY: Beforehand? 

CHAIR -BENTON: . .•... all this before Ye ....• 

MR. PENNEY: Okay. 

CHAIR BENTON: ..... do any motions. 

MR. PENNEY: Can you co~e back to De maybe? 

CHAIR BENTON: don't know. 

MR. PENNEY: Okay. 

CHAIR BENTON: Mr. Samuelson? 

MR. SAMUELSON: Thank you, Mr. Cbainoan. I 

21 guess to any of you sitting at the table, tor this council to 

22 develop a -- start down the road of rationalizinq t he crab ~ 02 2001 10'51 90?2?49992 FI'IGE. 07 
85 


520BASI8.eps

1 industry shows up a the Council and says rationalize tha 

fishery. And as o Council m~er, I'm qettinq some real ~ixed 

signals sitting up here from the crab industry. And the other 

thi rd is out trying to get a buy-back program that supposedly 

8 

S was approved. So na ~ Council member, you know, a~ an industry 

6 that tbeir stocks are depressed and has ~ajor conservation 

7 problems, and over capitalization, the crab industry is 

a definitely shipping those Council member a contusing siqnal. 

They're all screaming for help1 and you're all going in 

10 different directions asking for help, so I hope that you folks 

11 sitting at the ~able COUld p!ay a ro!e in con soli4atlnq tha 

12 crab industry's thoughts and representation. I guess it's more 

lJ ot a statement, but I'm asking you quys as the i ndustry to giv~ 

14 this council member a band. 

15 MS . XOZAK: Mr. Cbairman, Mr. Samuelson, that's 

16 a very pertinent point, and that's why we're here today, 

~7 because without an analysis, we believe that it will be very 

18 difficult to reach a consensus on anything. And that'& why we 

19 need to go through the Council process and have the analytical 

20 options addressed so that we know what we're going to be seeing 

21 in some reqard. So I agree. 

22 The one thing that I think is very positive is that the 

23 industry unanimously aqrees that something needs to be done. 

24 And I thinX that's exactly why the council is the best forum to 

25 do that. 

e10 If $U.tET (~1)?n .. osn,, .. >74-aw 

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520BASI9.eps

~ I!R. SAMUELSON: Thank you . 

HR. IIRLERING: Kr. Chairman? 

CHAIR BENTON: Kr. Urlerinq (ph). 

MR. URLERING: Yeah, I would just observe that 

~ it•s certai nly vithin tha purvie~ of this Counci1 to 

6 rationalize the crab fishery. I think it's. an impossible task 

to rationalize crab fishermen. 

MS. KOZAK: We're very rational, Mr •. Url erinq. 

ONIDENTIFI£0 VOICE: Very qood. 

10 CHAIR BENTON: Any further questions? Okay. 

11 Thank you, very ~uob. Cordon BluG, you miqht a$ well j ust stay 

12 there. I'm assuming you're testifyin9 on somethinq different? 

13 

l4 

15 Childers. 

16 

MS. KOZAK: Me's got to get his notes. 

CHAIR BENTON: After Mr. Blue is Dorothy 

MR. BLUE: Thank you, Mr. Chairman. My nallle' s 

17 Gordon Blua. I'd like to speak briefly about I think it's D18 2 (a) . 

19 Obviously the rati~na i:ation of fisheries has ~ost of 

20 the att ention of most of the crab industry. We need the he l p 

21 and support of the council, however, in continuing to rebuild 

22 the fisheries. We have often experi enced i n this Council 

23 t~ily system the feeling that the crab fisheries are a sort of 

24 a stepchil d, and that f eeling has come hoMe to me today as I 

25 l istened to the plan team report. Obviously with a lot of the 

810 .II STtEfT 001)27'1 bHVh~ 27t-eon 
87 


520BASI10.eps

10 

management of the crab fisheries bainq done by the Board ot 

Fish, it is ea~y to take the view that they're doing the job, 

and that's well enough, and we should leave well enough alone. 

That's what I got from the pl~n team report, that nothing naeds 

5 to be done at this point. 

6 I don't think that's true. I think that tbe plan te~~ 

perhaps needs some help in focusinq and that you can provide 

· 8 tbat help. I would read from tbe pla.n tea111 report, in the 

9 minutes on paqe three, the top of page three, the plan team 

10 lists their comments. co~ent one deals with the PPC· limits. 

11 Th& final sentence of that says, however, the t eam urqcs 

12 continued monitorinq of trawl b~r catch, and would have concerns 

13 necessitating a revisitinq ot the PFC li~it if the by-catch 

14 levels increase. 

15 Item three, the tinal sentence, the team wi ll continue 

.16 to closely monitor by- catch and would r aise conceTns should by-

~; catch increase at low population sizes. 

~8 And item four ·deals with modeling, which I'll deal with 

19· in a moment. 

20 I hava a copyri9hted fishery information sheet, a 

21 newsletter, that shows that as of 8/19 the trawl by- catch in 

22 the so-called seal (ph) BLZ, which is that area in which 

23 repeatedly by-catch has been capped, tor 2000 Yas 1,053,000 

24 animals. In 1999 that number was 438. 000 animals. That is a 

25 sUbstantial increase. I have also seen a more recent edition 

1 I c o y tr !EPO!TE!$ 

a1o w snur (90)')Zn·osrv~t.x l14-~!l 
88 


520BASI11.eps

ll 

ot this newsletter which places the numbar more to date at 1.2 

lllillion ani111als within that zone . I would 111aintain that that 

is a substantial increase, and I would like you to ask the plan 

team to look at that, and to at least exa~ine what thG factor~ 

·are that have lead to that drastic three-fold increase in bycatch within that zone. 

7 Finally, I would ask you to look at the 1996 industry 

8 agreement which you had before you in JUne again as a reminder, 

9 on -- that placed these caps and set ~he zone for the by- catch 

10 limitation. And it says, caveats and reco~cndations number 1. 

11 If area 5~7 by-catch excoads Soo,ooo snow crab in any one year, 

12 the council should consider 111ovinq the southern boundary of the 

13 snow crab by-catch limitation tone from 5630 to 5600. would 

14 like you to please request that at least that 111uch data 

15 analysis be done to identify what the 517 by-catch is year by 

16 year since 1996, so that we can look at it with respQct to this 

17 proviso, so that the council might reconsider should that 

18 number have ever reached that threshold. Thank you. 

19 CHAIR BENTON: Tbank you very .,uch. /Uly 

20 questions? Okay. Thank you, Gordon. Dorothy Childers? After 

21 Ms. Childers is Steva Minor and erowd. 

22 (This portion not requested) 

2 3 NOTE: TE.RRJC COSGROVE A)ID JEn'REr STEP!Il\ll DXD NOT SPEAJt ON TEIS 

24 TAPE, THE OTHER SPEAXJ!RS WERE DOROTHY CHILDERS AND A PORTION 

25 OP STEVE MINOR'S TESTrHONY. 

l lIt COUitl lfPOitttl$ 

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1 

5 

6 

7 

10 

11 

12 

13 

14 

15 

1 6 

17 

18 

19 

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2J 

24 

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12 

C E R T F X C A T ? 

UNITED STATES OF AMERICA ) 

) ss STATE OF ALASKA ) 

I, Meredith L. Downing, Notary Public in and for the 

statQ of Alaska, residing at Anchorage, Alaska, and Electronic 

Reporter for R & R Court Report~rs, Inc., \lo hert=by cectity: 

THAT the foregoing pages, numbered 1 through 11, 

contain a full, true and correct transcript (excerpt) ot 

proceedinqs of the North Pacitie Fisheries Management Council, 

transcribed by me to the best of my knowledge and ability from 

a tape identified as follows: 

SEAL 

56/11:00-11:30/NPFMC 10-08-

00/copy 

Dated at Anchorage, Alaska, this 2nd day of May, 2001. 

Signed and certifi ed to by: 

R & 1 toutr t C ,o t rt -as 

810 M SlUU <907)1n·oSn/Fu Z14· 69&2 

.axe ~. ALJ.S(A met 
90 

Senator STEVENS. Well, thank you very much. 

I think the issues are before the Congress very succinctly here 

now. It would be my intention to call upon each of my colleagues 

in the order in which they came to ask questions. And I hope we 

are in agreement we will limit ourselves to 10 minutes on the first 

round. 

I will recognize you, Senator Murray, for any questions you 

might wish to ask. 

Senator MURRAY. Well, thank you very much, Mr. Chairman, 

and I know time is short, so I will limit myself to just a couple of 

questions, and let me start with Mr. Thomson. 

Can you explain to the Committee the differences between the 

pollock fishery and the crab fisheries which led the Council’s crab 

committee to reject a plan that simply duplicates the AFA? 

Mr. THOMSON. Senator Murray, that is a rather complex, but 

very important, question. It will take me a minute, but I will give 

it my best shot. 

The American Fisheries Act, as I mentioned earlier, we did take 

a very hard look at duplicating that model, since there was a firm 

legislative precedent. However, the pollock fishery, as I mentioned 

in my testimony, is a single-species fishery. There are very close 

alignments between individual fishermen and single processors, not 

multiple processors, very close, established relationships, a number 

of which there were even contracts in place. The fishermen and the 

processors agreed to a closed class for both the fishermen and the 

processors. That was point number one. 

Second, they agreed, in the legislation, and this particularly applies to the onshore sector, to statutorily bind themselves, the fishermen, to a single processor for 90 percent of his deliveries. So that 

was the basis for, particularly, the onshore American Fisheries Act, 

the model that the crab industry took a real hard look at. 

However, on the crabbers’ side, in looking at the AFA model we 

quickly came to—start to pull away from it, because the fishermen, 

a number of them, were very much opposed to closing a class of 

processors and to that sort of market restriction. 

We also, at that time, looked at the effects on the small processors. In other words, most of the fishermen—or a number of the 

fishermen had multiple markets, but their major markets were the 

large crab-processing companies, and if you look at the criterion 

which determines who your market will be, it would be the one 

that you sold the majority of your product to. The end result would 

have been the small processing companies, of which a number of 

them are price leaders, being disenfranchised in the program. They 

would virtually have not been participants in the program. So we 

had to shift away from the AFA model. 

One of the other things we looked at that was proposed, and discarded, was harvester IFQs with regionalization only. What would 

have been the outcome of that? The outcome would likely have 

been the pretty quick disappearance of several small companies, 

because larger companies would have bought them up or possibly 

bid the price up on crab to the point where smaller companies 

would go away. 

The other very clear outcome of the IFQ program with regionalization-only would have been we would have seen the harvesters 

91 

form into some major fishermen’s coops and then contract with a 

floating processor or two floating processors or some crab-catcher 

processes and essentially—although it would have been a great 

deal for the fishermen that I represent, the fact of the matter is 

we would have been able to totally bypass the processing sector of 

the industry, and there would have been devastating effects particularly on the Pribilof Islands. So that was another option we 

looked at. 

Then we looked at an option of buyback of the processing sector, 

but any rationalization solution of processors or fishermen requires 

restricting entry. And so to do a buyback, you, first of all, would 

have to close the class of processors and do a limited entry. 

So I know I am kind of going on a bit here, but there were some 

very important differences that made the AFA unworkable. 

Senator MURRAY. OK, thank you. 

Mr. Fraser, if Commerce decides against authorizing the process 

of quotas, what specifically would you recommend that the Council 

and that the Congress do? 

Mr. FRASER. Mr. Chairman, I think—and Senator Murray—that 

the Council has done a yeoman’s task in developing this whole program and 90 percent of the work they have done is pertinent to 

moving forward, with a traditional IFQ program absent a PQ element being contained within the program. So I think that is the 

starting point. 

As I mentioned in my testimony, I think there are some processor protections that are inherent even in the non-processor-quota 

portion of the program. The Crab Group does not object to 

strengthening those. And I think that the AFA does provide a 

model for moving in that direction. 

Clearly, you know, no two fisheries are exactly the same. One of 

the key differences between the two is that the amount of capital 

on the processing side, in comparison to the harvest side, in the 

pollock fisheries is much greater. The pollock fishery is much more 

capital intensive in processing than crab is, and thus the justification or more processor protection was greater in the pollock fishery. 

And harvesters have not moved, as Arni pointed out, near as much 

in the pollock fishery as they do—because you do not have—and 

you do not have turnover processors. You have got a small number 

of processors that were essentially closed class even before the AFA 

was passed. And so it was easier, I think, for harvesters in that 

fishery to accept a reduced amount of competition that was inherent in structuring the AFA, as long as there was some competition 

left in that market arena. 

In the crab fishery, we have seen 80 processors who processed 

crab during the last 10 years during the period of time the Council 

analyzed. Only 21 of the 80 would receive any processing quota at 

this point, and most of the processing quota is concentrated in the 

hands of just a half a dozen of those, and most of those are the 

AFA processors. 

I think you have to recognize that the AFA has, in and of itself, 

provided a large measure of protection for AFA crab processors and 

that the protection for the remaining processors is where it needs 

to be focused as the Council moves forward with the non-processor 

quota plan. 

92 

The sideboards that you, Senator Murray, and Chairman Stevens, included in the AFA, the sideboards on crab processing, gave 

the non-AFA processors more opportunity than they will receive 

under this plan. This plan actually awards the AFA processors 

more crab than the sideboard limit. I think that if you move forward with a non-processor quota plan, you ought to retain the 

sideboards that you have already included within the AFA to protect those remaining non-AFA processors. 

Senator MURRAY. Well, just a rough guess, how long would it 

take for the Council to finalize another plan if we were not to move 

forward legislatively? 

Mr. FRASER. Mr. Chairman and Senator Murray, the Council has 

an EIS that is prepared. At the request of the advisory panel, a repeated request to the advisory panel, we asked that they include 

in that EIS other alternatives than processing quotas. There was 

quite a bit of resistance to that, but, in the end, NOAA’s general 

counsel advised the Council that they must look at viable alternatives, including legal alternatives, and the IFQ system is currently a legal alternative. So the Council has a completed EIS for 

an IFQ system, as well as an EIS for the processor quota system. 

So I think they could move forward with a legal IFQ program 

faster than by waiting for Congress to work through all the issues 

relating to authorizing processor quotas. And I think, as you have 

heard from Mayor Kelty and others—or it used to be Mayor 

Kelty—— 

[Laughter.] 

Mr. FRASER. But everyone in this room, I think, agrees for the 

need to move forward. 

Senator MURRAY. Right. 

Well, Mr. Chairman, thank you. I know you have to move on, 

and I will submit the rest of my questions for the record, if that 

is OK. 

Senator STEVENS. Thank you very much. 

Senator Murkowski? 

Senator MURKOWSKI. Thank you, Mr. Chairman. 

There is obviously a lot of disagreement at the table, but I think 

it would probably be fair to say that the reason we are here, we 

are looking for, within the industry, to provide safety within the industry, we are looking to sustain the resource, and we are looking 

to provide the protection, the economic stability, for the communities themselves, the coastal communities. And we have heard 

from both Ms. Freed and Mr. Fraser that your concerns are that 

the communities are not protected. 

What suggestions do you have? How can we address that component? 

Ms. FREED. I believe you have heard from Mr. Fraser that the 

plan the Council has before it, without PQs, provides quite a bit 

of protection. There is a regionalization component to the plan, 

which provides protection for communities. And we think that component does a very good job protecting communities. 

What is important to Kodiak is to provide the ability for our 

plants to compete. Kodiak has processed Bering Sea crab for over 

30 years. The two years selected for the PQ portion of this program 

selects 2 years in which people really could not logistically bring 

93 

their crab back to Kodiak, even if they wanted to, because of fish 

and game regulations. 

We want the opportunity to compete, to have crab come back to 

Kodiak. And to do that, there needs to be a competitive market for 

the harvesters. We believe that the plan, absent of PQs, allows that 

to happen. 

Senator MURKOWSKI. Thank you. 

Mr. Duffy, has there been an economic analysis or an economic 

impact study done that has assessed or reviewed the impact to the 

coastal communities on the regional Governments, or, for that matter, the State tax revenues? And if there has not been one done, 

will there be one conducted as part of the EIS? 

Mr. DUFFY. Through the Chair, Senator Murkowski, there was 

extensive economic analysis conducted, community profiles developed, all kinds of information was generated through the Council 

crab rationalization process. I am not sure of the specific comment 

the representative from Kodiak made about the state not analyzing 

something, but through the Council process and leading to a Council conclusion in June, there were extensive community profiles developed with all sorts of economic analysis of the impacts of the different alternatives. 

So the analysis has been done through the Council process, Mr. 

Chairman. 

Senator MURKOWSKI. Go ahead, Mr. Chairman. Thank you. 

Senator STEVENS. Senator Cantwell, do you have any questions? 

Senator CANTWELL. Yes, thank you, Mr. Chairman. 

Nobody has mentioned the 100-million-loan buyout program, and 

I know that it is in the rulemaking process. What effect do you 

think that that will have on this plan? Should we wait until we see 

that rulemaking? Do we think it is actually going to reduce the 

capital investment that has been made? What are the thoughts of 

the various panelists? 

Mr. THOMSON. A good question, too, Senator Cantwell. 

The crab industry eagerly awaits the final implementing regulations for the buyback program. And we are conservatively estimating that we could reduce the over-capitalization somewhere 

around 20 to 25 percent, or reduce capitalization 20 to 25 percent, 

going into this rationalization program. And the low-cost loan 

would actually result in a redistribution of that quota share in a 

proportional manner to all of the harvesters that stay in the fishery. And so a lot of folks are really looking forward to it. 

Senator CANTWELL. Do you think it is essential to making this 

program work? 

Mr. THOMSON. I would not say it is essential, no. We think it 

would definitely be a very positive benefit, though, stepping into 

the program. 

Mr. FRASER. Mr. Chairman, following up on that, the Crab 

Group, as is implicit in our name, Crab Rationalization Buyback 

Group, has long supported the buyback program and is very grateful for the efforts of the Chairman and Senators getting that program through, and there has been a lot of hard work to make sure 

that it moves through a NMFS process and ends up being implemented. But we are, as I understand it, on the verge of implementation, and once that happens there is a very expeditious process 

94 

that is laid out in regulation that could result in real benefits in 

next season, in fact, if all falls into place on the time line, to the 

fleet. 

So I think the buyback program is good. It should move forward. 

The time line for implementation of rationalization program is unknown at this point, whether or not Congress authorizes processor 

quotas. So I think there are immediate benefits there, and we 

should move forward with it. 

Senator CANTWELL. And, again, no effect on this decision? 

No—— 

Mr. FRASER. I think they are standalone issues. 

Senator CANTWELL. OK. 

Anybody else? 

Mr. Fraser, you mentioned in your testimony that you thought 

there was better protections for communities that might be implemented, or better binding arbitration. What, specifically, were you 

thinking of? 

Mr. FRASER. Mr. Chairman and Senator Cantwell, on the community-protection side, I think, as Ms. Freed alluded, the community protections that were part of the trailing amendments were intended to protect communities from the impacts of processor 

quotas. If you do not go down that path, those sorts of community 

protections are not needed. And, as she said—I will leave her statement stand on the community-protection side. 

On binding arbitration, I have submitted a much more lengthy 

comment in my written testimony, because it is largely a technical 

kind of issue and there are a lot of nuances. But Arni was correct, 

there were two basic models that came out of the Committee. Most 

of the harvest groups supported a fleetwide model, and that model 

would create a pre-season process where one arbitrator would look 

at information from all processors and all harvesters and establish 

a fair, minimum price which would become the outside option for 

harvesters to then negotiate their contracts with processors. And if 

they can bring more to the table by delivering at specific times that 

enhance the size of the pie, they may share those additional benefits differently than that minimum price. 

The last best offer arbitration process that the Council adopted 

creates a segmented series of arbitrations, where the arbitrators do 

not necessarily communicate with one another. They happen in isolation. The arbitrator does not have the ability to cross check the 

information from a processor whose arbitration he is conducting 

with information about an arbitration with a processor that is 

being arbitrated by somebody else. And as a result, you do not have 

good information. And I think that it is very critical that the information base for any arbitration program be as good as possible. 

And right now, under the Magnuson-Stevens Act, NMFS is prohibited from collecting economic data from processors. The first 

thing you would need to do is make sure you change the Act to 

mandate the collection of the relevant economic data and make 

that data available to the arbitrator, because the Act further restricts the ability of NMFS to provide economic data that it does 

collect to any outside party. So it is essential that the arbitrator 

have access to the full amount of information. 

95 

But the key difference that—the model that Arni’s group supported and ended up being supported by the Crab Group and others as an attempt to compromise was called the Steele amendment. 

Mr. Steele is here. But it attempts to simulate the situation we 

have now, where you have a fleetwide price-formation process that 

establishes a price, and everybody has to meet that minimum. A 

processor cannot come in and say, ‘‘I have got excessive costs, and 

you have to pay those costs for me.’’ In the status quo, that does 

not happen. Once somebody establishes the price, all the other 

processors step up and meet it. And we support that concept as 

being essential to an arbitration process. 

Senator CANTWELL. So, Mr. Fraser, you are saying you are not 

out-and-out against processor quotas if what you call a ‘‘fleet 

model’’ of an arbitration process would be in place? 

Mr. FRASER. Mr. Chairman, Senator Cantwell, I think if we go 

down the path of processing quotas, it is essential that we have a 

good binding-arbitration process to help ameliorate the fact that 

you are segmenting the market—— 

Senator CANTWELL. I have that point, but would you support a 

plan that had that model? 

Mr. FRASER. I believe the concept of processor quotas is fundamentally anti-competitive and bad public policy. What I said in 

the advisory panel early on in the process is, if somebody comes 

forward with such a model that really takes the place of competition, and members of the Crab Group, members of Tom Casey’s 

group, (the Fisheries Conservation Group), the Kodiak Association, 

(United Fishermen’s Marketing Association), the Alaska Fishery 

Market Association—(the group that does crab marketing and bargaining)—if they support it, I would put aside my personal objections to a processor quota and remove myself from this process. But 

those groups are not endorsing the package that the Council has 

put forward for binding arbitration. Some members of those groups 

believe that a different ratio of A and B shares (perhaps 50:50 or 

70:30), combined with a fleetwide binding arbitration model that 

provided a minimum price as an outside option, would simulate a 

competitive price. The position of the Crab Group is that processor 

quota is bad public policy and that it will not be possible to open 

Pandora’s Box in just one fishery and then prevent its spread to 

other fisheries. 

Senator CANTWELL. Well, if I could, Mr. Chairman, Mr. Thomson, 

what is wrong with a fair minimum price set by an arbitrator as 

a beginning point? 

Mr. THOMSON. Senator Cantwell, you say what is wrong with 

the—— 

Senator CANTWELL. What is wrong with the concept that Mr. 

Fraser said in having one arbitrator have analysis—basically having an information database that has all the information and setting what is a fair minimum price so that there can be a starting 

point as a way to protect them. We often run into this as we are 

trying to sell our agricultural products abroad for countries who do 

not want to open up to our product. They just want to know what 

the minimum price is going to be so that they know that they are 

not going to get taken. Then everybody else comes in to negotiate 

the price. 

96 

Mr. THOMSON. We do support that. We fully support it. And that 

concept is implicit in the Steel amendment. And the Council, in its 

recent letter to your distinguished Members, states that if there is 

a problem with the process, the arbitration process that they have 

approved as of April of this year, that they will immediately address that, take a look at that process, and implement this minimum fleet-wide arbitration process. They will replace the existing 

one with the minimum, fleet-wide. 

Senator CANTWELL. So that is a back-up and—— 

Mr. THOMSON. It is a back-up—— 

Senator CANTWELL. I do not want to—I know that I am—I do not 

want to—I want to give time to the Chairman, yield my time back, 

but I—Mr. Fraser, you are shaking your head that that is acceptable process, or no? 

Mr. FRASER. It is not an acceptable process. I think Arni and I 

agree that the Steele amendment is better than what the Council 

adopted but it needs to be in place on day one. 

Senator CANTWELL. OK. Thank you. 

Thank you, Mr. Chairman. 

Senator STEVENS. Well, thank you very much. 

I think we ought to put our eyes back on the goal that we sought 

to achieve with the original Magnuson Act, and that was to protect 

the species, to assure the reproductive capability of the North Pacific was to be the primary source of fisheries for the United States, 

that we wanted to assure the survivability of the species. We really 

did not envision protecting fishermen—you will not like that—or 

protecting communities. We were protecting the fish. 

Now, I still think we have got some ways to go to assure ourselves that we are still on that line. I think it can be achieved 

under the recommendations of the Council, but I am worried a little bit about some of our powers. It is my understanding the Commission will still establish seasons, right? They will establish annual quotas, right? And this formula will apply to their annual actions. 

One of the things we have to be sure, that we do not get ourselves in the position that some Federal court somewhere is going 

to start regulating the fisheries off the Alaska coast. I think that 

that would be—a delay of a year or two in litigation over this plan 

would be destructive to everybody, including the fishery, I think, 

because of the problems. 

Do you all agree that—not agree, but would you care to comment 

upon a follow-up to Senator Cantwell’s question? Do you envision 

that we have the authority now to condition the approval of this 

change in the law upon compliance with the recent letter that was 

received by us concerning the arbitration procedure? Do you understand? 

Mr. FRASER. Mr. Chairman, I will rush in, I guess. 

Senator STEVENS. There is a letter on file, as Mr. Thomson said, 

saying that the Council would consider this change. And, in effect, 

it is a tacit admission that perhaps the procedure for arbitration 

is not sufficient to carry out their original intention, and they indicated they would revisit it. 

Mr. Duffy, do you believe we—— 

Mr. DUFFY. Thank you, Mr. Chairman. 

97 

Senator STEVENS.—should consider making our action here conditioned upon the follow-up to that letter? 

Mr. DUFFY. Mr. Chairman, the discussion was about binding arbitration. It was, indeed, very complex. Counsel, as well as the industry, spent 6 months trying to sort this one out. It was very difficult. In the end, it a 6–5 vote was made by the Council, that is 

the binding-arbitration process. It is a pre-season non-binding price 

formula. You go through the season, and if you cannot reach agreement between the harvester and processor, there are provisions for 

binding arbitration. 

This concept of the Steele amendment is incorporated into the 

Council motion in that what the proponents were trying to do in 

the Steele amendment can be looked at by the nonbinding arbitration process prior to the start of the next season to get a feel for 

how that works. 

If the question is, ‘‘Can Congress change what the Council has 

recommended on binding arbitration,’’ the answer is yes. 

Senator STEVENS. We never have. We have never done that before, because we created the Council with the idea that regional 

management was better than management from Washington. But, 

strangely, I hear some of you saying you would rather have some 

management from Washington now. 

[Laughter.] 

Mr. DUFFY. Mr. Chairman, if I could respond to that. I do not 

want that to be attributed to me because I am a big supporter of 

the Council process and I think we have done a very good job shaping a very difficult program. 

What I was suggesting is the binding-arbitration discussions and 

the vote were very, very close, and there were a lot of very difficult 

concepts for the Council to wrestle with. And we would not be the 

first to admit—or the last to admit, that we were, you know, experts in binding arbitration. It is a subject where a lot of attorneys 

make a living. So it was a complex issue. 

Mr. FRASER. Mr. Chairman, to follow up on that, the Council— 

actually NOAA General Counsel has sent a letter to Department 

of Justice, the Antitrust Division, requesting some bounds, I think, 

on what constraints they will bump up against in setting up different binding-arbitration programs. I concur with Mr. Duffy, the 

M-S Act process under which you delegate authority to the Council 

for managing fish. However, we would be stepping into new territory here if you start delegating authorities to councils to manage 

markets. And it is unclear at this point how broad of authority you 

would have to grant to the Council to give them the ability to 

change horses from one system of binding arbitration to another if, 

in fact, the system that they have identified at this point does not 

work out. 

And so any Council action to deal with a flawed arbitration program will not be final. Prior to review they will wait a year until 

they see the results. Fishermen will be described as coming to the 

Council whining for a change, so they might want to see 2 years 

of results. And then there is an analysis process, and it takes a 

year for the Council to work through its process and then 6 months 

for NMFS to implement things, assuming the fix is within the 

scope of authority Congress might grant. So we are looking a numVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00101 Fmt 6633 Sfmt 6601 S:\GPO\DOCS\32434.TXT JACKIE
98 

ber of years down the road. If the effects are seriously negative, 

they may be irreversible. That is the concern. 

So from our perspective, as harvesters, we would like to see a 

binding-arbitration program in which we have confidence clearly 

built in ahead of time before you go down any further on the path 

of authorizing the processor quotas. 

Senator STEVENS. Well, the difficulty I have is I think that the 

Council has responded to an act of Congress that has already been 

passed. And you are requesting, Mr. Fraser, that we amend our 

own action in seeking to have the Council make this determination. 

I am interested in your comment concerning the antitrust provisions. That has been one of the worries that has been raised here 

in this Committee. And I am fearful, again, that should this be 

taken to court on the antitrust concept, we are liable to find a court 

managing the fisheries off our coasts. I want to make sure that 

does not happen. And if the antitrust provisions, if there is a decision that this is in violation of antitrust, I want to make sure it 

is returned to the Council to manage this fishery and not kept in 

some Federal court. 

But, beyond that, I am reminded of the time I spent with former 

Secretary of Commerce Mack Baldrige, when he was still with us, 

and he was very interested in the king crab, and he taught me 

about the way king crab travel across the ocean floor. He had a report that one of you issued concerning the pods, that they are 40 

and 50 feet high, and how they travel so far. 

It leads me to this question. What assurance is there that when 

a harvester comes to a processor, that the processor will be open 

under this proposal? We have a processor share, and you must sell 

to a processor that has part of that share. But if you are the harvester, and you come in when the processor that you are obligated 

to deliver to is closed, where do you go? Where do you go, Mr. 

Thomson? 

Mr. THOMSON. The way the program is designed is there is—90 

percent of the processing shares are allocated to certain processing 

companies. But you have to match up with one of the companies. 

If a company is closed or its quota share is filled up with other harvesters, he has to go someplace else. But there will be—there is 

somebody there to match up with. 

Senator STEVENS. But it has to be someone within the 90 percent, right? 

Mr. THOMSON. It has to be someone within the 90 percent. But 

we envision that this thing will operate similar to the AFA, that 

there are so many advantages to the fishermen joining coops that 

months ahead of time you are going to pair up into a coop, say, 

with another 10, 20, 30 boats. Fishermen will have to make decisions who is going to fish, who is going to tie up their boats, so that 

they can save money in order to make money. 

I do not know whether I am answering your question correctly, 

but we do not envision this becoming a problem. 

Senator STEVENS. Do you believe that the processor holding part 

of the 90 percent shares has an obligation to remain open to receive the harvesters’ product when it is brought to the shore? 

99 

Mr. THOMSON. Yes, I believe he has an obligation. I mean, he is 

there to be in business and to make money. In order to do that, 

he has to contract and receive product. 

Senator STEVENS. Let me tell you, I am sure you remember that 

I had an unfortunate invasion into this process when we commissioned the Lady Anne back in 1980, and that was one investment 

that I had—the only investment that I can recall that I had to buy 

my way out of. 

[Laughter.] 

Senator STEVENS. This is not a business without great financial 

risk, and I am worried about what happens to processors under 

this proposal when there is such an enormous share allocated to 

certain processors with no chance of entry into that circle at all in 

the future. 

Now, I want to make sure I understand this, now. Annually, the 

allowable catch is determined. If it is increased next year by 20 

percent, the same processors get 90 percent. Is that right? 

Mr. THOMSON. That is correct, sir. 

Senator STEVENS. Mr. Duffy, is there any chance for a new processor to enter into this without another act of Congress? 

Mr. DUFFY. Yes, Mr. Chairman, there is 10 percent B shares. 

That is one option. So any harvester can process their B shares. In 

addition to that, any processor without processor shares can purchase processing quota from those that currently hold it if they 

strike an agreement. 

Senator STEVENS. I saw that, but does that apply when there is 

an increase in the quota? 

Mr. KELTY. Mr. Chairman? 

Senator STEVENS. Yes? 

Mr. KELTY. There are caps in place. If the quota goes up, then 

there are caps on the amount that the processors can process, and 

that would mean more poundage into the open-access B-share category. 

Senator STEVENS. The 10 percent is not 10 percent in that—do 

you agree, Mr. Duffy? 

Mr. DUFFY. Mr. Chairman, the way it works with these caps is— 

let us say, for example, opilio crab stock goes up dramatically. At 

some point, the 90:10 is diminished to 80:20, depending on the 

total amount of the stock there. With those caps in place, the 

amount of B share that anyone can process is increased when you 

hit those caps. 

Senator STEVENS. And does the Commission make that determination? 

Mr. DUFFY. Yes, that is part of the comprehensive Council plan. 

And on an annual basis, the Department of Fish and Game will be 

the total allowable catch, by species. 

Ms. FREED. Mr. Chairman, if I could respond to that, as well. We 

have looked very carefully at those caps set on the community protection committee, and we are very disappointed at how high those 

caps are set. We believe that they offer no respite from the 90:10, 

not, certainly, in our lifetimes. 

We would also like to mention that the 10 percent B share, open 

share, we do not believe that provides any leverage for the fishermen at all, and provides no leverage for communities. Ten percent, 

100 

frankly—even in open access right now, fishermen are told if they 

do not bring their crab to a particular plant, they do not have a 

tender contract. Or if they do not bring their crab to a plant, they 

are not going to have other opportunities with a particular processor. 

We have had public hearings where fishermen have testified before the city council saying, ‘‘We do not believe that there is any 

chance that that 10 percent will ever be able to be brought back 

to Kodiak, because the processors that we deliver our 90 percent 

to will hold us hostage.’’ 

Senator STEVENS. We can take care of that, Ms. Freed. I do believe most of the boats you are talking about are home-ported in 

Kodiak, and they certainly could bring back their last catch without any problem. I do not think—that is another antitrust problem. 

If you think that, for 1 minute, that a processor can demand that 

they get part of the 10 percent in exchange for an agreement to 

buy part of the 90 percent, you have got yourself an antitrust case 

right there. Now, that is not going to happen twice, I will tell you, 

because that is an antitrust violation. 

Ms. FREED. Well, Mr. Chairman, also the fact is, is that there is 

so little quota that comes to Kodiak because of the years that were 

selected that boats will not be able to bring their last load home 

as they have traditionally done. That is one of the things that we 

took to the North Pacific Council and asked them to consider, and 

they dismissed that out of hand. 

Boats will not be able to bring their last load home to Kodiak, 

even boats that are home-ported in Kodiak, because under the current plan, Kodiak gets roughly 3 percent of the quota. Traditionally, what comes home in a last load when there is open opportunity for the fishermen to bring their crab back, is 10 percent or 

more. 

Senator STEVENS. Well, what about that 10 percent? Why could 

not you get part of the 10 percent? 

Ms. FREED. The way the last-load home works is, most of them 

would have more onboard, potentially under these low tax right 

now, that is more than just the 10 percent. But what I am saying 

is, that is not equivalent to what the processing quota is and their 

ability to bring that product home now, because they have to deliver 90 percent of their product to plants that are not in Kodiak. 

Mr. KELTY. Mr. Chairman? 

Senator STEVENS. Yes, Mr. Kelty. 

Mr. KELTY. Yes, I have to take exception to some of Ms. Freed’s 

comments. You know, the Kodiak history through 1997 through 

1999, it is a little bit under 4 percent on red crab. It is not even 

1 percent on opilio. Part of my testimony that I turned in, I went 

back trying to find some history for Kodiak, and I went back all 

the way to 1990. 1990 to 2003 for opilio, 1.9 billion pounds were 

processed. Kodiak got 6.6, only 6.6 million out of 1.9 billion pounds 

of opilio went back to Kodiak. Years that—we had 300-millionpound quotas in the early 1990s. Less than a million pounds went 

back to Kodiak. On red king crab, in that same timeframe, from 

1990 to 2002, there was 126 million pounds of red king crab processed; 5.5 million pounds went back to Kodiak, about 3.8 percent, 

during that whole 10-year period. 

101 

It just shows you there is a lack of dependency on the Bering Sea 

resource going back to that community. This last opilio season, in 

2003, there was 197 boats fished. Only one vessel—it was a onetrip season, 26 million pounds of opilio caught—only one vessel decided to go back to Kodiak, with less than 100,000 pounds. On the 

king-crab season the year before, I think seven vessels went back. 

And these are one-trip seasons. 

Senator STEVENS. We have got to move on here. 

Senator Murray, do you have any further questions? 

Senator MURRAY. No, thank you, Mr. Chairman. 

Senator STEVENS. Senator Murkowski, do you have any further 

questions? 

Senator MURKOWSKI. I want to ask, really quickly, on this 10 

percent, the undesignated shares. You know, I understand the purpose and the intent and the leverage to the fishermen and hopefully to encourage new processors to come into the industry so we 

do not have the antitrust concerns. But in terms of how we got to 

the 10 percent—again, I guess, Mr. Duffy, this would be directed 

to you—what kind of an analysis went into that to determine it is 

a 90:10? How did we arrive here? Just very briefly, because I am 

sure there is more history than I want to know. 

Mr. DUFFY. Very briefly, through the Chair, Senator Murkowski, 

the concept of a 90:10 split was within a range of discussions that 

happened in the industry committee. That industry committee met 

for over a two year period. So that was really where you had a 

range of—I think it was 70 to 90 percent was discussed, if you 

went down the processor-quota idea. 

So in terms of the 90 percent and specifically where was it analyzed, I think the concept, generally, of processor-quota shares, 

their benefits to communities, the potential relationship impacts it 

might have between harvesters and processors, was all in the 

Council analysis. But I do not think you can take your finger and 

point to a specific point or place in the analysis where it says 90 

percent or 85 or 95 or 100. 

The Council had to listen to the industry committee, the advisory 

panel, the science committee, and had to come to a decision about 

what they thought an appropriate share of the rents would be 

through a program that protects communities, harvesters, and 

processors. That is where the 90 percent processor quota, 10 percent B share came from. 

Mr. FRASER. Neither the Advisory Panel or Scientific and Statistical Committee recommended 90:10. Nor did the crab industry 

committee appointed by the Council make a specific recommendation on the A:B ratio. However, ACC which supported the Committee report to the Council came to the June 2002 meeting recommending 80:20. The Council did not debate any alternative ratios, 

and so the record fails to identify why 90:10 is the preferred option. 

If I could just add, Mr. Chairman, that the one place that the analysis did deal with it was the two economists who were contracted 

by the Council, Professors Milan and Hamilton, and that analysis 

was qualitative. And the relevant quote was that, ‘‘as the ratio increases of processor quota to independent market quota, it is going 

to favor processors over harvesters.’’ And I think that is just—it is 

102 

almost intuitively obvious. But we are at a ratio that is clearly at 

the high end of favoring processors. 

Senator MURKOWSKI. And if I recall your testimony previously, 

you had said that that summation had been taken out of the—— 

Mr. FRASER. It had been removed from the main document 

and—— 

Senator MURKOWSKI. OK. 

Mr. FRASER.—put back in as an Appendix. 

Senator MURKOWSKI. Thanks. 

Thank you, Mr. Chairman. 

Senator STEVENS. Mr. Duffy, I have some other questions to ask, 

if I may. We are obligated to get out of this room by 4:30. 

Is there a commitment by the Council to monitor the crab plan 

and make any needed adjustments if one of the three pies or partners—harvesters, processors, or communities—are disadvantaged 

by some unintended consequence? 

Mr. DUFFY. Mr. Chairman, I think I would be appropriate for 

that. 

The Council, in their problem statement, talked about—and goal 

statement—talked about trying to achieve equity between the harvesters and processors. In developing this program, we put a number of measures in place we hope will do that. The program-review 

portion of it is review by the Council 3 years after implementation 

and then comprehensive review of the program 5 years after implementation and a commitment by the Council to modify the program, if needed or as appropriate, to ensure equity between the 

harvesters and processors. The Council is on record as taking that 

approach. 

Thank you, Mr. Chairman. 

Senator STEVENS. Mr. Thomson, there has been, implicit in some 

of the answers, a fear that the processors are going to use the leverage of their 90 percent contracts to control the 10 percent. I 

have in mind some sort of an amendment that would say that anyone that did that would forfeit forever their interest in the 90 percent. Would you object to that? 

Mr. THOMSON. No, Mr. Chairman. 

Just a quick comment, if I might, Mr. Chairman—— 

Senator STEVENS. Yes, sir. 

Mr. THOMSON.—to a question that you asked previously about 

the Council, this Council-approved program and whether or not it 

should be changed or altered or if we should just authorize the 

Council-approved program. The ACC has long supported the North 

Pacific Council process. We live with the decisions of the North Pacific Council, and so we support the program that the Council has 

approved. We agreed to that going into this process, and I thought 

other folks that were involved in this process similarly asked for 

the Council process to develop this program, and I thought that 

they had similarly agreed that what came out of this process at the 

North Pacific Council on crab rationalization was going to become 

the program that we would live with. 

Senator STEVENS. I agree with that. It does seem, however, that 

when we pass this bill, if we do, we have established a new paradigm for the king crab as far as the Council’s authority for the future. And as I understand it, they would not have the authority to 

103 

modify substantially the whatever it would be, the plan we approved, without the approval of the Congress. We could change 

that, of course, and say that it could be modified with the approval 

of the Secretary. I think you all should look at that to see, because 

I do believe, in a dynamic situation like we have got now, that the 

possibility of unforeseen circumstances is great. 

We have just had a report over the weekend, as you know, from 

a global study, of the status of fisheries in the world. I was interested to see that there were not any specifics mentioned about the 

North Pacific. I think the North Pacific Council has the best track 

record of all the councils in our country, and I think that the 

United States has the only track record of putting forth a management plan that protects the fish. 

Now, we have got to emphasize that even more for the future, 

and I think that if we are to avoid the unforeseen consequence of 

having a court intervene in this management process because of 

violation of some concept that is developed by one of these studies, 

and that is not—when we look at endangered habitats and the 

whole concept now, that is not an unforeseen possibility, we have 

a definite possibility of intervention by litigation in the management of the North Pacific if we do not really tow the line as far 

as protection of the species. So I would urge you to keep that in 

mind. 

My last question, really, is the problem of Kodiak. And it is been 

very well expressed here, but I want to ask you all. Do you see any 

chance for Kodiak to restore any portion of its previous fishery 

under the plan that is before us now? What is the answer to 

Kodiak’s objection? 

Mr. Duffy? 

Mr. DUFFY. Mr. Chairman, if I could, we, as a Council, tried to 

reflect, in the amount of processing quota, historical dependence on 

that fishery. As you know, under National Standards and under 

advice from the National Marine Fishery Service, recency is an 

issue we often look at. The years selected for processing quota for 

Kodiak, 1997 through 1999, for opilio and Bristol Bay red king crab 

are within the range of the 1991 to 2000 season and what Kodiak 

has processed on crab. 

Additional measures Kodiak can use is, they can use sweep-up 

provisions to get crab in the Gulf of Alaska that is just bits and 

pieces in smaller communities’ processing quota. They can purchase IPQ to expand their processing base in the community of Kodiak. And they have some first right of refusal processor quota if 

certain processors choose to leave that community. So they do have 

some options available to them upon approval of this program and 

implementation already. 

Senator STEVENS. Is there any future with regard to that harvester-processor portion of the industry as far as Kodiak is concerned? 

Mr. DUFFY. Mr. Chairman, if you are talking about the catcherprocessor—— 

Senator STEVENS. Catcher-processor, yes. 

Mr. DUFFY. Yes, the catcher-processor sector. What the Council 

has done with the catcher-processor sector is given each catcherprocessor CP shares that reflect what they harvest and what they 

104 

processed on board. We have also, in addition to that, given them 

harvester quota for quota that was previously delivered to the 

shore. So they are made whole under this program. Now—— 

Senator STEVENS. But can any of that allocation to processors, 

the catcher-processor, be brought ashore in Kodiak? 

Mr. DUFFY. Yes, the catcher-processor shares can be transferred 

to shore-based processing through the Council—— 

Senator STEVENS. Must they be allocated to those that hold the 

90 percent? 

Mr. DUFFY. The CPs, if they change to shore-based, they would 

be subject to the 90:10 rule—— 

Senator STEVENS. Why? 

Mr. DUFFY. Well, because they would be moved to shore-based 

processors who are a part of the processor-quota program. 

Senator STEVENS. I do not understand that. I should have asked 

that question sooner. That was in the back of my mind when I 

came here. Why should the catcher-processor quota, if they decide 

to go ashore, automatically go to the 90 percent? 

Mr. DUFFY. Remembering Council discussions on that issue—and 

I will let others chime in—but remembering Council discussions, 

our intent was to make the catcher-processor fleet whole, but to not 

let them grow at the expense of coastal communities. So what we 

set up was a one-way transfer of CP shares to the shore-based—— 

Senator STEVENS. Could a community purchase the shares of a 

catcher-processor? 

Mr. DUFFY. Can a community purchase catcher-processor shares? 

Yes, I believe. 

Mr. KELTY. Yes, because they can—communities can also purchase the harvester shares. 

Mr. DUFFY. Right. 

Mr. KELTY. So the CP is a harvester, so they could purchase 

shares that way. 

Senator STEVENS. Ms. Freed, why is not there an avenue for Kodiak to increase its shore-side processing by purchasing some of the 

shares of the catcher-processors? 

Ms. FREED. Our contention is that other communities are getting 

their historical share under this program; Kodiak is being forced to 

purchase it. The Kodiak community can ill afford to purchase quota 

that has been historically coming to Kodiak. 

I have got some economic information attached to my testimony, 

but in 2000, 10.93 percent of the Bering Sea red king crab came 

to Kodiak. In 2001, it was 10.5 percent. I cannot tell you what it 

was in 2002 and 2003, because Fish and Game does not have the 

statistics, but I can tell you I looked out of my office window and 

saw 14 boats that were home-ported in Kodiak sitting in Kodiak 

waiting to unload. That is well more than 3.8 percent that is available. 

The sweep-up provision for the coastal communities in the Gulf 

of Alaska that would provide us with an opportunity to add to our 

quota is, again, a purchase program. It would force the community 

of Kodiak to spend money that we might need for law enforcement, 

for our ambulance service, to buy quota to make us whole, and that 

is an unacceptable situation for Kodiak. It is not happening for 

105 

many other communities. It is happening to some other communities in the Gulf of Alaska. 

Senator STEVENS. Well, I do thank you all. It is a very perplexing 

question for us. We are going to have to confer further on it. There 

is no question about that. 

We will accept additions to your comments. Those persons that 

want to add to this record would do so through these five witnesses. I was limited to the five witnesses by the agreement we 

had to hold this hearing. 

And, again, I thank you all for coming. You know, we get to the 

point sometime that we forget about the objectives of what we 

fought for back in the 200-mile limit bill and the whole concept of 

being able to protect our fishery against, primarily against, foreign 

intrusion. And I do think that we have to get back to that and keep 

foremost in our mind that we, as particularly the Northwestern 

part of the United States and Alaska, are the stewards of that offshore potential and the great species that exist. And the history of 

the AFA is that we have improved the condition of pollock. The history of this agreement can only be tested in terms of whether it increases the stability of the production of crab in the North Pacific. 

I hope we keep that in mind. 

Thank you very much. 

[Whereupon, at 4:30 p.m., the hearing was adjourned.] 

(107) 

A P P E N D I X 

PREPARED STATEMENT OF COLEMAN A. ANDERSON

Senator John McCain, Chairman 

Mr. Chairman, members of this committee: I do not support Processor quota in 

any form. It seems that all common sense has been thrown out the window on this 

issue of PQS. As an operator of a crab catcher vessel and minority owner in a crab 

catcher processor I would be left with only four companies to sell to, or compete 

against for the rest of my life in the industry. I would like the committee to consider 

the following points: 

• The ACC does not represent independent fisherman and is now the smallest 

group of vessel owners in the industry. 

• The NPFMC council’s recommendations do not allow for vertical integration by 

the remaining processors in the industry nor the fact that CIP vessels would 

no longer be allowed to purchase crab at the end of the seasons. This will skewer the 90:10 split to 95:05 in reality and that would not be a free market in 

any sense of the term. 

• This entire process is about harvester reduction, the processing sector has 

downsized it’s crab operations years ago with the reduced GHL’s that we all live 

with. All of the crab processing equipment in Alaska is fully depreciated or the 

former owners are out of business. There is no reason to guarantee the four remaining companies a free ride for the rest of their corporate existence. 

• Why has Binding Arbitration become such a hot issue? Because no amount of 

talk, meetings, and proposed full time positions for legal advisors can create the 

compelling need to arbitrate by the processing sector if the are guaranteed the 

crab in the end by law. 

• The councils proposals will result in the harvesting and labor sectors of this industry being absorbed by the four remaining processing corporations with no 

place left to go in an industry that most of us have dedicated our lives to. 

As a life long Alaskan and 30 year participant in it’s fisheries I have watch all 

of Alaska’s recourses sold and bartered as if Alaska were a third world nation: 

Please don’t allow this to continue here. 

Thank You, 

COLEMAN A. ANDERSON

PREPARED STATEMENT OF MICHAEL F. BURNS, PRESIDENT AND CO-OWNER, 

BLUE NORTH FISHERIES

Thank you for the opportunity to tell you a little about our company, Blue North 

Fisheries, and the likely adverse effects on Blue North of the Bering Sea/Aleutian 

Islands Crab Rationalization plan recommended by the North Pacific Fishery Management Council (NPFMC). Generally we are supportive of this plan, but have concerns about the design of the processing quota element of the Council’s recommendations. First let me explain the background of our participation, the problem with the Council’s recommendation for processing quotas as we see it, and a 

proposed solution to correct the problem. 

Blue North Fisheries participated in the Bering Sea crab fisheries for over fifteen 

years as crab harvesters. As a result of the enactment of the American Fisheries 

Act (AFA) in October 1998, a limited group of large, so-called ‘‘AFA processors’’ was 

given a ‘‘closed class’’ for the right to process pollock, and to be fair to processors 

not allowed to process pollock, the AFA ‘‘sideboards’’ limited the amount of crab that 

these AFA processors could process. In reliance on the AFA sideboards, and concerned about a restricted processing marketplace, Blue North Fisheries invested 

more than $2.5 million in acquiring a processing vessel to process crab caught by 

108 

its commonly owned catcher vessels. Starting in October 1999 and continuing to the 

present, Blue North processed more than one million pounds of raw, delivered crab, 

all of which was caught by Blue North catcher vessels in the Bristol Bay Red king 

crab fishery and the Bering Sea C. opilio (snow crab) fishery. To our knowledge, 

Blue North is the only processing entity with significant recent participation that 

entered the processing sector subsequent to the AFA. 

Additionally, Blue North also engaged in joint venture processing operations with 

Western Alaskan communities since 2001, providing processing markets in coastal 

communities traditionally deprived of the opportunity to participate in the crab fisheries adjacent to their villages. These operations culminated in the company’s recent 

investment partnership with the CDQ organization Coastal Villages Region Fund 

(CVRF), now fifty-percent investment partners in Blue North’s four crab vessels including the processor Blue Dutch. 

In June 2002, the NPFMC decided to recommend the establishment of processing 

quota shares, for the first time ever. Given the extent of our crab processing in 

1999–2002 (continuing in 2003), we reasonably expected to receive processing quota 

shares equivalent to our present effort. However, the NPFMC omitted the most recent three years and picked 1997–1999 (years that are most advantageous for the 

AFA processors) for the Bristol Bay Red king crab and Bering Sea C. opilio (snow 

crab) fisheries. By contrast, the AFA used for historical participation the three years 

preceding the year of enactment, which we believe is the correct approach. The result of the NPFMC’s selection of less-than-current history is that Blue North is extremely disadvantaged by receiving no processing quota for opilio and only a negligible amount for king crab, despite active current processing—processors with less 

recent participation will receive more processing quota shares. Additionally, the 

Western Alaska communities of CVRF that have been deprived of opportunities in 

fisheries off their doorstep will be similarly disadvantaged by this lack of processing 

opportunity. 

‘‘Present participation in the fishery’’ is the very first criterion listed in the Magnuson-Stevens Act (section 303) for development of limited access programs. In determining crab processing quota shares, the NPFMC failed to adequately characterize present participation in its analysis, disregarding the most current three 

years of participation. The net result of this omission is to award processing privileges to AFA processors in excess of the processing sideboard caps stipulated as a 

condition of the benefits conferred by the AFA. This windfall to the large, often 

multi-national, AFA processors comes at the expense of our small, domestic processing operation. 

In conclusion, we request that any implementing legislation for the North Pacific 

Council’s crab rationalization plan include a ‘‘grandfather provision’’ to reflect Blue 

North Fisheries’ present participation in crab processing. Without such a grandfather provision, the NPFMC plan has the effect of penalizing Blue North for reasonable reliance on the AFA sideboards. Specifically, Blue North would like to have 

sufficient processing quota shares to enable its processing vessel to process the catch 

of its commonly owned catcher vessels. This solution will correct the unfairness resulting from the Council’s approach and compensate for the Council’s failure to adequately address the requirements of the Magnuson-Stevens Act regarding present 

participation. The amount provided to Blue North under an amendment like this 

would be less than 1.5 percent of the total amount of the crab processing quota 

shares, most of which is allocated to large, economically advantaged shoreside processors. With this adjustment, Blue North Fisheries would fully support the crab rationalization program recommended by the North Pacific Fishery Management 

Council. 

Thank you for the opportunity to submit this statement for the hearing record. 

PREPARED STATEMENT OF ROBERT L. CHEVALIER, SITKA, AK 

U.S. Senate Committee on Commerce, Science, and Transportation 

Senator JOHN MCCAIN, Chairman 

Mr. Chairman: 

I believe that there are grave dangers to the United States inherent in the Crab 

Rationalization Plan being considered by the North Pacific Fishery Management 

Council. The domestic issues of socioeconomic violence and antitrust law violations 

are bad enough; the international implications are truly frightening, and the U.S. 

may be in danger of giving away control of its fisheries and oceans simply by adapting the processor shares provisions of the Crab Rationalization Plan. 

109 

Under the Individual Fishing Quota plan, at present used to manage longline 

fisheries in the Gulf of Alaska and the Bering Sea, anyone wishing to purchase 

quota and prosecute a fishery must be an American citizen, and MUST, under pain 

of ultimately forfeiting all fishing rights, obey all regulations set forth by managing 

agencies designated by the Magnuson-Stevens Act. However, quota shares given to 

processors will become simply a business asset controlled by the owner of the processing facility, many of whom are foreign or multinational corporations. Under the 

provisions of GATT the holder of resource assets may have rights which supercede 

those of the state or Federal governments, and the U.S. may very well lose the ability to manage the fisheries in question: the provision of so-called free trade will 

supercede all matters of conservation or American utilization of marine resources. 

In short, the processor share provisions of the Rationalization Plan may destroy 

the Magnuson Steven Act, and all American fisheries. 

Respectfully Submitted, 

ROBERT L. CHEVALIER

PREPARED STATEMENT OF DOROTHY CHILDERS, EXECUTIVE DIRECTOR, ALASKA MARINE CONSERVATION COUNCIL

Chairman McCain, Senator Stevens and members of the Committee: 

Thank you for holding today’s hearing on processing quota and the proposed Bering Sea crab rationalization plan. A decision by Congress regarding authorization 

of processing quota is clearly of major significance in terms of future U.S. fisheries 

management policy. 

The Alaska Marine Conservation Council (AMCC) is a community-based organization of fishermen, traditional subsistence harvesters, scientists, small business owners, families and others concerned about the health and diversity of our marine ecosystems. 

AMCC supports rationalization of the Bering Sea crab fisheries. We are also 

working at the North Pacific Fishery Management Council to advance conservation 

and community benefits of groundfish rationalization plans that are currently under 

development in Alaska. We do not support processing quota as an element of rationalization because of the controlling effect this system would have on markets, fishing families, communities and the public process for managing the public’s fishery 

resources. Under the proposed Bering sea crab plan, the fishery would be managed under 

a quota system in which vessel owners and fishermen would be allocated individual 

fishing quotas (IFQs) and seafood processors would be awarded processing quotas 

to buy and process the catch. The proposed ‘‘two-pie’’ plan would require fishermen 

to sell at least 90 percent of their catch only to processing companies holding processing quota. 

Processing quota is an anti-competitive system in which the government would allocate market share to certain corporations. Processing quota will limit who can do 

business to a select pool of quota holders. About 90 percent of the shares would be 

allocated to 12 out of the 30 eligible companies and will allow for significant quota 

consolidation through transfers, leasing or buying out other companies holding 

quota. There are no effective limits on how much processing quota a single corporation could control. 

As a conservation organization, AMCC is involved in the processing quota debate 

as a matter of public policy because it speaks to governance of the public’s fishery 

resources and the future face of the seafood industry. Our objective is to promote 

fishery management systems that ensure wise conservation management for longterm sustainability of fish, ocean ecosystems and our communities—healthy fisheries and healthy communities go hand-in-hand. The allocation of processing quota 

goes far beyond the kinds of allocation decisions regularly made by regional councils. We believe processing quota will lead to a concentration of control by processing 

corporations that will tip the scale, diminishing the role of community voices in the 

management of our resources. For fishery-dependent communities, processing quota 

does not offer a safety net but is rather a political accommodation that over time 

will create more problems than it solves. Certainly concerns raised by community 

entities regarding inadequate protections in the Bering Sea crab plan bear this out. 

The NPFMC has a huge and time-consuming responsibility for the conservation 

management of our fisheries. The Magnuson-Stevens Act authorizes regional councils to manage the harvesting sector in accordance with complex rules associated 

with the biological needs of the fish and ocean ecosystems along with socio-economic 

considerations related to limited access and allocation between harvesters. Fishery 

managers should not also be tasked with designing and managing market systems 

110 

1GAO. 2002. Individual Fishing Quotas, Better Information Could Improve Program Management. The full report is available at www.gao.gov. 

for fish after they are caught. Although many hours have been spent developing the 

Bering Sea crab plan, we remain concerned about the degree of scrutiny applied to 

the processing quota component: 

• The North Pacific fishery managers’ deliberations on the crab plan have not included a discussion on what problems processing quota is expected to resolve 

or what alternatives might be suitable to address them. For example, do the relatively small number of processing companies that will receive quota require a 

perpetual endowment of market share? Or are their problems related to being 

able to weather a short-term transition from an open access fishery to a slowerpaced quota system for harvesters? 

• The Senate Subcommittee on Oceans and Fisheries requested a report from the 

Government Accounting Office (GAO) reviewing the ‘‘economic effect of the IFQ 

program on Alaskan halibut and sablefish processors.’’ 1 The report revealed 

clear weaknesses in the one economic study that has been used as the rationale 

for processing quota. This study concluded that IFQs gave fishermen more bargaining power and caused processors to lose market share, profit margin or go 

out of business. 

The GAO reported that they could not determine what the effects of halibut/ 

sablefish IFQs were on processors and to what degree IFQs caused changes in 

the processing sector. 

‘‘. . . we identified a number of problems with the study’s methodology and 

scope that brings into question the reliability of the study’s estimates. 

These problems include (1) the pre- and post-IFQ time periods do not provide an accurate measure of processors’ economic welfare, (2) the study’s results may not be representative of the industry as a whole, and (3) the document requesting economic information from processors may have biased 

participant response. The study’s authors acknowledged that examining the 

pre- and post-IFQ impacts on the processing sector does not necessarily 

imply that the IFQ program alone caused these effects.’’ GAO p. 25. 

‘‘. . . the document requesting economic information from processors may 

have had biased participant responses. In the preamble to the survey document, participants were told, among other things, that the purpose of the 

study was to test the theory that a harvester-only quota allocation transfers 

wealth from processors to harvesters and that the survey’s results would 

be used to assist in designing future IFQ or other fishery rationalization 

programs. Such statements leave little doubt as to how responses could 

benefit or harm processors with economic interests in other fisheries. According to standard economic research practice, these types of statements 

are to be avoided when designing a survey as they can influence results.’’ 

GAO p. 27. 

‘‘Along with an increase in buyer-broker halibut purchases, there was a decrease in the number of individual shore-based plants that processed halibut and sablefish. While some plants stopped processing halibut and sablefish, others decided it was beneficial to start. Between 1995 and 2001 . . . 

68 plants stopped processing halibut and 56 started, resulting in a net decrease of 12 plants. Similarly, 54 plants stopped processing sablefish and 

40 started, resulting in a net decline of 14 plants.’’ GAO p. 23. 

‘‘The IFQ program, however, did not necessarily cause a plant to stop processing halibut and sablefish, According to industry and government officials, some plants stopped processing halibut or sablefish because the plant 

was sold to another processor, the plant closed for personal reasons, plant 

management made poor business decisions, or the plant burned down.’’ 

GAO p. 23. 

The North Pacific Fishery Management Council recommendation to Congress 

has not taken the GAO report into account. 

These concerns notwithstanding, we very much recognize the important role that 

the processing sector fills in our communities. The question of whether or not Congress should legalize processing quota should not be reduced to a feud between processors and fishermen with communities caught in the middle. Rather than asking 

what it will take to get fishermen and communities to accept processing quota, Congress should ask a completely different question: What is the appropriate way to 

111 

support each sector of the seafood industry in order to better serve (1) fisheries conservation, (2) stability of our communities, and (3) preservation of healthy markets 

and free enterprise? 

To that end, we urge Congress to look closely at the issues facing the processing 

sector and to pursue other ways to address them in. a manner that preserves competition, encourages innovation and protects communities. A decision to authorize processing quota in Bering Sea crab fisheries will establish a precedent that will be hard 

to contain in other Alaskan fisheries or beyond. 

Thank you for the opportunity to share our perspective on processing quota with 

the Committee. 

PREPARED STATEMENT OF KALE GARCIA, OWNER-OPERATOR F/V AQUILA

Submitted to U.S. Senate Committee on Commerce, Science, and Transportation 

Senator JOHN MCCAIN, Chairman 

Senator TED STEVENS, Presiding 

May 20, 2003 

Senators, 

I have been participating in the Bering Sea, Bristol Bay crab fisheries since 1980. 

I just wanted to go explore Alaska and getting there was on a Bering Sea bound, 

crab catcher-processor, hired on as a processor. In that same season, I was able to 

fill in as a deck hand on a crab vessel. I got off and swore I’d never do that again! 

I began working my way up to Captain, as it didn’t take long to figure out where 

I wanted to work on a crabber. Since then I’ve rarely missed a season. 

As an owner operator, I have now come around in full support of crab rationalization via the industry funded buyback and IFQ’s. I believe this will dramatically improve the safety of the lives at sea and will help the crab stocks as the fishery will 

be approached with a different mind set. It will change the way I fish by allowing 

me to time the weather and tides for safer working conditions. This will also allow 

more soak time on the gear which will reduce and possibly eliminate the incidental 

by-catch of smaller juvenile crabs. This will definitely have a positive effect on the 

fishery and most everyone associated with the crab industry. 

I am adamantly opposed to any type of processor quota share. If it was decided 

to go along with the 90:10 two pie system, this would possibly take away the above 

mentioned positive impacts on the industry as I would be told when the processor 

would be buying crab, or when I could go fishing. It is currently illegal under Alaska 

state law for me to bring in live crab to one port and leave to take my ten percent 

somewhere else. It would probably not be economically feasible. If I’m the owner of 

the boat and permit to go catch the crab, then I should own the crab up until the 

time they are sold. However, if I have to sell 90 percent to a predetermined market 

then who actually owns the product? How am I to get a fair price? Processors have 

the opportunity to own catcher vessels and harvester shares now. In fact there is 

a significant amount of vessels that are processor owned. 

I am not interested in remaining in the industry under a two pie system. I have 

23 years of hard work and everything financially at stake in the crab industry. 

There would be a huge devaluation in vessels and IFQs under the current proposed 

plan. When the boat tenders salmon in the summertime it is a full on family job 

for myself, my wife and kids. I am not sure where I would start over or what I 

would do. I do think there are many other alternatives to this absurdly proposed 

idea. 

Thank You, 

KALE GARCIA, 

Owner-Operator F/V Aquila. 

STATEMENT OF ERIN D. HARRINGTON, KODIAK, AK 

Senator JOHN MCCAIN, 

Committee on Commerce, Science, and Transportation, 

U.S. Senate, 

Washington, DC. 

Dear Senator McCain and Committee Members; 

I’m writing to you to express my concerns about the proposed Bering Sea/Aleutian 

Islands crab rationalization plan. In particular, I feel it is important that I express 

my complete opposition to processor quota as a tool for fishery rationalization. 

112 

I believe that the award of processing quota to Alaskan processors through this 

plan will result in numerous side effects that will be deleterious to the commercial 

fishing industry in Alaska. In my opinion, the most important of these effects will 

be 

• the restriction of future development of entrepreneurial seafood marketing businesses by fishermen or next-generation processors; 

• the establishment of a precedent that will be carried through to rationalization 

plans in other fisheries, where processor quota is entirely inappropriate and 

would result in the degradation of small communities and forward-thinking 

businesses; and 

• a protectionist system that locks a set number of corporations (primarily foreign-owned) into the Alaskan fishing industry, and renders them bullet-proof 

from the natural fluctuations of the market-based system that would otherwise 

compel them to innovate and improve in order to succeed. 

My family has been involved in fisheries in Alaska and Massachusetts for two 

generations. I personally have fished since I was a little girl. In recent years, I have 

broadened my involvement in the fishing industry as a reporter for several trade 

publications, as the project leader for a large fishermen’s organization in Alaska, 

and now as a graduate student in Seafood Marketing and Economics at the University of Alaska. I am writing this letter on behalf of my parents and my brother, all 

of whom are directly involved in the fishing industry. 

Senator, I’m sure that you and your colleagues are well-versed on the impact of 

corporate consolidation in the world food systems on family farms. You also have 

likely become aware of the development of farmers’ cooperatives, and the 

[The end of this letter was unavailable at time of printing.] 

PREPARED STATEMENT OF ROBERT HALVORSEN, PROFESSOR OF ECONOMICS, DEPARTMENT OF ECONOMICS, UNIVERSITY OF WASHINGTON

THE ECONOMIC ANALYSIS OF INDIVIDUAL PROCESSOR QUOTAS

On behalf of the City of Kodiak, I am submitting this written testimony to the 

record of the May 20, 2003 Hearing on Bering Sea/Aleutian Island Crab Rationalization before the Committee on Commerce, Science, and Transportation of the United 

States Senate. My testimony first addresses the general issue of whether fishery rationalization programs should include explicit mechanisms to protect processors 

from possible adverse effects. It then discusses one specific mechanism, Individual 

Processor Quota (IPQ), which has been recommended for use in the Bering Sea/ 

Aleutian Islands (BSAI) crab fisheries. I previously presented testimony on these 

topics to the February 13, 2002 Oversight Hearing on Individual Fishing Quotas before the House Subcommittee on Fisheries Conservation, Wildlife and Oceans. My 

testimony in the present statement has been revised and expanded in the light of 

information and analyses that have become available since that time. 

The City of Kodiak has also asked me to submit testimony for the record on the 

experience to date with rationalization of the BSAI inshore pollock fishery under the 

American Fisheries Act of 1998, and the implications that can be appropriately 

drawn regarding the proposed rationalization program for the BSAI crab fisheries. 

My testimony on this topic is being submitted separately in an additional statement 

for the record. 

Executive Summary 

My analysis of the likelihood of fishery rationalization programs having adverse 

effects on processors begins by considering the importance of market structure in 

determining the outcomes of a rationalization program. To illustrate the importance 

of market structure and the balance of bargaining power on the outcomes of rationalization programs, I review a recent analysis of the BSAI inshore pollock fishery 

that was prepared for the North Pacific Fishery Management Council (Halvorsen, 

Khalil, and Lawarree 2000). The analysis demonstrates that market structure is 

critical in determining the distributive outcomes of rationalization programs. 

I then review the available evidence on whether processors have in fact incurred 

losses as a result of fishery rationalization programs. There has been surprisingly 

little empirical research on this issue. The strongest conclusion that appears to be 

supported by the existing research is that some processors are made worse off and 

some are made better off by the implementation of an Individual Fishing Quota 

(IFQ) program. A recent unpublished study of the North Pacific Halibut and Sablefish IFQ program (Matulich and Clark 2002) does claim that processors in that fishVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00116 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
113 

ery experienced large losses. However, a review of this study by the General Accounting Office concluded that problems with the study’s methodology and scope 

bring into question the reliability of its results. My own review of this study leads 

to the even more negative conclusion that critical defects in its theoretical and empirical methodology invalidate its results. 

Next I discuss the rationales that have been advanced for compensating processors for any losses that they may incur as the result of a rationalization program. 

My primary emphasis is on the argument that if processors are not compensated 

they may block the implementation of a rationalization program, with the result 

that the potential efficiency gains from the program cannot be realized. I note that 

there are several problems with this argument. First, attempts to block a program 

unless distributive outcomes are altered may simply reflect an attempt to increase 

the size of already positive net benefits, rather than to avoid losses. Second, if harvesters become concerned that the attempt to keep processors safe from harm will 

result in losses for harvesters, they may also try to block implementation. Lastly, 

when efforts to hinder implementation are rewarded, an incentive is created for increased obstructive behavior in the future. 

Following this general discussion of the effects of rationalization programs on 

processors, I consider two recently proposed concepts that have received a considerable amount of discussion in the context of rationalization programs in North Pacific 

fisheries. One is that rationalization programs should satisfy the criterion of being 

‘‘Pareto safe,’’ which requires that no fishery entities be made worse as a result of 

rationalization. The other is that an IFQ program should also involve the allocation 

of Individual Processor Quotas (IPQs), as in the proposed program for the BSAI crab 

fisheries. 

The inclusion of both IFQs and IPQs in a rationalization program was originally 

referred to as a ‘‘two-pie’’ system. The concepts of Pareto safety and two-pie programs are linked in that the two-pie approach has been advocated by Matulich and 

Sever (1999) as a feasible way of achieving Pareto-safe rationalization in at least 

some policy-relevant situations. In particular, Matulich and Sever claimed to have 

shown that a two-pie allocation would be Pareto safe in a bilateral monopoly, that 

is, a fishery with only one harvester and one processor, and asserted that their analysis of this case would be applicable to the BSAI inshore pollock fishery because it 

‘‘emulated’’ a bilateral monopoly. 

Neither of these claims is correct. First, as discussed in Halvorsen, Khalil, and 

Lawarree (2000), the characterization of the BSAI inshore pollock fishery as a bilateral monopoly was highly misleading because it ignored critical elements of the 

inshore fishery’s market structure. Second, and more importantly, my testimony 

shows in section 6 that the claim that a two-pie allocation is guaranteed to be Pareto safe in a bilateral monopoly is incorrect. Therefore, even if a real-world fishery 

could be found that was a bilateral monopoly, there is no reason to believe that a 

two-pie allocation would be Pareto safe. 

Since there are no other market structures for which the Pareto safety of a policy 

feasible two-pie system has even been asserted, no credence should be given to 

claims that a two-pie system is a ‘‘policy-superior initial allocation of rights’’ 

(Matulich, Mittelhammer, and Reberte 1996, page 112). Instead, the inclusion of 

IPQs in a fishery rationalization program should be viewed as simply one possible 

mechanism for enhancing outcomes for processors, bearing in mind that the possible 

outcomes under IPQs have received very little credible economic analysis and are 

untested by experience in any real-world fishery. 

I conclude that evaluations of the appropriateness of allocating IPQs as part of 

a specific rationalization program should include (i) an assessment of whether compensation for processors is desirable, given the characteristics of the specific fishery, 

in particular the balance of bargaining power, and (ii) the relative merits of IPQs 

versus other possible compensation programs, given the characteristics of the specific fishery. 

1. Introduction 

My testimony first addresses the general issue of whether fishery rationalization 

programs should include explicit mechanisms to protect processors from possible adverse effects. It then discusses one specific mechanism, Individual Processor Quota 

(IPQ), which has been recommended for use in the Bering Sea/Aleutian Islands 

(BSAI) crab fisheries. I will discuss in turn the conditions determining the probability, extent, and incidence of possible adverse effects of rationalization programs 

on processors, and the efficiency and equity rationales that have been advanced in 

favor of ensuring that processors are protected from any such effects. 

I will pay particular attention to two recently developed concepts that have received a considerable amount of discussion in the context of rationalization proVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00117 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
114 

grams in North Pacific fisheries. One is that rationalization programs should satisfy 

the criterion of being ‘‘Pareto safe,’’ which requires that no fishery entities be made 

worse as a result of rationalization. The other is that an IFQ program should also 

involve the allocation of Individual Processor Quotas (IPQs) in what has come to be 

known as the ‘‘two-pie’’ approach. The two concepts are linked in that the two-pie 

system has been put forward as a feasible way of achieving Pareto-safe rationalization in at least some policy-relevant situations by Professor Scott Matulich and his 

co-authors (Matulich, Mitte1harnmer, and Reberte 1996, Matulich and Sever 1999). 

2. Theoretical Analysis of the Effects of IFQ Programs on Processors 

Unless specified otherwise, the phrase ‘‘IFQ program’’ will refer to a rationalization program based on the allocation of quota shares for harvesting only, and in 

which the lFQs are allocated only to harvesters. This is in contrast to possible rationalization programs that include IFQs but also make explicit provision for compensating processors for possible negative effects on them, either by allocating part 

of the total harvesting quota shares to them or by incorporating processing quotas 

as well, as in a ‘‘two-pie’’ system. 

Also, the phrase ‘‘processors’’ will refer to the processors that have been operating 

in the fishery prior to the time that it is rationalized. One common result of rationalization is the entry of new processors, who are obviously made better off by the 

opportunities created by rationalization. An appraisal of the overall effect of a rationalization program on the processing sector should clearly take the positive effects on new processors into account as well. However, my review of the theoretical 

analysis of the effects of IFQ programs on processors will concentrate on the effects 

on previously operating processors only. 

In analyzing and predicting the effects of an IFQ program on the well-being of 

incumbent processors, it is critical to take into account the specific conditions of the 

fishery being considered. One important set of conditions concerns the market structure of the fishery. 

Implications of alternative models of market structure 

The first analyses to emphasize the possibility of processors incurring losses as 

a result of the introduction of an IFQ program (Plesha and Riley 1992, Matulich, 

Mittelhammer and Reberte 1996) assumed that the fishery was perfectly competitive, the end of the race for fish created excess processing capacity with no alternative uses, and the firms in the industry were not vertically integrated (that is, 

processors did not own harvesters or vice versa). Given these assumptions, they conclude that processors would be made worse off by an IFQ program because they 

would fail to obtain any of the rents from fish and would also lose part of the value 

of their capital. 

However, if all other circumstances were the same, but processors and harvesters 

were vertically integrated (as for example in a fishery comprising only factory trawlers), then processors could not be made worse off because they would receive the 

full benefits of the rationalization program (Matulich and Sever 1999). In a mixed 

case, with some processors vertically integrated and others not, the incidence of 

gains and losses might differ by type of entity, with non-integrated processors being 

more susceptible to suffering losses than integrated ones (Halvorsen, Khalil, and 

Lawarree 2000). 

Perfect competition is one of the standard models used in economic analyses, in 

large part because of its analytical simplicity. Examples of other standard models 

familiar from economic theory include monopoly (a single harvester facing perfectly 

competitive processors), a monopsony (a single processor facing perfectly competitive 

harvesters), and a bilateral monopoly (a single harvester facing a single processor). 

In the first case, the monopolist would obtain all the net benefits of the fishery, in 

the second case the monopsonist would, and in the third case the division of net 

benefits would depend, among other things, on the alternative opportunities available to the participants. 

These three standard models also have the advantage of analytical simplicity, but 

are not in general directly applicable to the analysis of the effects of IFQ programs 

for two reasons. First, the characteristics of the market structures of real-world fisheries are more complex than such simple theoretical models imply. And second, if 

a fishery did conform to one of these model specifications, then it would be expected 

to be capable of maximizing aggregate net benefits on its own, which would preclude 

the development of a race for fish. For instance, a monopolist harvester would optimally allocate its fleet over time rather than engaging in a race to fish between its 

own vessels. Accordingly, rationalization programs such as an IFQ program would 

be redundant. 

115 

However, consideration of these standard models does illustrate the wide range 

of results possible with respect to the division of the net benefits of a fishery, and 

therefore the need to take market structure into account when assessing the effects 

of an IFQ program on the participants in the fishery. Also, to the extent that a fishery being considered for an IFQ program has characteristics similar to a standard 

model, some inferences may be drawn about the probability that processors could 

be adversely affected by the implementation of the program. For example, other 

things equal, implementing an IFQ program in a fishery with very few processors 

and many harvesters is less likely to result in processor losses than in a fishery 

with many processors and harvesters. 

More generally, these examples suggest the importance of bargaining power in determining the distributive effects of an IFQ program, and therefore the need to use 

the tools of game theory to assess the possible outcomes of a particular IFQ program. These tools include cooperative bargaining theory (e.g., Nash 1953) and noncooperative bargaining theory (e.g., Osborne and Rubinstein 1990). A recent example 

of an analysis of a fishery using cooperative and non-cooperative bargaining theory 

is Halvorsen, Khalil, and Lawarree (2000). 

Halvorsen, Khalil. and Lawarree Study 

The analysis by Halvorsen, Khalil, and Lawarree was conducted on behalf of the 

North Pacific Fishery Management Council and considered the prospective distribution of net benefits from rationalization of the inshore sector of the Bering Sea/Aleutian Islands (BSAI) fishery under the American Fisheries Act (AFA). Although most 

of the specific results of the analysis are directly applicable only to that particular 

fishery, a brief review of the main elements of the analysis is useful to illustrate 

the issues involved. The review also will be useful as background for the evaluation 

of the two-pie allocation, which was initially discussed in the context of the inshore 

pollock fishery. 

Applicability of standard economic models: 

Halvorsen, Khalil, and Lawarree evaluated, and rejected, the suitability of several 

standard economic models that had been proposed for application in the inshore pollock fishery. For example, Wilen (1998) had argued that the inshore fishery was best 

characterized as a single monopsony, in part because of the dominant position of 

two firms in the main market for surimi products. Halvorsen, Khalil, and Lawarree 

concluded that Wilen’s analysis substantiated the hypothesis that processors had 

significant market power, but that the fishery was not a monopsony. 

One reason given for rejecting the conclusion of monopsony was that for the processors to behave as a monopsony they would have to overcome serious economic and 

legal difficulties associated with being a successful cartel. Also, there was evidence 

that the processors had not always acted in a united way, as they would have if 

they were a monopsony. For example, when the Bering Sea Marketing Association 

(BSMA) went on strike against several processors in 1999, the largest processor in 

the fishery, which was not a party to the negotiations, had its fleet continue to fish, 

making prolongation of the strike too costly to both the members of the BSMA and 

their processors. The existence of the BSMA also argued against the conclusion that 

the inshore sector was a monopsony, because its collective bargaining is not consistent with harvesters acting as passive price takers. Lastly, as noted above, an effective monopsony would have been capable of substantially rationalizing the fishery 

without the intervention of the AFA. 

The existence of the BSMA was considered especially important by Matulich and 

Sever (1999), who argued that it implied that the inshore sector was a single bilateral monopoly. They claimed that the dissemination of price information to each 

processor by the marketing association during the course of negotiations allowed the 

processors to unity even though they were not sharing information among themselves. In other words, Matulich and Sever were claiming that the BSMA, acting 

as the representative of independent catcher vessels, unwittingly made it possible 

for the processors to unite against its own clients. 

One serious factual problem with Matulich and Sever’s analysis is that the BSMA 

did not represent all of the independent catcher vessels, and the largest processor 

was not a party to the negotiations. Also, the theoretical analysis left two critical 

questions unanswered. First, why would the marketing association not take advantage of the processors’ lack of communication and play one against the other by misrepresenting received price offers? Second, even if it did not do so, why would information on prices be sufficient to allow the processors to overcome the other economic and legal difficulties hindering their behavior as a single agent? 

Another critical factual problem with Matulich and Sever’s analysis is that it ignored the existence of substantial vertical integration in the fishery. Based on NaVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00119 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
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tional Marine Fishery Service data, processor controlled vessels harvested approximately half the total allocation of catch to the inshore sector. This makes the existence of a united harvesting sector implausible, because processor controlled vessels 

would be subject to conflict of interest issues and could not be expected to consider 

only the effects on harvesters of the results of negotiations with processors. 

Furthermore, the degree of vertical integration was not uniform across processors. 

For example, two of the largest processors, which together accounted for about twofifths of the total inshore catch, were estimated to obtain more than eighty percent 

of their fish from their own processor controlled vessels, whereas another large processor, with about one-fourth of the total inshore allocation, obtained virtually all of 

its fish from independent catcher vessels. The differences in the degree of vertical 

integration implied differences in the effects of a given negotiated outcome, complicating any effort of the processors or harvesters to act in unison. 

Based on their assumption that the inshore sector was a bilateral monopoly, 

Matulich and Sever (1999) recommended that a two-pie rationalization approach be 

implemented, and claimed that it would result in a Pareto-safe distribution of net 

benefits. However, as discussed in section 6 below, Matulich and Sever’s theoretical 

analysis of the two-pie system under bilateral monopoly is fundamentally flawed, 

and their conclusion that it would guarantee a Pareto safe outcome is simply incorrect. Furthermore, even if their analysis of a two-pie program under bilateral monopoly had been correct in theory, advocacy of this particular policy approach for 

this specific fishery was based on a highly misleading characterization of the fishery’s market structure. 

Bargaining power: 

Halvorsen, Khalil, and Lawarree (2000) used concepts from game theory to evaluate the nature of competition in the industry, and the resulting balance of bargaining power. They concluded that the processors had a number of important bargaining advantages. The large portion of the harvest caught by processor controlled 

vessels reduced the reliance of the vertically integrated processors on supply from 

independent catcher vessels, while also providing processors an informational advantage because the independent catcher vessels they bargained with did not own 

inshore processing plants. Also, because the processing sector was highly concentrated and new entry was prohibited under the AFA, processors would be expected to realize that aggressive tactics yielding short-term gains were unlikely to 

be profitable in the long-run. Independent catcher vessels did have one bargaining 

advantage in that they were able to legally bargain as a group. However, it was concluded that on balance the processors had substantially more bargaining power than 

independent catcher vessels. 

The Halvorsen, Khalil, and Lawarree analysis noted that rationalization of the 

inshore pollock fishery was expected to result in a large increase in the effective 

amount of processing capacity, which would provide more opportunities for processors to engage in aggressive competition, but the long-term incentives for refraining from doing so would remain. Therefore they concluded that the rationalized fishery would be characterized by ‘‘moderate but not cutthroat competition’’ among processors. 

These conclusions concerning bargaining power were then applied to analyze two 

alternative rationalization programs being considered by the Council: processor-specific cooperatives (an implicit processor compensation mechanism) and the DooleyHall proposal for non-processor-specific cooperatives (an approximation to IFQs). 

Halvorsen, Khalil, and Lawarree concluded that there was a significant probability 

that some independent catcher vessels would be adversely affected by the requirement of processor specific cooperatives, but the positive net benefits from the reallocation aspect of the AFA, as well as the potential net economic benefits from rationalization of the fishery, decreased the likelihood that they would be adversely 

affected relative to the situation pre-AFA. They also concluded that the Dooley-Hall 

proposal would be more favorable to independent catcher vessels, and less favorable 

to processors, than the processor-specific cooperatives. 

Their conclusions concerning the relative bargaining power of harvesters and 

processors in the inshore BSAI pollock fishery would also have been relevant to the 

analysis of the effects on processors of alternative rationalization programs including IFQs. However, it is important to note that the conclusions were based on the 

conditions in this specific fishery. Because market structure is critical in determining the distributive outcomes of IFQ programs, and the characteristics of market 

structure differ greatly across fisheries, the distributive effects of rationalization 

policies require fishery specific analysis. 

The requirement of rigorous, fishery-specific, analysis of the probable effects of 

IFQ programs is especially important because very little information is available on 

117 

the actual effects of previous programs. The following section reviews several recent 

studies that have evaluated the actual effects on processors of previous IFQ programs. 

3. Empirical Analysis of the Effects of IFQ Programs on Processors 

There has been surprisingly little empirical research on the actual effects of IFQ 

programs on the processing sector. However, there are three studies that have examined the effects of IFQ programs in the United States and British Columbia halibut fisheries. All three studies document the fact that there were many winners 

from the programs in the form of new processors who entered the fisheries in order 

to benefit from the opportunities created by the IFQ programs. However, one study 

differs from the others with respect to its conclusions concerning the effects of the 

IFQ programs on processors that had been operating in the fishery before the programs were adopted. 

British Columbia Study 

The British Columbia halibut fishery was studied by Casey et al., (1995). The IFQ 

program was implemented in May 1991 and the study is based on the results of 

in-person interviews with processors in September 1993 and a mail survey of harvesters in May 1994. The study documents large net economic benefits from rationalization of this fishery, including the ability to switch from mostly frozen products 

to more highly valued fresh fish. Ex vessel price is estimated to have increased by 

more than half. The survey of processors indicated that some of the processors that 

had been operating prior to the IFQ program felt that it had made them better off 

while some felt it had made them worse off. 

General Accounting Office Study 

The GAO study (United States General Accounting Office 2002) based its determination of the effect of IFQ programs on processors on an assessment of the economic effects of the North Pacific halibut and sablefish IFQ program. The study 

methodology included analysis of data from the National Marine Fisheries Service 

and the Alaskan Department of Fish and Game, interviews with fishery participants, and a review of a study commissioned by the Alaskan Department of Fish 

and Game (Matulich and Clark 2002). 

The GAO’s summary of its main conclusions was (page 20): ‘‘Some processors were 

adversely affected by the implementation of the halibut and sablefish IFQ program 

while others benefited. However, quantifying the economic effects of the IFQ program on processors is difficult because much of the data needed to measure changes 

in profitability are proprietary. Furthermore, other factors besides the IFQ program 

may lead to changes in processors’ economic situation.’’ 

The GAO’s review noted that the Matulich and Clark study of the halibut and 

sablefish IFQ program had concluded that processors were hurt significantly by the 

IFQ program. However, the GAO also noted that it could not validate or replicate 

the study’s results, and that it had identified a number of problems with the study’s 

methodology and scope that brought into question the reliability of the study’s estimates. Among the problems identified by the GAO were: the study’s assumption 

that all costs except labor and material inputs were constant over a seven year period was clearly unjustified, the choice of base year exaggerated the size of any negative effect, the results might not be representative of the industry as a whole, and 

the document requesting economic information from processors might have biased 

participant responses. 

In April 2002 I presented a critique of the Matulich and Clark study in public 

testimony before the North Pacific Fishery Management Council. The conclusions I 

reached concerning the reliability of the study’s results were even more negative 

than those reached by the GAO. My analysis of the study is summarized in the following sub section. 

Matulich and Clark Study 

The Matulich and Clark study assumes that the effect of the IFQ program on 

processors’ economic welfare can be measured as the change in ‘‘quasi rents’’ retained by processors, which they define as the change in revenues in excess of all 

variable processing costs. However, the use of this measure to evaluate welfare 

changes is not consistent with economic theory and would not provide reliable estimates of changes in welfare even if it were estimated accurately. Furthermore, their 

empirical methodology is deeply flawed and would be incapable of providing reliable 

estimates of welfare change even if a theoretically correct measure were being used. 

In short, the study measures the wrong thing, and measures it poorly. 

118 

Theoretical assumptions: 

Quasi-rents are fundamentally a short-run concept. The short-run is defined as 

the period of time during which at least one of the firm’s input quantities cannot 

be changed. It should be noted that, although it is customary for expository reasons 

to use capital inputs as examples of fixed inputs, and labor and materials inputs 

as examples of variable inputs, some capital inputs may in fact be variable in the 

short-run (e.g., motor vehicles, personal computers), and some labor and materials 

inputs may be fixed (e.g., because of transportation costs, job-specific human capital, 

or contractual commitments). 

The difference in the short-run between the firm’s total revenue and total expenditures on variable inputs is defined as the quasi-rent to the fixed inputs. That is, 

the amount in excess of the amount required to keep the fixed inputs in their current use. Thus a decrease in quasi-rents would indicate a decrease in the firms’ welfare in the short-run. 

In the long-run, by definition, all inputs are variable, and the amount required 

to keep inputs in their current use is equal to what they could earn elsewhere, including a normal rate of return to capital. Therefore the relevant concept for measuring a firm’s welfare change in the long-run is that of economic profit. Quasi-rents 

would have no operational meaning, being simply equal to economic profit if correctly measured. 

There is no direct connection between the economic concepts of the short-and longrun and calendar time. Instead, the amount of time required before all inputs can 

be considered variable will vary across industries, although it is plausible that in 

any given industry the number of inputs that are fixed will decrease with the length 

of time being considered. 

Thus the first-step in attempting to use quasi-rent data to measure changes in 

a firm’s welfare should be a careful evaluation of which, if any, inputs are fixed, 

given the period of time over which changes are being evaluated. Simply assuming 

that labor and material inputs are variable and all other inputs are fixed, as done 

by Matulich and Clark, is not adequate even for a period as short as a year, and 

is clearly unjustified for the seven-year period over which they evaluated changes. 

To illustrate the type of error their assumption can introduce in the measurement 

of welfare change, consider the results of applying Matulich and Clark’s definition 

of quasi-rents to evaluate changes that are distant enough in time for all inputs to 

be variable. Further suppose for ease of exposition that in both periods the price 

of processed fish is $1.00, the cost of raw fish is $0.40, and average cost is $0.50. 

Thus economic profit per unit would be equal to $0.10 in both periods and the firm’s 

welfare would be unchanged. Nevertheless, if the firm had become more labor intensive over time, the unit quasi-rent as calculated by Matulich and Clark would have 

indicated a decrease in welfare. For example, if average costs were split equally between capital and labor costs in the first period, but labor costs accounted for 80 

percent of average costs in the second period, the unit quasi-rent as calculated by 

Matulich and Clark would have decreased from $0.35 to $0.20, a decrease of 43 percent. 

While this example is hypothetical, it does illustrate that quasi-rent as evaluated 

by Matulich and Clark does not provide reliable estimates of changes in welfare 

over longer periods of time. More specifically, increases in labor intensity, other 

things equal, will result in decreases in welfare as evaluated by their measure. 

Lastly, even if reliable estimates of welfare changes were obtained, their normative significance would depend in part on the benchmark on which they were 

based. Matulich and Clark choose as their benchmark the welfare of processors in 

1992–1993, asserting that this period represented an open-access long-run equilibrium. One reason for doubting this assumption is that it is not clear that the fishery would have stabilized at the 1992 levels in the absence of an IFQ program. If 

not, then a more appropriate benchmark would be the counterfactual case of how 

the fishery would have developed in the absence of a program. 

More directly, the 1992–1993 experience reflected the fact that fishery participants expected an IFQ program to be implemented, and this provided incentives for 

different behavior than would have occurred in an open-access equilibrium. For example, harvesters might have considered it worthwhile to fish at a loss in order to 

try to capture or protect catch history. 

Empirical methodology: 

Matulich and Clark obtained the data used to estimate changes in quasi-rents 

from a questionnaire distributed to a sample of processors. The principal types of 

data requested were total revenue, total raw fish cost, and total variable processing 

costs, defined as the aggregate of several specific cost elements, including custom 

processing fees, wage and housing costs for direct labor, and packaging and freight 

119 

costs. Data on total revenue and total raw fish cost were verifiable from Alaska Department of Fish and Game data, the data for variable processing costs were not. 

Economists using survey research techniques have noted that the design of a 

questionnaire can result in a number of different types of biases. In particular, respondents may engage in strategic misrepresentation of the data if it is clearly in 

their economic interests to do so. Therefore, one of the most important protocols for 

survey design is to avoid providing material that establishes a clear link between 

a participant’s responses and his or her economic interests. 

The survey design used by Matulich and Clark clearly violates this protocol. The 

material accompanying the questionnaire noted that Professor Matulich was the 

principal investigator, that he had written an article showing that the type of program used for halibut and sablefish transfers wealth from processors to harvesters, 

and that the purpose of this survey was to see if that was true empirically. It was 

further noted that the purpose of the study was to obtain information for use in 

evaluating future rationalization programs; in particular to help policy makers to 

avoid unintended distributive effects, and that distributional impacts would be 

based on measuring changes in processors’ total revenue minus various processing 

costs. 

This material would have made it clear to the processors how their responses 

could benefit or harm them in the future when other fisheries in which they participated were rationalized, and this would have provided an incentive for strategic 

misrepresentation. At a minimum, processors that had benefited from the IFQ program would realize that reporting this might be harmful to their future interests, 

and therefore have simply not participated in the survey. 

An important difficulty in assessing the treatment of a number of empirical issues 

is that the discussion in the report is often qualitative where it would normally be 

expected to be quantitative. Examples include the section on data problems where 

it is noted that it was ‘‘not uncommon’’ for aggregation problems to prevent accurately measuring variable processing costs, and that ‘‘some’’ firms were unable to 

access historical data. No information is provided on the number of firms that were 

eliminated from the sample for these reasons. Similarly, they report that there were 

a ‘‘few’’ instances’’ where inventory issues were ‘‘problematic’’. 

In addition, Matulich and Clark report that some firms were considered to be 

outliers, usually by exhibiting unrealistically high quasi-rents. These firms were 

contacted for an explanation, and if it was not satisfactory, the firm was dropped 

from the sample or its data replaced by the sample average. The number of firms 

considered outliers, how many were considered to report too high quasi-rents, how 

many justified their data, were dropped, or had their data replaced by sample averages, is not specified. 

Lastly, and most surprisingly, Matulich and Clark do not report the number of 

participants included in the final data. They report that the number of buyers/processors asked to participate in the survey was 53 for halibut and 46 for sablefish, 

accounting for 88 percent to 96 percent of all fish purchased, and that the retained 

survey data accounts for 52 percent to 61 percent of fish purchased. Given the degree of concentration in these fisheries, this may or may not represent a substantial 

percentage of the number of total firms. 

Matulich and Clark do note that the final sample does not include data for any 

firms that exited the fisheries, which accounted for one-fifth of the total 1992–1993 

catch in both fisheries. Although these firms might be expected to have been less 

profitable than the surviving firms, they are assumed to have had the same quasirent share in 1992–1993 as the surviving firms. Similarly, surviving firms that lost 

market share are assumed to have had the same quasi-rent share as the firms increasing market share. 

Matulich and Clark conclude from their analysis that 82 percent of the halibut 

processing sector (as measured by raw fish weight rather than number of firms) lost 

quasi-rents relative to the pre-IFQ period, with the average loss being 56 percent. 

Even more dramatic results are reported for the sablefish processing sector. However these results cannot be considered to be reflective of the actual effects on the 

economic welfare of processors. The basic problem with their approach is that the 

results depend on the estimates of total variable processing costs, which in turn depend on arbitrary, and unrealistic, assumptions concerning which inputs are variable over a seven-year time span. In addition, estimation of total variable costs conditional on these assumptions depends on survey data from processors, who can be 

expected to clearly realize that there are incentives for strategic misrepresentation. 

4. Rationales for Compensation 

As discussed in the previous two sections, there are no general theoretical or empirical grounds for concluding that processors as a whole are likely to be adversely 

120 

affected by the implementation of an IFQ program. However, it is possible that situations could arise where processors would be adversely affected. Therefore it is useful to consider whether it would be desirable to incorporate measures to prevent 

such adverse effects from occurring, or to compensate processors if they do occur. 

Arguments have been put forward for preventing processors from being harmed by 

rationalization programs based on considerations of both efficiency and equity. Each 

type of rationale will be considered in turn. 

Efficiency 

One rationale advanced for compensating processors for possible losses is that not 

doing so could have adverse consequences for economic efficiency by creating impediments to the implementation of efficiency-enhancing rationalization programs. This 

possible source of inefficiency is emphasized by Matulich, Mittelhammer, and 

Reberte (1996). Having concluded that processors could suffer losses as the result 

of the introduction of IFQs in a perfectly competitive fishery, they note (page 112), 

‘‘These losses could promote political gridlock and jeopardize adoption of an ITQ policy unless they are fully compensated or redistribution is avoided by a policy-superior initial allocation of rights to both harvesters and processors.’’ 

This argument assumes that processors do not have enough economic bargaining 

power in rationalized fisheries to avoid losses, but do have enough political bargaining power to block efficiency-enhancing rationalization programs. However, as 

the Halvorsen, Khalil, and Lawarree analysis of the BSAI pollock fishery indicated, 

processors may in fact have more bargaining power than harvesters in real-world 

fisheries. 

Therefore, a situation in which processors seek rent-enhancing mechanisms as the 

price of agreeing to rationalization programs may simply reflect the desire of processors to obtain a larger share of the net benefits the program would create, rather 

than that they are seeking to protect themselves from suffering losses. Under these 

circumstances, utilizing mechanisms to enhance the processors’ share of the net benefits could actually create new impediments to the implementation of rationalization 

programs by causing harvesters to fear that they would lose out from the implementation of the program. 

The history of the American Fisheries Act is instructive in this regard. Rationalization of the BSAI pollock fishery was based on the creation of harvesting cooperatives. Processors in the inshore sector expressed concern that cooperatives might put 

them at a bargaining disadvantage. In response, the AFA rules for cooperatives required that they be processor-specific, and that membership in the cooperative for 

each processor was limited to vessels that were qualified for that processor, as determined by where a catcher vessel had previously delivered the largest share of its 

total catch. 

In response, an association of independent catcher vessel owners expressed concern that the AFA rules for inshore cooperatives would harm them because of the 

restrictions placed on where they could market their fish, and proposed an alternative set of rules known as the Dooley-Hall proposal. Resolution of this conflict required extensive hearings before the North Pacific Fisheries Management Council. 

In addition, concerns were raised about the effects of processor-specific cooperatives 

on small entities as defined in the Regulatory Flexibility Act. 

Another possible disadvantage of responding to processors’ resistance to the adoption of a rationalization program by incorporating mechanisms to enhance their position is that doing so might have adverse efficiency consequences in the longer run. 

If it appears that policy makers are willing to appease opponents of rationalization 

by enhancing their rewards, this will provide incentives for increased obstructive behavior in the future, and thereby imperil the implementation of rationalization programs in other fisheries. 

Equity 

The other principle rationale for compensating processors against possible losses 

is that it would be inequitable not to do so. For example, Plesha and Riley (1992) 

and Matulich, Mittelhammer, and Reberte (1996) argue that there is a Fifth Amendment ‘‘taking’’ issue if the rationalization of a fishery results in losses for processors. 

Without attempting to address the implied legal issues, some observations can be 

made on whether investment losses from rationalization are inequitable from an 

economic point of few. It seems unlikely that the investments assumed to be at risk 

from rationalization were made with the anticipation that the race for fish was certain to be the long-run equilibrium outcome for the fishery in question. Faced with 

an uncertain future, processors’ investment decisions can be assumed to have taken 

into account the possibility of various alternative scenarios, including regulatory 

policies to end the race for fish. Accordingly, investment decisions would be optiVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00124 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
121 

mized to reflect trade-offs between the various possible future outcomes. For example, there might be a trade-off between further increasing investment in capacity 

in order to secure competitive advantages by, for example, deterring the entry of 

new processing firms into the fishery, versus the advantage of having the smaller 

amount of capacity that would be optimal if the race for fish were ended. It is not 

clear why losses that had been anticipated to occur under a particular scenario 

should instead be compensated on equity grounds when that scenario turns out to 

be the actual outcome. 

Another equity issue concerns the distribution of net benefits within the processing sector. For example, as noted above, in a processing sector comprising some 

firms that are vertically-integrated and some that are not, the non-integrated processors would be more susceptible to suffering losses from rationalization than would 

the integrated processors. But the choice to not be vertically-integrated presumably 

reflects a judgement by these firms that they obtained enough economic advantages 

by refraining from acquiring harvesting capacity to compensate for the increased 

risk of losses if the fishery were rationalized. Adopting a policy to compensate all 

processing firms for possible losses would change the anticipated benefits and costs 

of these business decisions after the fact and thereby effectively discriminate in 

favor of the non-integrated firms, partly at the cost of harvesters. 

Matulich and Sever (1999) use the term ‘‘Pareto safe’’ to refer to the concept of 

a rationalization program that is ‘‘equitable in the sense of not redistributing status 

quo ante wealth of historical participants’’ (page 204). They then argue that if a rationalization program is not Pareto safe, ‘‘politically powerful interest groups may 

form to block a switch to ITQ management, jeopardizing the efficiency benefits of 

rights-based fishing (page 215). The desirability, and feasibility, of relying on the 

concept of Pareto safety in designing and evaluating fishery rationalization polices 

is discussed in the following section. 

5. Pareto Safe Rationalization 

Although the term ‘‘Pareto safe’’ appears to have originated in the writings of 

Matulich and his co-authors, essentially the same concept has been long known in 

the economic policy analysis literature as the Pareto criterion. ‘‘The logical criterion 

for proving that a policy change, or any other change, is beneficial was first stated 

by a nineteenth century Italian social scientist, Vilfredo Pareto. Pareto’s rule is very 

simple: Program X improves the welfare of the society if it makes at least one person better off and no one worse off.’’ (Gramlich 1990). 

The recommendation by Matulich and his co-authors that fishery rationalization 

policies should be required to be Pareto safe is equivalent to saying that they should 

satisfy the Pareto criterion. However, the Pareto criterion only provides information 

on a policy’s effect on economic welfare when the policy would result in no individual being made worse off. A policy that involved small losses to one individual, 

and large gains to many others, would fail the Pareto criterion, even though it 

might have a large positive effect on economic welfare. And virtually all feasible 

public policies result in at least one individual being made worse off. 

This has led to the general rejection of the Pareto criterion as a practical basis 

for evaluating public policies. As Ng (1984, page 1033) summarizes, ‘‘The Pareto criterion is widely accepted as a sufficient condition for an improvement in social welfare. . . . However, most, if not all, changes in the real world involve making some 

better off and some (no matter how small the number) worse off. Thus the Pareto 

criterion in itself is of little practical use.’’ 

The practical difficulties of trying to implement Pareto safe fishery rationalization 

policies can be illustrated by considering the effects on individual harvesters of implementing an IFQ program. Matulich, Mittelhammer and Reberte (1996, page 112) 

indicate that an IFQ policy would be Pareto safe within the harvesting sector, because ‘‘endowing individual harvesters with fully transferable, permanent, and exclusive fishing rights is tantamount to assigning property rights over the fish stock 

. . . [an important benefit] . . . arises out of gains from free trade in which more 

efficient users of the resource are able to purchase rights from less efficient users. 

Such trade fully compensates the sellers.’’ While this is a reasonable summary of 

the efficiency arguments in favor of IFQs, it does not provide a basis for concluding 

that no individual harvesters are made worse off. 

There are at least two ways in which individual harvesters can be made worse 

off under an IFQ program. First, it is not feasible to ensure that the original distribution of quota among harvesters matches their actual participation in the fishery. For example, a standard procedure is to base quota share allocations on catch 

history over some historic period. If a participant’s harvest was unusually low during all or part of that period he may not receive sufficient quota to leave him as 

well off as before. Similarly, if the catch history period is not fairly recent, a large 

122 

proportion of the quota shares may go to individuals no longer active in the fishery 

rather than to those currently active (see, for example, North Pacific Fishery Management Council 2002, Appendix 2-7, page 8). Second, the assumption that the price 

of quota will fully compensate the sellers depends on the implicit assumption that 

the market for quotas is perfectly competitive, which need not be the case (Anderson 

1991). 

It should be noted that similar issues could arise in a program involving the allocation of individual processor quotas. The allocation of the quotas might not reflect 

an individual processor’s actual participation in the fishery, for example if a facility 

was incapacitated during part of the historic period used to determine shares. And 

fisheries with a small number of processing firms, or a few large and many small 

firms, are particularly susceptible to market imperfections that might prevent the 

price of quota from fully compensating the seller. 

Thus the Pareto safe concept is not of much practical help in evaluating the effects of fishery rationalization programs at the individual participant level. Matulich 

and his co-authors in fact rarely refer to applying the Pareto safe concept at this 

level, but instead focus on Pareto safety at the level of the aggregate harvesting and 

processing sectors. In particular, as noted above in section 4, they suggest that a 

rationalization policy is unlikely to be adopted if it would create uncompensated 

losses for the processing sector. 

Matulich, Mittelhammer and Reberte (1996, page 126) speculate that a Pareto 

safe allocation might be obtained under a ‘‘symmetrical rights distribution’’ and suggest, ‘‘Candidates worthy of consideration include (i) a split of harvest quota shares 

between fishers and processors; (ii) a ‘‘two-pie’’ allocation, in which catching rights 

are awarded to fishers and processing rights are awarded to processors; and (iii) 

full-utilization quota shares. . . .’’ 

Matulich and Sever (1999) investigate the properties of the first two of these proposals, referring to the first one as a ‘‘one-pie split allocation.’’ They first consider 

the application of the one-and two-pie allocations to a fishery that is perfectly competitive and conclude that neither type of allocation is capable of providing policy 

feasible Pareto safe outcomes. They then consider the application of these allocations to a bilateral monopoly. The one-pie allocation is again concluded to not be 

capable of providing policy feasible Pareto safe outcomes. However, they claim to 

show that the two-pie system is guaranteed to be Pareto safe not only at the aggregate level but also at the level of individual participants. The validity of this remarkable claim is discussed in the following section. 

6. Two-Pie Allocations and Pareto Safety 

Matulich and Sever’s attempt to demonstrate that a two-pie allocation would be 

Pareto safe in a bilateral monopoly is based on a series of dubious assumptions. The 

first is their assumption that the bilateral monopoly would be able to negotiate an 

ex vessel price that maximized joint profits under conditions of a race for fish, but 

would be unable to negotiate rationalization measures that would end the race for 

fish and thereby increase the potential joint profits. No explanation is given for this 

assumed constraint on the bilateral monopoly’s ability to maximize joint profits. Instead it is simply implicitly assumed that the race for fish can be ended only by 

an externally imposed rationalization program. 

In their analysis of the two-pie allocation, efficiency is assumed to be attained 

through quota trading, and to be independent of the bargained ex vessel price. In 

particular, they note that the ex vessel price might be outside of the Pareto safe 

range. However, they argue that the actual price will fall within the Pareto safe 

range because (page 214): 

‘‘While the efficient price does not guarantee Pareto safety, intrinsic bargaining 

behavior should, provided the bargaining association is responsive to the well 

being of its entire membership. Bargaining agents have internal incentives to negotiate a price that not only maximizes joint profits (efficiency) but also leaves 

no member worse off . . . at least one Pareto-safe price exists-the open access ex 

vessel price, P0 . . . As long as the parties desire to reach a Pareto-safe agreement, they can do so by settling on a rent share that implies P0 as the ex vessel 

price. Thus, there are no functional impediments to achieving an efficient price 

that is also Pareto safe.’’ 

Matulich and Sever then use the Nash (1953) bargaining solution concept to indicate how the rent shares might be determined, given that ‘‘the bargaining agents 

are assumed to act so as to leave no member worse off under ITQs relative to open 

access’’ (page 214). The solution of the Nash model does not strengthen the claim 

that the two pie allocation is Pareto safe, but instead is performed under the assumption that the price must fall with the Pareto safe range. 

123 

In short, Matulich and Sever’s claim that ‘‘[e]ach sector is guaranteed sufficient 

quasi-rents to make all members Pareto safe’’ (page 214) is based simply on the assumption that bargaining agents will want and be able to set prices that are Pareto 

safe for all their members. This assumption is merely asserted, rather than derived 

from economic theory, and is unlikely to be satisfied in a real-world fishery, in 

which each side would contain heterogeneous participants. It is not obvious, and 

Matulich and Sever do not suggest, how such a difficult principal-agent problem in 

each sector could be structured so that the agent is constrained to leave no member 

worse off. 

Even if it is assumed for the sake of argument that both sides of the bilateral 

monopoly desire agreements that are Pareto safe as among their own members, a 

Pareto safe price need not be the outcome of the bilateral monopoly negotiation. 

This can be demonstrated using a Nash bargaining model with the outside options 

for both sides correctly specified. 

To determine the outside option for the harvester sector of the bilateral monopoly, 

consider what its alternative would be if it did not reach an agreement with the 

processor sector. Because it would have IFQs it could harvest the fish, but the processor sector could simply refuse to process the harvest. Therefore the outside option 

for the harvester sector is zero rent. Similarly, the harvester sector could threaten 

to not fish, so that the outside option for the processor sector is also zero rent, assuming that it has no processor controlled vessels. With these outside options, there 

is no reason to assume that the bargaining outcome would be Pareto safe. And if 

the processor sector also owns some catcher vessels, the outcome could be very unfavorable for harvesters, as shown in Halvorsen, Khalil, and Lawarree (2000). 

To summarize, Matulich and Sever’s claim that they have shown that a two-pie 

allocation is guaranteed to be Pareto safe under bilateral monopoly is incorrect, and 

there is no other market structure for which this claim has even been made. Therefore, no credence should be given to claims that a two-pie system is a ‘‘policy-superior initial allocation of rights’’ (Matulich, Mittelhammer and Reberte 1996, page 

112). Instead, the inclusion of IPQs in a fishery rationalization program should be 

viewed as simply one possible mechanism for enhancing outcomes for processors, 

bearing in mind that the possible outcomes under IPQs have received very little 

credible economic analysis and are untested by experience in any real-world fishery. 

References 

Anderson, Lee G. (1991), ‘‘A Note on Market Power in ITQ Fisheries,’’ Journal of 

Environmental Economics and Management, 21 (3): 291–296. 

Casey, Keith E., Christopher M. Dewees, Bruce R. Turris, and James E. Wilen 

(1995), ‘‘The Effects of Individual Vessel Quotas in the British Columbia Halibut Industry,’’ Marine Resource Economics, 10 (5): 211–230. 

Gramlich, Edward M. (1990), A Guide to Benefit-Cost Analysis, Second Edition, 

Prentice Hall. 

Halvorsen, Robert, Fahad Khalil, and Jacques Lawarree (2000), ‘‘Inshore Sector 

Catcher Vessel Cooperatives in the Bering Sea/Aleutian Islands Pollock Fisheries,’’ 

discussion paper prepared for the North Pacific Fishery Management Council, February 7. 

Matulich, Scott C. and Michael Clark (2002), ‘‘Efficiency and Equity Choices in 

Fishery Rationalization Policy Design: An Examination of the North Pacific Halibut 

and Sablefish IFQ Policy Impacts on Processors,’’ Regional Information Report No. 

5J02–02, Alaska Department of Fish and Game, January 24. 

Matulich, Scott C., Ron C. Mittelhammer, and Carlos Reberte (1996), ‘‘Toward a 

More Complete Model of Individual Transferable Fishing Quotas: Implications of Incorporating the Processing Sector,’’ Journal of Environmental Economics and Management, 31 (1): 112–28. 

Matulich, Scott C. and Murat Sever (1999), ‘‘Reconsidering the Initial Allocation 

of ITQs: The Search for a Pareto-Safe Allocation Between Fishing and Processing 

Sectors,’’ Land Economics, 75 (2): 203–19. 

Nash, John F. (1953), ‘‘Two-Person Cooperative Games,’’ Econometrica, 21 (1): 

128–40. Ng, Yew-Kwang (1984), ‘‘Quasi-Pareto Social Improvements,’’ American Economic Review, 74 (5): 1033–1050. 

North Pacific Fishery Management Council (2002), ‘‘BSAI Crab Rationalization 

Program Alternatives,’’ Initial Council Review Draft, January 22. 

Osborne, Martin and Ariel Rubinstein, Bargaining and Markets, Academic Press, 

1990. Plesha, Joseph T. and Christopher C. Riley (1992), ‘‘The Allocation of Individual Transferable Quotas to Investors in the Seafood Industry of the North Pacific,’’ photocopied. 

United States General Accounting Office (2002), ‘‘Individual Fishing Quotas: Better Information Could Improve Program Management,’’ December. 

124 

Wilen, James E. (1998), ‘‘Testimony to be Presented to the North Pacific Fishery 

Management Council Regarding Inshore/Offshore III, Bering Sea—Aleutian Islands 

Pollock Allocation,’’ photocopied. 

125 

Appendix 

Major Differences Between AFA Inshore Cooperatives and Council’s Crab Rationalization Program 

AFA Inshore Pollock Cooperatives Proposed BSAI Crab Rationalization 

Allocation of processing history: 

Initial allocation 90% of previous year’s deliveries 90% of historic share of deliveries Guaranteed percent Zero 100% Individual vessels’ ability to reallocate 10% per year, cumulative Zero Percent of vessels’ approval required to retain 80% Zero 

Regionalization: 

Decreased efficiency gains No Yes Increased processor concentration No Yes 

Complexity: 

Number of markets 7 cooperatives 15 regional fisheries Number of prices Maximum of 14 Maximum of 75 Need for price arbitration No Yes Monitoring and enforcement costs Much less than in IFQ program Much more than in IFQ program Large fluctuations in TAC No Yes 

Total benefits from rationalization: 

Increase in total TAC Yes No Buyback program No Yes Increase in value of product Large Moderate Efficiency benefits from cooperatives Scheduling, avoidance of under harvesting None if cooperatives do not form 

Information base for program evaluation 

Experience in other fisheries Whiting and offshore pollock cooperatives IPQs never before used in any fishery Experience in other markets Agricultural cooperatives None Previous theoretical analysis Extensive for IFQs and cooperatives Very little Previous empirical analysis Extensive for IFQs and cooperatives None 

126 

STATEMENT OF ROBERT HALVORSEN, PROFESSOR OF ECONOMICS, DEPARTMENT OF

ECONOMICS, UNIVERSITY OF WASHINGTON

ON IMPLICATIONS OF THE AMERICAN FISHERIES ACT FOR BERING SEA/ALEUTIAN

ISLANDS CRAB RATIONALIZATION

On behalf of the City of Kodiak, I am submitting this written testimony to the 

record of the May 20, 2003 Hearing on Bering Sea/Aleutian Island Crab Rationalization before the Committee on Commerce, Science, and Transportation of the United 

States Senate. My testimony discusses the rationalization program for the Bering 

Sea/Aleutian Islands inshore pollock fishery that was implemented under the American Fisheries Act of 1998, and the implications that can be appropriately drawn 

from this experience regarding the proposed rationalization program for the BSAI 

crab fisheries. 

The City of Kodiak also asked me to submit written testimony on the general 

issue of whether fishery rationalization programs should include explicit mechanisms to protect processors from possible adverse effects, with specific consideration 

of Individual Processor Quotas (IPQs) as one such mechanism. My testimony on this 

topic has been submitted separately and will be referred to below as Halvorsen 

(2003). 

Executive Summary 

The American Fisheries Act (AFA) included both a reallocation of total allowable 

catch from the offshore sector to the inshore sector and a rationalization program 

for the inshore sector based on cooperatives that were tied to individual processing 

facilities. In response to controversy over the AFA rules for cooperatives, the North 

Pacific Fishery Management Council commissioned studies of the effects of the proposed rules as well as of several alternatives (Halvorsen, Khalil and Lawarree, 1999 

and 2000). 

The studies concluded that the qualification requirements for membership in a cooperative disadvantaged independent catcher vessels. However, the rule that a cooperative could deliver 10 percent of its harvest to an alternative eligible processing 

facility, and, more importantly, that continued existence of a cooperative required 

approval by 80 percent of its members, decreased the probability that independent 

catcher vessel owners would be adversely affected by the AFA provisions for cooperatives. Also, the reallocation aspect of the AFA, as well as the potential efficiency benefits from rationalization of the fishery, would result in large net economic benefits for the inshore fishery as a whole. 

The principal alternative to the AFA cooperatives that was considered in the studies was the ‘‘Dooley-Hall proposal’’ under which cooperatives would be allowed to deliver to any eligible processing facility and any eligible catcher vessel would be allowed to join any cooperative. The studies concluded that, for the purpose of evaluating the effects on the distribution of the net benefits of the fishery, the Dooley 

Hall proposal could be analyzed as if it were an IFQ program. 

Two previous theoretical analyses of the distributional effects of an IFQ program 

(Plesha and Riley, 1992 and Matulich, Mittelhammer, and Reberte, 1996) had concluded that an IFQ program would have highly adverse effects on processors, and 

Professor Matulich argued that this would be the result of implementing the DooleyHall proposal in the inshore pollock fishery. However, the theoretical analyses had 

little relevance for the inshore pollock fishery. They assumed cutthroat competition 

among processors, whereas this was highly unlikely given the degree of concentration and other market structure characteristics. Also, the models assumed that processors received no IFQs but in the pollock fishery processor-controlled vessels would 

receive at least half of the total harvest allocation. The models also ignored the existence of differentiated capital, informational rents, and alternative uses for capital. 

The Halvorsen, Khalil and Lawarree studies included a consideration of the results of the Dooley-Hall proposal under the extreme alternative assumption that the 

fishery was a bilateral monopoly, with processors behaving as if they were one entity (a monopsony), and a Dooley-Hall cooperative containing all independent catcher 

vessels acting as a monopoly. It was noted that the bilateral monopoly model was 

highly unlikely to be an appropriate characterization of the fishery. One reason for 

considering this model was that it was the market structure for the inshore pollock 

fishery that Matulich and Sever (1999) had assumed in their study of a ‘‘two-pie’’ 

allocation. Halvorsen, Khalil and Lawarree concluded that under a bilateral monopoly processors would attain at least three-fourths of the total net benefits of the fishery. 

The analysis of the Dooley-Hall proposal under the assumption of either cutthroat 

competition or bilateral monopoly did not provide a realistic prediction of actual outVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00130 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
127 

comes in the inshore pollock fishery. Under more realistic assumptions concerning 

the fishery the most reasonable outcome was that independent catcher vessel owners would fare somewhat better, and processors would fare somewhat worse, under 

the Dooley-Hall proposal than under the AFA, but this did not imply that a rationalization program based on the Dooley-Hall proposal would have adverse effects on 

processors. 

The Council decided to retain the original AFA provisions for cooperatives in implementing the rationalization program for the inshore pollock fishery. The actual 

experience of the fishery subsequent to rationalization has been consistent with the 

overall economic analysis of Halvorsen, Khalil, and Lawarree. Total net economic 

benefits in the inshore sector were increased because of the increase in the sector’s 

share of the total allowable catch (TAC), as well as substantial increases in the TAC 

itself. In addition, implementation of the cooperatives has resulted in increased efficiency, including increases in the value of output and decreases in harvesting costs. 

As a result, the net effects of the AFA on both harvesters and processors is generally agreed to have been positive, although the relative size of the benefits remains a matter of contention. 

In its deliberations concerning rationalization of the BSAI crab fisheries, the 

Council considered the use of a program similar to the AFA cooperatives in the 

inshore pollock fishery, as well as an entirely different type of rationalization program based on the use of both IFQs for harvesters and individual processing quotas 

(IPQs) for processors. As in the case of the inshore pollock fishery, the Council commissioned an independent economic analysis of the proposed alternatives. The 

study, Milon and Hamilton (2002), concluded that a two-pie system in which processors were allocated IPQs for the entire harvest would result in the processors capturing all of the net economic benefits from the fishery. 

The study also considered a program with both Class A harvesting quotas that 

must be delivered to processors that hold IPQs, and Class B harvesting quotas that 

may be delivered to any processor. As the ratio of B to A quotas increases, harvesters fare better. If all harvesting quotas are Class B, the outcome is the same 

as for an IFQ only program, with the likelihood that both harvesters and processors 

would benefit from rationalization. 

The Milon and Hamilton study also considers the effects of regionalization of the 

fisheries. It concludes that regionalization reduces cost efficiency by imposing constraints that prevent harvest within a region being transferable to other regions. In 

addition, regionalization increases the market power of processors, resulting in 

lower ex vessel prices. 

Milon and Hamilton’s conclusion that both harvesters and processors are able to 

gain under an IFQ program that did not include IPQs is consistent with Halvorsen, 

Khalil, and Lawarree’s analysis of the Dooley-Hall proposal under the AFA. As in 

other individual harvesting quota programs, the implementation of an IFQ program 

in the BSAI crab fisheries would allow the creation of rents and facilitate rationalization in both the harvesting and processing sectors. The realization of significant 

economic benefits from rationalization of the fisheries would make it possible for 

both processors and harvesters to benefit, and both the Halvorsen, Khalil and 

Lawarree study and the Milon and Hamilton study indicate that this is the most 

likely outcome. The research program by Professor Matulich that has attempted to 

establish the presumption that harvesters would gain and processors would lose 

under an IFQ program is simply not credible, either on theoretical or empirical 

grounds. 

The ‘‘three-pie voluntary cooperative program’’ proposed by the Council for the 

BSAI crab fisheries includes both regionalization and the requirement that 90 percent of total harvesting quotas be Class A shares that can only be delivered to processors holding IPQs. Class B shares, which can be delivered to processors that do 

not hold IPQs, account for I 0 percent of the harvest allocation. As opposed to the 

likely outcome under a standard IFQ program that both processors and harvesters 

would benefit, the Milon and Hamilton study concludes that a program in which 

processors receive IPQs equal to the total harvest would benefit only processors, 

with the value of harvester IFQs being driven to zero. They also conclude that as 

the ratio of IPQs to IFQs decreases, harvesters will fare better. However, there is 

no reason to believe that reducing the IPQ share from 100 percent to 90 percent 

is sufficient to allow independent catcher vessels to avoid adverse effects from the 

rationalization program. 

The basis for the Council’s conclusion that a 90 percent-10 percent program would 

balance the interests of both processors and harvesters is not clear. Some proponents of the IPQ program have based their arguments in its favor on an analogy 

with the AFA inshore pollock cooperatives. It is now generally agreed that outcomes 

under the AFA cooperatives benefited both processors and harvesters. However, the 

128 

90 percent-10 percent IPQ program is fundamentally different from the AFA. The 

only apparent similarity is that a cooperative can deliver 10 percent of its harvest 

to an eligible processing facility other than the one it is qualified for under the AFA, 

and harvesters could deliver 10 percent of their harvests to processors without IPQs 

under the proposed program for the BSAI crab fisheries. However this apparent 

similarity is purely superficial and does not imply, as some proponents have argued, 

that processors are guaranteed 90 percent of their historic processing shares under 

the AFA program as well as under the three-pie program. 

There is in fact no basis for believing that the rationalization program proposed 

for the BSAI crab fisheries will have similar outcomes to those obtained under the 

AFA cooperatives for the inshore pollock fishery. Instead, the crab rationalization 

program as currently structured is much more advantageous for processors both because of the guarantee of 90 percent of their processing history and because of the 

regionalization restrictions. The program is also far more complex, making it problematic that market processes can be relied on for the determination of appropriate 

prices. And there is less of a margin for error in case of unintended distributional 

effects because the net benefits to the fishery as a whole are expected to be substantially smaller. Some of the major differences between the two programs are summarized in the Appendix. 

The generally favorable outcomes under the AFA provide no assurance of favorable outcomes under the proposed rationalization program for the BSAI crab fisheries. The 90 percent-10 percent proposal appears to be a step in the direction of 

a compromise that less overwhelmingly favors processors than a 100 percent IPQ 

program would. However, it is not clear why the 100 percent program should have 

been the apparent starting point. 

A more obvious approach would be to begin by considering the effects of a standard IFQ program. Both the Halvorsen, Khalil and Lawarree study and the Milon 

and Hamilton study indicate that a straight IFQ program would benefit both harvesters and processors. Given the existence of concerns that an IFQ program might 

instead result in adverse outcomes for processors, consideration of modifications to 

the program to rebalance the outcomes would be reasonable. Regionalization is one 

such modification, and whatever its primary purpose, one effect of regionalization 

in the BSAI crab rationalization program is to increase processors’ bargaining 

power. 

The allocation of IPQs would be another possible modification. Restricting deliveries of some portion of the harvest under IFQs to processors holding IPQs would 

tilt the distribution of the benefits of the program in favor of processors, with processors faring better the larger the share of IPQs in the total harvest. Given that 

it is not clear that processors would fare badly without IPQs, as well as the total 

lack of practical experience with IPQs, it would be reasonable to limit the original 

allocation of IPQs to a modest share of the total harvest. And if the goal is to have 

an effect similar to the overall provisions of the AFA inshore cooperatives, which 

allow for the possibility that a processor’s claim on its processing share can be eroded over time or even be completely lost, then this share should most likely be less 

than 50 percent. 

The Council has commendably committed itself to closely monitoring the outcomes 

under the BSAI crab rationalization program and making modifications to the program if the outcomes are judged to be unsatisfactory. Therefore, if it turned out that 

the initial allocation of IPQs was seen to be causing unsatisfactory results, the 

Council could modify the allocation accordingly. Because IPQs do not contribute to 

the realization of the efficiency benefits of rationalization, such changes would have 

primarily only distributional results. Such a flexible approach would appear to be 

clearly superior to one in which the Council commits itself to a 90 percent-10 percent program with the intention of making unspecified modifications to other aspects of the program if the outcomes are considered unsatisfactory. 

American Fisheries Act 

The AFA increased total net economic benefits in the inshore sector of the BSAI 

pollock fishery in two major ways; it increased the inshore sector’s share of the total 

allowable catch from 35 percent to 50 percent, and it made rationalization of the 

fishery possible through the formation of harvesting cooperatives. Each cooperative 

was to be allocated a share of the inshore sector’s TAC based on the catch history 

of the vessels belonging to the cooperative. Therefore, the AFA made it possible for 

catcher vessels that joined a cooperative to obtain pollock harvest allocations despite 

the moratorium on new IFQ programs. Because inshore processors had expressed 

concern that this might put them at a bargaining disadvantage, the AFA required 

that each cooperative be tied to a specific processing facility. 

129 

AFA cooperatives 

Under the AFA cooperative provisions, qualification for membership in a cooperative is based on the facility to which a catcher vessel delivered the largest share 

of its total catch in the previous year. If a catcher vessel does not join a cooperative 

it can fish for the share of the total inshore allocation not apportioned to the cooperatives. The term ‘‘open access fishery’’ is used to refer to this part of the inshore 

pollock fishery, with the understanding that access of catcher vessels and processing 

facilities is limited by the AFA. A catcher vessel fishing in open access can chose 

to remain in open access and deliver its fish to the eligible processing facility, or 

facilities, offering the best price. Alternatively, it can chose in any year to join the 

cooperative associated with the processing facility to which it delivered the largest 

share of its fish in the previous year. 

During the Council’s deliberations concerning the implementation of the AFA, an 

association of independent catcher vessel owners protested to the Council that the 

AFA rules for inshore cooperatives would be harmful to them because of the restrictions on where they could market their fish. The association proposed an alternative 

set of rules, which became known as the Dooley-Hall proposal. The most important 

proposed change was to eliminate the qualification requirements so that a cooperative could deliver to any eligible processing facility and any eligible catcher vessel 

could join any cooperative. 

In response, the Council commissioned a study by myself and two University of 

Washington colleagues to help determine if the implementation of the inshore sector 

cooperatives as provided for in the AFA would have beneficial or adverse effects on 

independent vessel owners and to evaluate the effects of alternative proposals 

(Halvorsen, Khalil and Lawarree, 1999). Subsequently, the Council commissioned a 

second study that included the evaluation of an expanded set of alternative proposals (Halvorsen, Khalil and Lawarree, 2000). The studies were extensive and included interviews with many participants in the pollock fishery as well as theoretical and empirical economic analysis. 

The interviews with participants were consistent with respect to two issues; that 

the AFA provisions for cooperatives were designed to avoid any possible adverse effects of rationalization on processors, and that processors would fare worse, and 

independent catcher vessels would fare better, under the Dooley-Hall proposal than 

under the AFA cooperatives. However, there was sharp disagreement concerning the 

magnitude of the distributional effects. We had representatives of processors tell us 

that both sides would gain under the AFA rules, whereas the processors would lose 

disastrously under the Dooley-Hall proposal, while representatives of independent 

catcher vessel owners said that both sides would gain under the Dooley-Hall proposal, whereas they would lose disastrously under the AFA rules. 

In addition, one academic economist, Professor Scott C. Matulich, whose research 

was funded by some of the processors, claimed in public testimony at the October 

1999 Council Meeting that his research proved that everyone would gain under the 

AFA cooperative provisions whereas processors would lose disastrously under the 

Dooley-Hall proposals. [The research upon which Professor Matulich based these 

conclusions is critically reviewed in the written testimony that I submitted on 

May 20, 2003 (Halvorsen 2003)]. He subsequently amended his position and testified at the June 2000 Council meeting that the AFA had introduced a new market 

failure that ‘‘encourages vertically integrated processors to impose higher average 

raw fish costs on non-integrated or less integrated processors’’ which could drive 

them out of business, even if the non-integrated processors were more efficient. Furthermore, the AFA ‘‘may be the death knell of the independent fisherman’’ because 

all processors would want to become vertically integrated (Matulich 2000, page 15). 

Our studies reached much more moderate conclusions than were expressed either 

in the participant interviews or Professor Matulich’s testimony. We concluded that 

the balance of bargaining power in the fishery under the AFA provisions for cooperatives favored processors, because the apparent necessity of spending a year in 

open access in order to change processing facilities could be very costly for a catcher 

vessel. Therefore there was a significant probability that independent catcher vessels would be adversely affected by the AFA’s provisions for cooperatives. However, 

we also noted that the positive net benefits from the reallocation aspect of the AFA, 

as well as the potential net economic benefits from rationalization of the fishery, decreased the likelihood that catcher vessels would be adversely affected relative to 

the situation pre-AFA. 

We also concluded that two other provisions of the AFA would decrease the probability that independent catcher vessel owners would be adversely affected. One was 

the rule that the cooperative contract could provide for up to 10 percent of a cooperative’s harvest to be processed by a different processing facility. In our study 

we noted that cooperatives were expected to be able to negotiate a higher price for 

130 

the 10 percent of their deliveries that could be delivered to any eligible processing 

facility. However, it turned out that there was a more important way in which the 

10 percent rule improved an independent catcher vessel’s bargaining power, which 

we did not recognize at the time of our study. 

The principal reason for expecting that independent catcher vessels might be adversely affected by the AFA provisions for cooperatives was that the apparent necessity of spending a year in open access in order to change processing facilities could 

be very costly. What we did not anticipate was that, by utilizing the 10 percent of 

the cooperative’s harvest that could be delivered to another eligible processing facility, catcher vessels have been able to qualify for a new cooperative without having 

to spend a year in open access. This has been possible because the 10 percent applies to the cooperative’s collective deliveries, not to each individual vessel’s deliveries. Therefore the 10 percent rule freed up enough fish to make it feasible for even 

a large vessel to deliver more of its harvest to a new processing facility than to its 

existing facility and therefore to be able to switch processors without incurring the 

cost of going through open access. 

This has improved the bargaining power of independent catcher vessels more than 

we expected, because if they are not satisfied with the outcome of price negotiations 

they can credibly threaten to switch processors in the following year. If switching 

did occur, a processing facility’s claim on its cooperative’s original total harvest 

could decrease cumulatively over time at a rate of up to 10 percent per year, so that 

by the end of the original five year life of the AFA it might have lost more than 

40 percent of its original processing share. And the process of erosion could continue 

into subsequent years if, as happened, the life of the AFA was extended. From the 

point of view of the affected processing facility, the experience in the first five years 

would be the equivalent in the proposed BSAI crab rationalization plan to having 

its individual processing quota decrease from 90 percent of its processing history to 

less than 50 percent. 

The other provision that was favorable for independent catcher vessels was the 

rule that a cooperative had to be approved by 80 percent of the catching vessels 

qualified for it. This rule was even more important for the bargaining power of independent catcher vessels than the 10 percent rule, because it involved the possibility 

of a processing facility losing its entire claim on its cooperative’s original total harvest. The rule made it possible for independent catcher vessels to credibly threaten 

to dissolve their cooperative by voting against its continued existence. This would 

not only deprive the processor of any claim on the deliveries of the independent 

catcher vessels, it would also cause the processor to lose the catch allocations of any 

catcher vessels that it owned, because catch allocations could only be obtained 

through membership in a cooperative. 

The 80 percent rule makes the continued existence of a cooperative from year to 

year quite uncertain. As a result, the National Marine Fisheries service required 

that each in shore cooperative apply for its allocation on an annual basis. Each cooperative must apply for its allocation annually and must certify annually that the cooperative meets all the requirements in the AFA and its associated regulations. If 

it is not able to do so, the processing facility will lose its entire claim on its processing share. 

Dooley-Hall cooperatives 

The Dooley-Hall proposal would have modified or eliminated several of the AFA 

rules for inshore cooperatives. The most important proposed change was to eliminate the qualification requirements, so that cooperatives would not be tied to specific processing facilities. Instead, under the Dooley-Hall proposal a cooperative 

could deliver to any eligible processing facility, and any eligible catcher vessel could 

join any cooperative. Elimination of the qualification requirements would make the 

80 percent rule inoperable, and it would be replaced by a rule requiring that the 

cooperative contract be signed by the owners of five or more catcher vessels. 

Except for the requirement that catcher vessels would have to belong to a cooperative in order to obtain the advantages of pollock harvest allocations, the Dooley Hall 

proposal would be essentially equivalent to an IFQ program. The cooperative requirement had some important practical implications for the management of the 

fishery, for example, with respect to monitoring and enforcement issues. However, 

for the purpose of evaluating the principal effects of the Dooley-Hall alternative on 

the different types of participants in the fishery, it could be analyzed as if it were 

an IFQ program. This also implies that our analysis of the Dooley-Hall proposal is 

relevant for the analysis of implementing an IFQ program in a fishery with similar 

characteristics to the inshore pollock fishery. 

At the time of our analysis, there already existed a considerable amount of theoretical and empirical information on fishery management programs involving IFQs, 

131 

including the National Research Council (1999) study mandated by the Sustainable 

Fisheries Act of 1996. A consistent finding in these studies was that IFQ programs 

score highly on efficiency grounds, allowing the creation of rents and facilitating rationalization in both the harvesting and processing sectors. However, some of the 

studies also note that implementation of these programs could result in adverse effects on some participants in the fishery, and that the distributional effects of IFQ 

programs have been controversial. 

As noted above, the principal controversy with respect to the AFA and Dooley 

Hall proposals was their effects on the relative well-being of processors and harvesters. Our analysis showed that the degree of competitive behavior among processors would be the most critical factor in determining outcomes under the DooleyHall proposal. Processors had a number of important bargaining advantages. Their 

ownership of catching vessels reduced their reliance on supply from independent 

catcher vessels, while also providing them an informational advantage given that 

independent catcher vessels did not own inshore processing plants. Independent 

catcher vessels did have the advantage of being able to legally bargain as a group 

through the Bering Sea Marketing Association (BSMA), but the BSMA did not represent all of the catcher vessels and the largest processor was not a party to the 

negotiations. 

The basic change that the AFA made in the economic circumstances of the fishery 

was that catcher vessels would have a claim on the available harvest allocation 

based on their catch history. Historically, the lack of such a claim had been the primary incentive for the race to fish, and therefore the AFA was expected to decrease 

the daily rate of harvest and thereby extend harvesting periods. This in turn would 

create a large amount of extra capacity in both the harvesting and processing sectors, which might affect the degree of competitive behavior among processors. 

However, the processing sector was very concentrated, entry was legally blocked 

by the AFA, and processors should anticipate that aggressive tactics that gave them 

short term gains would not be profitable in the long run because they can all engage 

in such tactics. We did not believe that even the large amount of excess capacity 

that was anticipated would make the processors blind to the benefits of moderate 

competition. Their investments in capacity were sunk costs and cutthroat competition would not make them profitable. Therefore, it was highly improbable that the 

situation would deteriorate, from the processors’ point of view, into one of cutthroat 

competition. However, because this was not a logical impossibility, the outcomes 

that would be produced by Dooley-Hall proposal under cutthroat competition were 

examined. 

This case had previously been considered in the context of a race for fish that is 

ended by the introduction of IFQs, first in a theoretical analysis conducted by two 

employees of Trident Seafood (Plesha and Riley, 1992), and subsequently in a paper 

by Matulich, Mittelhammer, and Reberte (1996). The latter paper was the basis for 

Professor Matulich’s Council testimony concerning the effects of the Dooley-Hall proposal. The paper concluded that if processing capital had no alternative uses or salvage value, then the excess capacity created by an IFQ program would cause the 

ex vessel price of fish to increase to the point where it was equal to the difference 

between final product price and short-run average variable processing cost. Processors would leave the industry until excess capacity no longer existed. During the 

transitional period, catcher vessels not only would gain all the rents from the fish, 

but also the ‘‘quasi-rents’’ from the processors’ capital. Processors that survived 

would realize gains in efficiency and market shares, but might have to pay a higher 

ex vessel price for fish. 

However, this theoretical analysis had little relevance for the inshore pollock fishery. First, it was extremely unlikely that processors in such a highly concentrated 

fishery would not be able to do better than the perfectly competitive market outcomes. Second, the model assumes that processors receive no IFQs, but in the pollock fishery processors owned catcher vessels that were being given harvest allocations on the same terms as the independent catcher vessels. Data provided by the 

National Marine Fisheries Service indicated that processor-controlled vessels would 

receive at least half of the total harvest allocation. Therefore, for at least half the 

total allocation, any increase in price paid by processors would, except for the effect 

on crew share, be merely an internal transfer, not an economic loss. Third, the 

model assumes that there is only one basic type of processing capital, so that excess 

aggregate capacity implies that all capital is in excess supply. However, pollock 

processors produce two main types of primary product, surimi and fillets. Under 

then current market conditions, fillet capital would not be in excess supply even 

with a large amount of total excess capacity, and therefore would continue to earn 

quasi-rents. The model’s assumptions that processors could not earn informational 

132 

rents, and that pollock processing capital had no alternative uses, were also too pessimistic. 

The extreme alternative to cutthroat competition among processors is that they 

act as a monopsony. Monopsony implies that the processors fully account for their 

mutual interdependence and behave as if they were one entity. If independent 

catcher vessels also were able to unite, as could occur under the Dooley-Hall proposal by the formation of a single cooperative containing all independent catcher 

vessels, the monopsony case would become equivalent to that of a bilateral monopoly. This is the market structure that Matulich and Sever (1999) assumed for the 

inshore pollock fishery in their paper claiming that a two-pie allocation would make 

everyone better off. As discussed in Halvorsen (2003), this was a highly misleading 

characterization of the actual fishery. However, because such an outcome was not 

a logical impossibility under the Dooley Hall proposal, the outcomes that would be 

produced by the Dooley-Hall proposal under bilateral monopoly were also examined. 

In this scenario, the independent catcher vessels’ cooperative would give them an 

exclusive right to approximately half of the total inshore allocation. If they could 

not negotiate an agreement with the processors, they would not fish. Similarly, the 

most severe threat of the processors would be to not process the fish. In both of 

these cases, the processors and the independent catcher vessels would receive nothing from the independent catcher vessels’ share of the allowable harvest. The standard game theory outcome, known as the Nash bargaining solution, would be for 

them to split the benefits from the independent catcher vessels’ fish equally. The 

processors would also obtain all of the rent from the half of the total allocation that 

they controlled. The end result would be that processors would obtain about threefourths of the total net benefits from the fishery (one-half from the processor-controlled vessels and one-fourth from the independent catcher vessels). Thus the assumption that the inshore pollock fishery is a bilateral monopoly is inconsistent 

with a conclusion that the Dooley-Hall proposal would have had seriously adverse 

results for processors. 

The analysis of the Dooley-Hall proposal under the assumptions of cutthroat competition and bilateral monopoly is instructive, but would provide a realistic prediction of actual outcomes only in a fishery that fit one of these extreme cases. For 

the inshore pollock fishery, the most probable outcome was that processors would 

be moderately competitive. Analysis of the outcomes in this case was necessarily 

more speculative, because it could not rely on the results of the standard simple 

models of cutthroat competition and bilateral monopoly. However, the same key 

trade-offs would be at work. Independent catcher vessels’ would benefit under the 

Dooley-Hall proposal from the elimination of the costs of open access and from the 

ability to form cooperatives independent of the processing facilities, but would lose 

the bargaining leverage provided by the 80 percent rule. We concluded that the 

most reasonable outcome was that independent catcher vessels would have been 

somewhat better off, and processors somewhat worse off, under the Dooley-Hall proposal than under the AFA rules. This did not imply that processors were expected 

to be harmed by a rationalization program based on the Dooley-Hall proposal, only 

that they would not be as well off as under the AFA provisions for cooperatives. 

Outcomes under the AFA 

The analysis of the potential effects on harvesters and processors of rationalization programs under the AFA was facilitated by the existence of previous economic 

analysis of, and practical experience with, its principal features. For example, there 

is a large body of relevant literature on agricultural cooperatives that was surveyed 

in an appendix to the Halvorsen, Khalil, and Lawarree studies written by Professor 

Steven T. Buccola of Oregon State University. In addition, the rationalization benefits attainable by fish harvesting cooperatives had been demonstrated by the Pacific 

whiting cooperative established in 1997 and the AFA cooperatives in the offshore 

sector that were implemented in 1999. Similarly, the analysis of probable outcomes 

under the Dooley-Hall proposal could draw on the existing literature on IFQ programs. 

The rationalization program that was implemented in the inshore pollock fishery 

retained the original AFA provisions for cooperatives. The actual experience of the 

fishery subsequent to rationalization has been consistent with the overall economic 

analysis of Halvorsen, Khalil, and Lawarree. Total net economic benefits in the 

inshore sector have been increased as a result of the increase in the sector’s share 

of the TAC, as well as substantial increases in the TAC itself. In addition, implementation of the cooperatives has resulted in increased efficiency. Improved targeting of pollock during the peak roe season has contributed to greatly increased 

ex vessel prices during this season. The value of output has also increased because 

slowing the race for fish permitted an increase in the recovery rate and a shift to 

133 

higher valued products. Harvesting costs have been reduced by the transfer of quota 

shares from less efficient vessels to more efficient vessels, and easy transferability 

of allocation within a cooperative has facilitated the full harvesting of the available 

allocations. As a result, the net effects of the AFA on both harvesters and processors 

is generally agreed to have been positive, although the relative size of the benefits 

remains a matter of contention. 

On the other hand, the fishery has not demonstrated the outcomes suggested by 

Professor Matulich. There has been no apparent tendency for vertically-integrated 

processors to have gained at the expense of less-integrated processors, much less to 

have been able to drive them out of business. And the AFA does not appear to have 

had significant negative effects on the share of independent catcher vessels in the 

fishery, much less to have been the ‘‘death knell of the independent fisherman.’’ 

Because the Dooley-Hall proposal was not adopted by the Council, it is not possible to compare actual outcomes with the conclusions concerning the probable outcomes that were reached by Halvorsen, Khalil, and Lawarree. (Three studies of the 

economic effects of IFQ programs in halibut fisheries are discussed in the written 

testimony I submitted on May 20, 2003). However, the analysis sheds light on the 

possible outcomes of IFQ programs in fisheries with similar characteristics to the 

inshore pollock fishery. In particular, it indicates that implementation of an IFQ 

program in a fishery with a similar market structure would be highly unlikely to 

have the adverse effects for processors that are implied by Matulich, Mittelhammer, 

and Reberte’s (1996) analysis. 

BSAI Crab Rationalization Plan 

In its deliberations concerning rationalization of the BSAI crab fisheries, the 

Council considered the use of a program similar to the AFA cooperatives in the 

inshore pollock fishery, as well as an entirely different type of rationalization program based on the use of both IFQs for harvesters and individual processing quotas 

(IPQs) for processors. As in the case of the inshore pollock fishery, the Council commissioned an independent economic analysis of the proposed alternatives. 

Milon and Hamilton study 

The study, Milon and Hamilton (2002), draws conclusions for economic performance under the assumptions that the harvesting sector is perfectly competitive and 

the processing sector contains few enough firms that it might be able to exercise 

market power. One of the rationalization programs analyzed is a two-pie system in 

which processors are allocated IPQs for the entire harvest. Milon and Hamilton conclude that each processor would maximize profits by paying the lowest ex vessel 

price that is required to support harvester delivery. The result would be that processors capture all of the net economic benefits from the fishery. The allocation of 

IFQs in such a program would be redundant, and the value of harvester IFQs would 

be driven to zero. 

They also consider a program with both Class A harvesting quotas that must be 

delivered to processors that hold IPQs, and Class B harvesting quotas that may be 

delivered to any processor. If all harvesting quotas are Class B, the outcome is the 

same as for an IFQ only program, with the likelihood that both harvesters and processors would benefit from rationalization. As the ratio of A to B quotas increase, 

processors are expected to fare better, and harvesters to fare worse. And when all 

the quotas are Class A, processors capture all of the net economic benefits from the 

fishery. 

The study also considers the effects of regionalization of the fisheries. It concludes 

that regionalization reduces cost efficiency by imposing constraints that prevent 

harvest within a region being transferable to other regions. In addition, regionalization increases the market power of processors, resulting in lower ex vessel prices. 

Milon and Hamilton’s assumption that the harvesting sector is perfectly competitive is not completely accurate, because catcher vessels have negotiated prices collectively through the Alaska Marketing Association, and have engaged in strikes. However, the effectiveness of strikes has been undermined because catcher processors 

have continued to fish during them. Also, the lengthening of fishing seasons under 

rationalization is expected to decrease the effectiveness of collective bargaining 

(North Pacific Fishery Management Council, 2002, page 376). Therefore, the assumption that the harvesting sector is competitive does not invalidate their conclusions concerning the qualitative effects of IPQs and regionalization. 

Implications of the AFA study for an IFQ program 

Milon and Hamilton’s conclusion that both harvesters and processors are able to 

gain under an IFQ program that did not include IPQs is consistent with Halvorsen, 

Khalil, and Lawarree’s analysis of the Dooley-Hall proposal under the AFA. As 

noted above, the Dooley-Hall proposal was essentially equivalent to an IFQ proVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00137 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
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gram, and therefore the principal factors that affected outcomes under it would also 

affect outcomes under an IFQ. Because some of the most important of those factors 

are also present in the BSAI crab fisheries, our analysis of the Dooley-Hall proposal 

can shed light on the economic effects of implementing an IFQ program in the crab 

fisheries. 

The market structure of the BSAI crab fisheries is similar to that of the inshore 

pollock fishery in several important respects. Most importantly, the processing sector is highly concentrated, especially on a regional basis. Processors can be expected 

to realize that aggressive tactics yielding short-term gains are unlikely to be profitable in the long run. Entry is not prohibited but there would be some barriers to 

entry, even if existing processors were not given any rights to their processing history. Processors own catching vessels, which reduces their reliance on supply from 

independent catcher vessels and also provides them an informational advantage. 

Independent catcher vessels do have the advantage of being legally able to bargain 

as a group, but the effectiveness of collective bargaining is expected to decrease 

under rationalization. 

Implementation of an IFQ program would give catcher vessels a claim on the 

available harvest allocation based on their catch history. This would eliminate the 

primary incentive for the race to fish, and therefore can be expected to result in 

longer harvesting periods. This in turn would create extra capacity in both the harvesting and processing sectors, which might affect the degree of competitive behavior among processors. 

However, because the processing sector is very concentrated and there are barriers to entry, the situation should be similar to that analyzed in the AFA study. 

Processors should anticipate that aggressive tactics that gave them short-term gains 

would not be profitable in the long run because they can all engage in such tactics. 

Not even a large amount of excess capacity would make the processors blind to the 

benefits of moderate competition. Their investments in capacity are sunk costs and 

cutthroat competition would not make them profitable. Therefore, it is highly improbable that the introduction of IFQs would result in cutthroat competition on the 

part of processors. 

Therefore, as in the inshore pollock fishery, the cutthroat competition among processors that is required for an IFQ program to lead to the adverse results for processors predicted by Matulich, Mittelhammer, and Reberte (1996) is highly unlikely. 

During the Council’s deliberations on the BSAI crab rationalization, Professor 

Matulich attempted to buttress his theoretical arguments for the adverse effects of 

IFQs by citing an empirical study of the halibut and sablefish IFQ program 

(Matulich and Clark, 2002). The theoretical and empirical problems with this study 

were discussed in my previous written testimony to this Committee (Halvorsen 

2003), which also summarizes the problems that the United States General Accounting Office (2002) noted concerning the study’s methodology and scope. 

The extreme alternative to cutthroat competition among processors is that they 

act as a monopsony. A pure monopsony would capture all of the net benefits in the 

fishery. A less extreme case is one in which the independent catcher vessels are also 

able to unite effectively under an organization such as the Alaska Marketing Association. With independent catcher vessels, as well as processors, united, the analysis 

becomes one of bilateral monopoly for the entire industry. The situation is equivalent to there being only one processing firm, which also owns some catcher vessels, 

and one entity that owns all the independent catcher vessels. 

The first step in the analysis is to understand the outside options (threat points) 

of the two players. Since there would be effectively only one processor, the independent catcher vessel owner’s only threat would be to refuse to fish. The threat 

of the processor would be to refuse to process the fish of the independent catcher 

vessel owner. If the independent catcher vessel did not fish, its net benefit would 

be zero, whereas if the processor refused to process fish from the independent catcher vessels, it would still have available to it the fish caught by its own catcher vessels. Therefore, the Nash bargaining solution would imply a distribution of net benefits in which the processor would obtain more than half of the total net economic 

benefit of the fishery. 

The assumptions of cutthroat competition, monopsony, or bilateral monopoly are 

not plausible characterizations of market structure in the BSAI crab fisheries under 

a standard IFQ program. The most probable outcome would be that processors 

would be moderately competitive. They would have a bargaining advantage in that 

their ownership of catching vessels reduces their reliance on supply from independent catcher vessels, while also providing them an informational advantage. Regionalization of the crab fisheries would increase their bargaining power by increasing the effective degree of concentration. Independent catcher vessels would have 

the advantage of being able to legally bargain as a group, but the effectiveness of 

135 

collective action is expected to decrease because of elongation of the fishing seasons. 

The balance of bargaining power would be expected to be in favor of processors, but 

not overwhelmingly so. 

As in other individual harvesting quota programs, the implementation of an IFQ 

program in the BSAI crab fisheries would allow the creation of rents and facilitate 

rationalization in both the harvesting and processing sectors. The realization of significant economic benefits from rationalization of the fisheries would make it possible for both processors and harvesters to benefit, and both the Halvorsen, Khalil 

and Lawarree study and the Milon and Hamilton study indicate that this is the 

most likely outcome. The research program by Professor Matulich that has attempted to establish the presumption that harvesters would gain and processors 

would lose under an IFQ program is simply not credible, either on theoretical or 

empirical grounds. 

The Council’s ‘‘three-pie’’ proposal 

The ‘‘three-pie voluntary cooperative program’’ proposed by the Council for the 

BSAI crab fisheries includes both regionalization and the requirement that 90 percent of total harvesting quotas be Class A shares that can only be delivered to processors holding IPQs. Class B shares, which can be delivered to processors that do 

not hold IPQs, account for 10 percent of the harvest allocation. As opposed to the 

likely outcome under a standard IFQ program that both processors and harvesters 

would benefit, the Milon and Hamilton study concludes that a program in which 

processors receive IPQs equal to the total harvest would benefit only processors, 

with the value of harvester IFQs being driven to zero. They also conclude that as 

the ratio of IPQs to IFQs decreases, harvesters will fare better. However, there is 

no reason to believe that reducing the IPQ share from 100 percent to 90 percent 

is sufficient to allow independent catcher vessels to avoid adverse effects from the 

rationalization program. 

The basis for the Council’s conclusion that a 90 percent-10 percent program would 

balance the interests of both processors and harvesters is not clear. Some proponents of the IPQ program have based their arguments in its favor on an analogy 

with the AFA inshore pollock cooperatives. It is now generally agreed that outcomes 

under the AFA cooperatives benefited both processors and harvesters. However, the 

90 percent-10 percent IPQ program is fundamentally different from the AFA. The 

only apparent similarity is that a cooperative can deliver 10 percent of its harvest 

to an eligible processing facility other than the one it is qualified for under the AFA, 

and harvesters could deliver 10 percent of their harvests to processors without IPQs 

under the proposed program for the BSAI crab fisheries. 

However this apparent similarity is purely superficial. Under the three-pie program processing companies are guaranteed 90 percent of their historic processing 

shares, whereas under the AFA program a processing facility is not guaranteed to 

retain any of its claim on its cooperative’s original total harvest. In addition, other 

differences between the AFA and the proposed crab rationalization program contradict the supposed analogy. The following section summarizes some of the major 

differences between the two programs. 

Differences between the AFA and Crab Rationalization Programs 

Protection of processors’ market shares 

Under the proposed rationalization program for the crab fisheries, a processor 

would receive processor quota share equal to 90 percent of its historic processing 

share. This amount would be guaranteed to the processor because harvesters could 

deliver their Class A allocation only to processors holding processing share. Therefore the only way that a processor could lose more than 10 percent of its historic 

market share would be if it set the ex vessel price so low that vessels would prefer 

to forego fishing rather than deliver fish to it, because that would be their only alternative. 

Under the AFA, each processing facility has the right to process 90 percent of its 

cooperative’s total harvest, but this does not guarantee that it will receive 90 percent of its historic processing share, because vessels have alternatives to remaining 

in the cooperative. One alternative for a vessel is to fish in the open access portion 

of the fishery and deliver its fish to another eligible processing facility. It could then 

either remain in open access or join the cooperative of the new processing facility. 

Another option is to qualify for another cooperative without going through open access by delivering its fish to the alternative processing facility as part of the 10 percent of the cooperative’s total harvest that can be delivered to any eligible facility. 

And the existence of a cooperative requires the approval of at least 80 percent of 

the vessels qualified for it. As a result, a processing facility is faced with the possiVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00139 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
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bility of losing all of its processing rights if more than 20 percent of the vessels in 

the cooperative decide that it should be dissolved. 

Therefore protection of processors’ market shares would be much greater under 

the proposed program for the crab fisheries than under the AFA, thereby giving the 

processors much greater bargaining power. In particular, under the AFA a processor 

will retain market share only if it offers an ex vessel price that is competitive with 

the price being offered by other processors, whereas under the proposed crab rationalization program a processor could retain 90 percent of its market share even if 

it offered a price so low that the catcher vessel was barely able to cover the average 

variable costs of harvesting the fish. 

Regionalization 

Under the proposed rationalization program for the crab fisheries, Class A harvest 

shares and processor shares for each crab fishery would be regionally designated, 

whereas under the AFA the entire inshore sector is treated as a single region. This 

difference has important implications both for the net economic benefits that can be 

realized from rationalization and for the distributional consequences of rationalization. 

The Council itself recognizes that regionalization reduces net economic benefits by 

restricting consolidation of activities that are desirable for reducing capacity and 

gaining efficiency in both the harvesting and processing sectors under rationalization (Report to Congress, August 2002, page 18). The lack of such constraints under 

the AFA increased the total net economic benefits that were available to be shared 

by harvesters and processors. 

Regionalization also has implications for the distributional consequences of rationalization because it subdivides the markets for crab and thereby increases the already high degree of concentration among processors. It also creates an incentive 

for processors to consolidate their market shares on a regional basis, which would 

increase the degree of concentration still more. The greater bargaining power attained by processors can be expected to adversely affect the price received by harvesters for Class B allocations as well as for Class A allocations, both because it 

might be difficult logistically to deliver to different markets and because processors 

might be able to require bundling deliveries of the two classes of fish. 

Complexity 

The ‘‘three-pie voluntary cooperative program’’ being recommended for the crab 

fisheries is much more complex than the rationalization program implemented 

under the AFA. The greater complexity can be expected to have serious negative 

consequences both with respect to the cost of management and with respect to the 

functioning of the market for fish and for quota shares. 

Implementation of the proposed rationalization program for the crab fisheries 

would require the determination of share allocations in each region of each fishery 

for each individual vessel and processor. Ongoing management measures would include annual monitoring and enforcement measures at the same level of detail. 

Eventual formation of voluntary cooperatives might reduce some of the management 

costs with respect to harvesting, but the extra costs of managing processing activities would continue. 

More importantly, the increased complexity of the system might make the determination of prices through a decentralized market structure impracticable. For each 

regional market in each fishery the prices that would have to be determined include 

the ex vessel price of Class A fish, the ex vessel price of Class B fish, the price of 

Class A harvesting quota, the price of Class B harvesting quota, and the price of 

processing quota. 

Attaining equilibrium prices in such a complex system would be difficult even in 

large, well-functioning, markets, and the markets in the crab fisheries would be 

both thin and imperfectly competitive. In addition, the large fluctuations in total allowable catch would complicate the determination of equilibrium prices and hinder 

the ability of the system to converge to stable values. In recognition of the possibility of the price system breaking down, the rationalization plan includes a binding 

arbitration program. However, the necessity of such a procedure increases the cost 

of managing the fisheries under the proposed rationalization plan, and even if the 

arbitration procedure were well designed, it would not be an adequate substitute for 

a well-functioning market. 

Net benefits from rationalization 

Rationalization of the pollock fishery under the AFA created large net economic 

benefits for the inshore sector, which facilitated outcomes benefiting both the harvesting and processing sectors. As already noted, the regionalization requirement 

under the proposed plan for the crab fisheries would decrease the potential net ecoVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00140 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
137 

nomic benefits to be obtained by rationalization. But even if this provision did not 

exist, the total net economic benefits of rationalization in the crab fisheries could 

not be expected to be as large as they were under the AFA, because participants 

in the inshore pollock fishery benefited both from a large increase in the sector’s 

total allocation and from large rationalization benefits from the formation of cooperatives. 

The sector’s total allocation was increased first by an increase in its share of the 

total directed pollock fishery from 35 percent to 50 percent, and subsequently by an 

increase in the total allowable catch for the pollock fishery. The combined result was 

that the inshore sector’s total allocation has increased by 80 percent from the preAFA level in 1998 to the present. 

Large efficiency benefits were realized from the formation of the AFA cooperatives. Rationalization under the AFA permitted improved targeting of pollock during 

the peak roe season, resulting in greatly increased ex vessel prices during this season. The value of output was also increased because slowing the race for fish permitted an increase in the recovery rate and a shift to higher valued products. Harvesting costs have been reduced by the transfer of quota shares from less efficient 

vessels to more efficient vessels, and easy transferability of allocation within a cooperative has facilitated the full harvesting of the available allocations. 

In contrast, the proposed rationalization program for the crab fisheries does not 

include an increase in the total allocations available to these fisheries. It does incorporate a buyback program, but the efficacy of the buyback program has yet to be 

determined, and in any case could not result in benefits equivalent to the 80 percent 

increase in total allocation experienced by the inshore pollock fishery. Similarly, increases in the value of output due to rationalization are not anticipated to be as 

large for the crab fisheries, and increases in harvesting efficiency are likely to be 

hindered by the restrictions imposed by the proposed program. 

Implications 

There is no basis for believing that the rationalization program proposed for the 

BSAI crab fisheries will have similar outcomes to those obtained under the AFA cooperatives for the inshore pollock fishery. Instead, the crab rationalization program 

as currently structured is much more advantageous for processors both because of 

the guarantee of 90 percent of each processing company’s processing history and because of regionalization. The program is also far more complex, making it problematic whether market processes can be relied on for the determination of appropriate 

prices. And there is less of a margin for error in case of unintended distributional 

effects because the net benefits to the fishery as a whole are expected to be substantially smaller. 

Conclusions 

The generally favorable outcomes under the AFA provide no assurance of favorable outcomes under the proposed rationalization program for the BSAI crab fisheries. To the contrary, the economic analyses commissioned by the Council for both 

the AFA and the proposed crab rationalization programs indicate serious problems 

with the crab program. In particular, the choice of a 90 percent-10 percent IPQ program is highly unlikely to provide a reasonable balance between the interests of 

processors and harvesters. 

An IPQ program in which processors are guaranteed 100 percent of their harvesting history would almost certainly result in most, if not all, of the benefits of 

the rationalization program accruing to processors. The 90 percent-10 percent proposal appears to be a step in the direction of a compromise that less overwhelmingly 

favored processors. However, it is not clear why the 100 percent program should 

have been the apparent starting point. 

A more obvious approach would be to begin by considering the effects of a standard IFQ program. Both the Halvorsen, Khalil and Lawarree study and the Milon 

and Hamilton study indicate that a straight IFQ program would benefit both harvesters and processors. Given the existence of concerns that an IFQ program might 

instead result in adverse outcomes for processors, consideration of modifications to 

the program to rebalance the outcomes would be reasonable. Regionalization is one 

such modification, and whatever its primary purpose, one effect of regionalization 

in the BSAI crab rationalization program is to increase processors’ bargaining 

power. 

The allocation of IPQs would be another possible modification. Restricting deliveries of some portion of the harvest under IFQs to processors holding IPQs would 

tilt the distribution of the benefits of the program in favor of processors, with processors faring better the larger the share of IPQs in the total harvest. Given that 

it is not clear that processors would fare badly without IPQs, as well as the total 

138 

lack of practical experience with IPQs, it would be reasonable to limit the original 

allocation of IPQs to a modest share of the total harvest. And if the goal is to have 

an effect similar to the overall provisions of the AFA inshore cooperatives, which 

allow for the possibility that a processor’s claim on its processing share can be eroded over time or even completely lost, then this share should most likely be less than 

50 percent. 

The Council has commendably committed itself to closely monitoring the outcomes 

under the BSAI crab rationalization program and making modifications to the program if the outcomes are judged to be unsatisfactory. Therefore if it turned out that 

the initial allocation of IPQs was seen to be causing unsatisfactory results, the 

Council could modify the allocation accordingly. Because IPQs do not contribute to 

the realization of the efficiency benefits of rationalization, such changes would have 

primarily only distributional results. Such a flexible approach would appear to be 

clearly superior to one in which the Council commits itself to a 90 percent-10 percent program with the intention of making unspecified modifications to other aspects of the program if the outcomes are considered unsatisfactory. 

References 

Halvorsen, Robert (2003), ‘‘Written Testimony Submitted to the Record of the 

May 20, 2003 Hearing on Bering Sea/Aleutian Island Crab Rationalization before 

the Committee on Commerce, Science, and Transportation of the United States Senate.’’ 

Halvorsen, Robert, Fahad Khalil, and Jacques Lawarree (1999), ‘‘Inshore Sector 

Catcher Vessel Cooperatives in the Bering Sea/Aleutian Islands Pollock Fisheries,’’ 

discussion paper prepared for the North Pacific Fishery Management Council, September 13. 

Halvorsen, Robert, Fahad Khalil, and Jacques Lawarree (2000), ‘‘Inshore Sector 

Catcher Vessel Cooperatives in the Bering Sea/Aleutian Islands Pollock Fisheries,’’ 

discussion paper prepared for the North Pacific Fishery Management Council, February 7. 

Matulich, Scott C. (2000), ‘‘Unintended Consequences of the American Fisheries 

Act,’’ report to the North Pacific Fisheries Management Council, June. 

Matulich, Scott C. and Michael Clark (2002), ‘‘Efficiency and Equity Choices in 

Fishery Rationalization Policy Design: An Examination of the North Pacific Halibut 

and Sablefish IFQ Policy Impacts on Processors,’’ Regional Information Report No. 

5J02–02, Alaska Department of Fish and Game, January 24. 

Matulich, Scott C., Ron C. Mittelhammer, and Carlos Reberte (1996), ‘‘Toward a 

More Complete Model of Individual Transferable Fishing Quotas: Implications of Incorporating the Processing Sector,’’ Journal of Environmental Economics and Management, 31 (1): 112–28. 

Matulich, Scott C. and Murat Sever (1999), ‘‘Reconsidering the Initial Allocation 

of ITQs: The Search for a Pareto-Safe Allocation Between Fishing and Processing 

Sectors,’’ Land Economics, 75 (2): 203–19. 

Milon, J. Walter and Stephen F. Hamilton (2002), ‘‘A Comparative Analysis of Alternative Rationalization Models for the Bering Sea/Aleutian Islands (BSAI) Crab 

Fisheries,’’ discussion paper prepared for the North Pacific Fishery Management 

Council, March. 

National Research Council (1999), Sharing the Fish: Toward a National Policy on 

Individual Fishing Quotas, National Academy Press. 

North Pacific Fishery Management Council (2002), ‘‘BSAI Crab Rationalization 

Program Alternatives,’’ March. 

North Pacific Fishery Management Council (2002), ‘‘Bering Sea and Aleutian Islands Crab Rationalization Program,’’ Report to Congress, August. 

Plesha, Joseph T. and Christopher C. Riley (1992), ‘‘The Allocation of Individual 

Transferable Quotas to Investors in the Seafood Industry of the North Pacific,’’ 

photocopied. 

United States General Accounting Office (2002), ‘‘Individual Fishing Quotas: Better Information Could Improve Program Management,’’ December. 

COMMUNITY IMPACTS RELATED TO CRAB RATIONALIZATION

UTILIZING PROCESSOR QUOTAS

This paper condenses information concerning crab rationalization affects on communities as presented in the North Pacific Fishery Management Council’s (Council) 

analyses. The emphasis of this examination is on the ‘‘two-pie’’ or processor quota 

aspects of the proposed program. Also, the paper focuses on the community of Kodiak. However, the general type of information presented in the Council analyses 

139 

1Documents reviewed for this paper include: (1) North Pacific Fishery Management Council 

(NPFMC). 2002. Bering Sea Crab Rationalization Program Alternatives: Public Review Draft. 

May, 2002. Including appendices; (2) EDAW (SIA). 2002. Social Impact Assessment, BSAI Crab 

Rationalization: Overview and Community Profiles. Appendix 2-6 to NPFMC 2002.; (3) NPFMC 

AP/CQS/S. 2002. BSAI Crab Rationalization Program Trailing Amendments: Additional Provisions, Captain’s Quota Shares, and Sideboards. December 2002.; {4) NPFMC CP/BA/DC. 2003. 

BSAI Crab Rationalization Program Trailing Amendments: Community Protection, Binding Arbitration, and Data Collection. February 2003.; and, (5) NPFMC CP/BA. 2003. BSAI Crab Rationalization Program Trailing Amendments: Community Protection and Binding Arbitration. 

April 2003. 2SIA, page 127. 

for Kodiak is similar for Dutch Harbor and, to a lesser extent, a few other communities. Most of the information in this paper is taken directly from Council documents and is referenced as such. This paper presents a more coherent picture of the 

community impacts expected under crab rationalization. All of this information was 

available to Council decision makers and, according to their official record, comprised a basis for their decisions. 

A thorough review of the Council’s crab rationalization analysis documents reveals absolutely no quantitative analysis of community impacts.1 What quantitative 

impact analysis exists focuses on allocations strategies to harvesters and processors. 

There is no quantitative analysis or discussion of the impacts to communities, regions, states, or the Nation as a whole. 

The most concise, and perhaps the only qualitative summary of expected impacts 

of a ‘‘two-pie’’ allocation on the community of Kodiak is found in the Social Impact 

Assessment. 

Kodiak processors at present do not have a substantial established history in 

the Bering Sea crab fisheries for the qualifying periods being considered. While 

important to BSAI crab processing in the more distant past, local processors 

have minimal contemporary involvement, being in some cases effectively restricted to short season’s ‘‘last load’’ deliveries of locally based vessels. In a 

rationalized Bering Sea crab fishery with only harvester rights allocated, Kodiak processors generally feel that they could compete for more than their historical percentage of the Bering Sea crab processed in Kodiak. That is, the 

thought is that in a system free from a race for crab (allocated harvester rights) 

but unconstrained as to where crab can be delivered (no allocated processor 

rights, cooperatives, or regionalization), Kodiak processors could compete by offering higher prices to compensate for their relatively greater distance from the 

resource. The co-op option featuring assignment of quota to processor involved 

co-ops based upon where the majority of catch has historically been delivered 

would effectively serve to exclude Kodiak processors from the BSAI crab fisheries. Similarly, direct processor allocations would serve to diminish the role of, 

if not completely exclude, Kodiak processors from the fishery, with the degree of 

the effect dependent upon the percentage of the processors’ history which if firmly 

allocated-the higher the percentage more firmly allocated by past processing history (away from Kodiak processors, from their perspective), the more potentially 

harmful the effect. For instance, a 100 percent allocation of processor history 

would constrain Kodiak processors to one to three percent of Bering Sea crab, 

unless they could somehow buy a greater share from a willing seller.2 (emphasis 

added) 

The analysis presented above is unequivocal in its prediction of the negative affect 

on Kodiak of a two-pie system with processor shares. Therefore, if the Council and 

the State of Alaska base their support of a two-pie system, with 90 percent of the 

processing privileges directly assigned to specific processors, on the analysis documents they are explicitly attempting to legislatively depress Kodiak’s (and other 

smaller communities) future benefits from rationalized BSAI crab fisheries. 

Summary of Council Analysis Statements Concerning Community Impacts 

There are four general sections of the analysis within which community impacts 

would reasonably be described and analyzed: 

(1) Section 2.6: Community and Social Impacts (pages 105–137) and specifically 

Section 2.6.4: Detailed Community Level Impacts. 

(2) Section 3.6: Regionalization (from the May 2002 document and modified by 

trailing amendments) 

(3) Section 3.16: Economic Effects (pages 395–408). 

(4) Appendix 2-6: Community Profiles and Social Impact Assessment (SIA) 

140 

3 NPFMC, page 406. 

4 NPFMC, page 407. 

5 NPFMC, page 428. 

6 NPFMC, pages 429–30. 

Section 2.6.4 is presented below in its entirety: 

As noted in the introduction to this section, community and social impacts of 

crab rationalization approaches are discussed both in this section and in an appendix to this volume, and these two discussions, taken together, comprise the 

SIA for crab rationalization. Appendix 2-6 (Social Impact Assessment: BSAI 

Crab Rationalization Overview and Community Profiles) details the localized 

nature and intensity of engagement with and dependency on the crab fishery 

at the community level, and presents an analysis of the direction and magnitude of the social impacts likely to result from crab rationalization for the series of communities profiled as well as for the CDQ region. 

Section 3 of the document presents an analysis of the alternatives via a variety 

of types of impacts. Communities are not mentioned in the analysis including environmental impacts, endangered species, marine mammals, or safety. 

Scattered throughout the SIA and analysis sections are various suggestive or 

summary statements about the ability of estimating or forecasting community impacts. 

Some communities could also be affected by rationalization. In the current 

derby fishery, processing activity is likely to be located to facilitate success in 

the race for fish. In a slower rationalized fishery, processing activity could relocate to different communities to realize cost efficiencies. Communities that increase processing under rationalization will benefit from the program. Communities that lose processing activity would realize less benefits in a rationalized 

fishery. The regionalization alternatives are intended to prevent some of the redistribution of processing activity to protect communities that have benefited 

from the distribution of processing in the current race to fish. The extent of the 

impacts of rationalization on communities depends on whether these regionalization alternatives are adopted and whether they succeed in achieving their 

goals.3

Under a two-pie IFQ program, if the entire fishery is allocated through processing shares, processor entry would require the purchase of processing shares. 

Processing shares in this program would create a regulatory barrier to entry. 

The extent of the barrier would depend on the market price of processing 

shares, which cannot be predicted. The relatively few number of processors in 

the crab fisheries could lead to a limited market for processing shares, which 

would complicate entry to the processing sector. Crab in a fishery with fully allocated processing privileges, however, would have a lower ex vessel price.4

At least eight communities that are home to BSAI crab processors could be directly impacted by the regionalization provisions under consideration. The overall impact on communities cannot be determined until the regionalization alternatives are selected and the communities are defined.5

The small governmental jurisdictions could also be impacted by the rationalization of the crab fisheries. As noted above, depending on the alternatives chosen, 

communities might be protected by a regionalization program. The regionalization options would either directly protect individual communities or would simply divide the fisheries into regions. If communities are directly protected, the 

rationalization is unlikely to have negative effects on those communities. Under 

a more general regionalization program that divides the fishery into two regions, it is likely that communities would receive limited protection. Under this 

more general protection some processing activity could move between communities in a region. This is likely to benefit those communities that receive additional processing activity and harm communities that processing activity leaves. 

Similarly, if no regionalization program is incorporated into the rationalization 

program some communities would benefit from rationalization, while others 

would suffer some losses. Fish taxes would likely be redistributed with the redistribution of processing activity. In addition, the provision of support services 

and associated sales taxes will likely be redistributed to the extent that deliveries to processors are redistributed in a rationalized fishery.6

Increased efficiency in the fisheries arising from rationalization could also reduce the provision of support services and sales taxes, if the fleet is able to reduce their overall costs. These savings may occur in large communities as well 

141 

7 NPFMC, page 430. 

8 NPFMC, page 396. 

9SIA, page 18. 

10SIA, page 18. 11 NPFMC, page 256. 12 National Research Council. 1999. ‘‘Sharing the Fish: Toward a National Policy on Individual 

Fishing Quotas.’’ National Academy, Press. Washington, D.C. Pages 205–207. 

as small. Since the redistribution of activity and the increased efficiency cannot 

be predicted the effects of the rationalization cannot be fully predicted.7

The analysis attempted to learn about processor quotas from other fisheries. This 

was a difficult undertaking in that such a management measure apparently does 

not exist in any other fishery worldwide. ‘‘Several program aspects of the alternatives are unique. For example, no two pie IFQ programs have been implemented 

in any fisheries to date.’’ 8

Analogies were drawn by many to pollock AFA co-ops. The crab rationalization 

analysis presented several statements concerning those analogies, demonstrating 

that pollock co-ops and processor shares are fundamentally different: 

There is no parallel for that [two-pie] system under the current pollock co-op 

system.9

Pollock co-ops are plant-specific for the shore processing sector, which makes 

them effectively community specific in terms of social impacts. Under the proposed BSAI crab co-ops, company level rather than plant level co-ops are contemplated. This means that shifts of landings and processing effort between 

communities could occur in a way (or to a significant degree) that they cannot 

under the pollock co-ops.10

Additional information was gathered from other studies and reports. One of the 

most important of such other reports is the 1999 National Research Council’s report 

‘‘Sharing the Fish’’. The following excerpt concerning processor shares is from the 

Council analysis: 

The NRC report ‘‘Sharing the Fish’’ included a discussion of the merits of allocating either a portion of the quota to processors or alternatively creating a separate class of shares for processors. Processors are thought to have had mixed 

results under IFQ programs. When adversely affected, processors are argued to 

suffer from stranded capital and lower profitability. Processor losses could also 

have negative impacts on isolated communities. Processors that are successful 

in IFQ fisheries tend to obtain results through ‘‘contractual methods or vertical 

integration’’. The study concludes that if protection of processors is an ‘‘appropriate social goal, this could be accomplished by allocating separate harvester 

and processor quota.’’ The report also suggested that other methods, such as 

buyouts or permitting processors to own harvester quota might be preferred to 

processor quotas, if processor protection is a concern.11

The NRC report’s full recommendation for shares to other entities such as processors is more robust. While the NRC finds no compelling reason to establish a twopie system they did recommend consideration of community allocations of IFQs:12

Processor Allocations 

Recommendation: On a national basis, the committee found no compelling reason to recommend the inclusion or exclusion of processors from eligibility to receive initial quota shares. Nor did the committee find a compelling reason to establish a separate, complementary processor quota system (the ‘‘two-pie’’ system). 

If the regional councils determine that processors may be unacceptably disadvantaged by an IFQ program because of changes in the policy or management 

structure, there are means, such as buyouts, for mitigating these impacts without resorting to the allocation of some different type of quota, with a concomitant increase in the complexity of the IFQ program. For example, coupling an 

IFQ program with an inshore-offshore allocation would preserve the access of 

shore-based processors to fishery resources. Whatever method is chosen, it 

should not have the effect of subsidizing excess processing capacity. Depending 

on regional considerations, some councils may choose to allow processors to acquire quota share either through transfer or through ownership of harvesting 

vessels that are entitled to an initial allocation of quota. 

142 

13 NPFMC, page 193. 14The species included in the crab rationalization plan: Bering Sea opilio, Bristol Bay red king 

crab, Bering Sea bairdi, Pribilof red king crab, Pribilof blue king crab, St. Matthew blue king 

crab, Eastern Aleutian Islands (Dutch Harbor) golden king crab, Western Aleutian Islands 

(Adak) golden king crab, and Western Aleutian Islands (Adak) red king crab. 15 NPFMC, page 111. 16 NPFMC, Tables 2.6-20 through 2.6-26. 

Allocations to Communities 

Recommendations: The committee recommends that councils consider including 

fishing communities in the initial allocation of IFQs, where appropriate, and 

that the Secretary of Commerce interpret the language in the Magnuson-Stevens 

Act pertaining to fishing communities (Sec. 303 [b][6][E] and National Standard 

8) to support this approach to limited access management. Congress should 

allow, though a change in the Magnuson-Stevens Act if necessary, councils to 

allocate quota to communities or other groups, as distinct from vessel owners 

or fishermen. Where an IFQ program already exists, councils should be permitted to authorize communities to purchase, hold, manage, and sell IFQs. 

These communities could use their quota shares for community development 

purposes, as a resource for preserving access for local fishermen, or for reallocation to member fishermen by a variety of means, including loans. If the communities chose to allocate the rights to individuals, they could be constrained by 

covenants or other restrictions to be nontransferable. Regional fishery management councils should determine the qualifying criteria for a community that is 

permitted to hold quota. A range of factors, such as proximity to the resource, 

dependence on the resource, contribution of fishing to the community’s economic 

and social well-being, and historic participation in the fishery, may be among 

the factors that a council considers when setting criteria for establishing which 

communities may hold quota. The range of criteria will have to be carefully considered and weighted and the implications of defining these criteria would have 

to be examined fully. 

One of the issues raised by the community of Kodiak and others is the inclusion 

of recent participation in the analysis. This is neither a new nor recent concern and 

it is one the Council is well aware of. ‘‘In addition to the issues raised in the NRC 

report, NOAA GC has emphasized that the failure of the halibut and sablefish IFQ 

program to give sufficient consideration to recent participation was an important 

issue in the lawsuit filed against that program.’’ 13

Information Concerning Impacts to Kodiak 

The Council analysis documents present a great deal of information concerning 

crab fisheries and how they related to Kodiak during the last decade of the twentieth century. This information appears primarily in the harvesting and processing 

sections of Section 2.6 and in the Kodiak section of the SIA (pages 102–129). 

The crab considered for rationalization, referred to as PRP, consist of nine species 

and/or fisheries.14 Of these, the three historically most important to Kodiak are 

Tanner crab (opilio and baridi) and Bristol Bay red king crab. There has not been 

a fishery for baridi since 1996 and only a very low harvest of opilio since 1999. 

Therefore, the species of most immediate interest to Kodiak is Bristol Bay red king 

crab. 

A specific portion of the Kodiak based fleet in particular and the Kodiak fishing 

community in general are dependant on PRP crab. ‘‘[Table 2.6-13] indicates, for example, that PRP crab accounts for 35.5 percent of the total value harvested by the 

combined Kodiak fleet. As shown, although Kodiak has a large and diversified fleet, 

the Kodiak community fleet is relatively more dependent on the BSAI crab species 

proposed for rationalization (by far) than any other local Alaskan Fleet.’’ 15

The relative dependence of the Kodiak fleet on PRP crab, while very high, is still 

understated. This is because there was no fishery for Bristol Bay red king crab, the 

most valuable of the PRP species, during two of the years used in the analysis while 

fisheries for salmon, pollock, Pacific cod, and other species continued. 

The analysis presents the value and poundage of rationalized crab species processed for certain areas and communities. However, while Kodiak is one of the two 

communities listed, the information for Bristol Bay red king crab is suppressed due 

to confidentiality.16 Tables presented in Appendix 3 to the SIA provide much more 

information concerning Kodiak as well as other community participation in the fisheries. However, the PRP crab species are combined and therefore individual species/ 

fisheries data are not available. 

143 

17 NPFMC, page 133. 18SIA, page 119. 19SIA, pages 123–4. 20SIA, page 128. 21 NPFMC, page 403. 

Tables 2.6-27 through 2.6-29 of the NPFMC 2002 analysis attempt to represent 

processor dependency for the PRP crab species during the period 1991–2000. The 

data indicate that PRP crab account for 1.6 percent of the total PRP crab processed 

in all areas during the period but 4.2 percent of the value of all species processed 

in Kodiak. The explanation of the data, however, leaves some doubt as to their usefulness. ‘‘[I]t is important to bear in mind that these data cover the full spectrum 

of processing operations in a given locality, and not only those that process BSAI 

crab. It thus represents community dependence on BSAI crab at a relatively high 

level of abstraction and may not reflect any specific operation in the community, 

and the data may represent more in the way of collective entity dependency rather 

than community dependency.’’ 17

The change is relative crab landings in Kodiak is discussed in the documents. 

These qualitative discussions relate both to why the level of landings have changed 

and what aspects of fishery management may affect them. The discussion also overlaps to other community impacts such as services and taxes. 

After 1996, all pots had to be removed from the fishing grounds within 7 days 

of the end of the season. Many Kodiak Bering Sea crab boats report that they 

are not large enough to carry both a load of crab and all their pots, so that this 

change in regulation severely limited their ability to deliver crab to Kodiak, especially during high GHL years. Such boats were limited even on the last (or 

only) delivery trip of the season. For their last trip, such boats were essentially 

forced to deliver to a Bering Sea processor, return to the grounds and pick up 

their pots, and then go to Kodiak. Some harvesters also reported that processors 

required them to deliver all crab to them, by linking such deliveries to markets 

for other fish. Still, by 1999 the Kodiak processors and fleet had evidently 

adapted to the extent that Kodiak deliveries and processing were at the same 

levels as the early 1990s. The sharp increase in 2000 may be due to a number 

of factors. One would be the great decline in the GHL and harvest, so that 

many vessels had only one delivery trip, often of a partial load, that allowed 

them to carry their empty pots as well. Kodiak processors may also have offered 

price incentives, for various reasons.18

Kodiak processors believe that they could compete and increase their market 

share for BSAI crab, especially in a rationalized fishery, which would reduce the 

incentives for quick (Bering Sea port) delivery. They cite the 2000 crab season 

as support for this contention, as they greatly increased their market share over 

that of the recent past. Thus, any alternative which limits the ability of Kodiak 

processors to compete for BSAI crab could have potential adverse effects on both 

Kodiak processors and crab vessels. It would be in addition to the competitive 

advantage that Bering Sea processors reportedly achieve over Gulf of Alaska 

processors from rationalized [AFA pollock] fisheries in the Bering Sea in relation to the open access fisheries in the Gulf of Alaska.19

For Kodiak, local BSAI crab processing is not taking place because of inefficiencies 

in the fishery that, in turn, make the lower costs of local processing not worthwhile 

in an unrationalized system.20

Implications to Communities From Combined Affects of Crab 

Rationalization 

The analysis does not quantitatively, nor for that matter in one location qualitatively, address the expected combined effects of the various management measures. Certainly such analysis is not conducted for communities. However, by drawing some of the points from the Council analysis together it is possible to make a 

reasonable projected of expected impacts. 

Potential for Oligopsony 

The analysis states ‘‘[A]n oligopsony exists when a limited number of buyers of 

a product exists. These buyers can influence ex vessel prices by refraining from purchases.’’ 21

The crab processing industry is dominated by several large crab processors. The 

following information is for the Bristol Bay red king crab fishery. Similar concentration occurs in the Bering Sea opilio fishery. 

144 

22 NPFMC, Table 3.4-13. 23 NPFMC, Table 3.4-13. 24 NPFMC, Table 3.4-13. 25 NPFMC, Table 3.4-5. 26 NPFMC, Table 3.4-5. 27 NPFMC, page 283. 28 NPFMC, page 283. 29 NPFMC, Table 3.4-2. 30 NPFMC, Table 3.4-2. 31From 9 floaters and 25 C/Ps in 1991 to 2 and 6, respectively, in 2000. 32The percentage is estimated based on analysis text since the percentage for non-qualified 

processors is confidential. 33Figure 8.7 of the January 2000 AFA report to Congress considers Steller Seafoods to be 100 

percent owned or controlled by Peter Pan Seafoods. 34 NPFMC, Table 3.14-1. 35 NPFMC, Table 3.14-2. 

Average of top four processors22 15.09% 

Combined concentration of top 4 processors23 60% 

Total processing owners24 26 

Median processor allocation25 1.0% 

Average processor allocation26 3.8% 

Number of processors allocated ≥ 20% 27 <3 

Number of processors allocated ≥ 30% 28 0 

Number of catcher/processors 29 11 

Total C/P allocation30 8.1% 

These data probably underestimate the level of concentration. Processor concentrations are grandfathered at any level with verified contracts entered into by 

June 10, 2002. Any such contracts are unknown at this time and are not required 

to be made public until the time of allocations. 

As is the nature of manufacturing in an unrestricted industry, participants enter 

and leave on a fairly regular basis. This has been the case in crab processing. The 

difference between the number of processors and how change has occurred during 

the 1990s is illustrated in information from Tables 2.3-1 and 2.3-2 of the Council 

analysis. Data are not presented in the analysis for the number of processors prior 

to 1991. The number of processors has decreased during the period due to a dramatic decrease in catcher processors and floaters.31 The number of shorebased processors has remained relatively constant at 15 in the Bristol Bay red king crab fishery since it resumed in 1996. 

Year Delivery 

Percentage 

Number of 

Processors 

1991 71% 29 qualified 

29% 27 non-qualified 

200032 96% 20 qualified 

4% 3 non-qualified 

Foreign ownership of processors is widespread in the crab fishery. Several of the 

major crab processors including Peter Pan Seafoods, UniSea, and Westward Seafoods are fully owned by foreign companies while Alyeska Seafoods and Stellar Seafoods 33 are partially (25 percent or more) foreign owned.34 Under the recommended 

rationalization program, 47 percent of the Bristol Bay red king crab and 36 percent 

of the Bering Sea opilio processing quota will be allocated to the afore named five 

foreign owned processors? 35 The qualified crab processing facilities owned by these 

firms which will receive allocations are presented in Appendix 3-3. 

Company 

Catcher/processor Shorebased Floater 

Peter Pan Seafoods King Cove Blue Wave 

Port Moller 

UniSea Dutch Harbor 

St. Paul 

Westward Seafoods Dutch Harbor 

Alyeska Seafoods Dutch Harbor 

Stellar Seafoods Stellar Sea 

145 

36SIA, page 118. 37Walter Milon and Steve Hamilton. ‘‘A Comparative Analysis of Alternative Rationalization 

Models for the Bering Sea/Aleutian Islands (BSAI) Crab Fisheries,’’ March 2002, Discussion 

Paper for the North Pacific Fishery Management Council. 66 pp. 38Milton and Hamilton, Page 9. Referenced to (1) ‘‘Small Pollution Markets: Tradeable Permits versus Revelation Mechanisms,’’ F. Andersson, 1997. Journal of Environmental Economics 

and Management 32:38–50. (2) ‘‘Raising Rival’s Costs Strategies via Emission Permits Markets. 

E. Sartzetakis. 1997. Review of Industrial Organization 12:751–765. 

In addition, Trident Seafoods is known to be a major processor of Bristol Bay red 

king crab as is Icicle Seafoods. Their qualified crab processing facilities listed in Appendix 3–3 include: 

Company 

Catcher/processor Shorebased Floater 

Trident South Naknek Akutan Bountiful 

Akutan Alaska Packer 

Glacier Enterprise 

St. Paul Island Independence 

Northern Enterprise 

Sea Alaska 

Royal Enterprise 

Tempest 

Western Enterprise 

Icicle Arctic Star 

Bering Star 

Coastal Star 

Evening Star 

Northern Victor 

Of these seven companies, only Stellar Seafoods is not an AFA qualified pollock 

processor owner. Harvesters have expressed concerns about potential loss of bargaining power if there is a ‘‘two-pie’’ rationalization system. ‘‘Harvesters claim that 

under the AFA crab sideboards imposed on processors, harvesters have faced limited 

markets and been forced to be price-takers and thus received less value for their 

crab than they would otherwise have expected. The belief is that processors may acquire even more leverage in the price-bargaining relationship under any rationalization plan other than the ‘‘one-pie’’ (harvester only IFQ) alternatives. In short, many 

harvesters believe that they have already been adversely affected in this way by the 

crab sideboards imposed on AFA-qualified processors by the AFA. Once the capped 

processors reach their limits, there are very few alternative markets to which a harvester can sell.’’ 36

This brings to mind a statement from almost a century ago. 

We can let Alaska become the private preserve of a few great special interests to 

be developed and controlled at their pleasure and as their profit may dictate. 

. . . Or we can treat Alaska as the future home of hundreds of thousands of free 

American citizens, and its resources as a trust to be developed and conserved for 

their benefit and for the benefit of all the people-who are its owners. Gifford Pinchot, Saturday Evening Post, December 16, 1911, pp12 ff. 

Market Implications of Processor Quotas 

The Council commissioned a study to specifically examine the impacts on the crab 

fisheries from alternate rationalization programs.37 It contained a number of statements related processor quota markets and the effects on ex-vessel values from a 

two-pie system. Overall, they found that more restrictions placed on where a harvester may deliver, the more policy benefit shifts towards processors. 

Typically markets [for processor permits] work best when there are a large 

number of buyers and sellers in the market. In ‘‘thin’’ markets for permits, a 

small number of firms may have little incentive to trade if there are small differences in the firms’ productions costs and/or the firms perceived the permits 

can be used for strategic advantage.38

If there is a market share guarantee for processors, then there is not a threat 

of losing deliveries if the ex-vessel price is lowered. Therefore, a processor who 

146 

39Milton and Hamilton, Page 41. 40Milton and Hamilton, Pages 41–2. 41 NPFMC, page 402, referencing Matulich and Sever, ‘‘Reconsidering the Initial Allocation of 

ITQs,’’ Land Economics (1999). 42 NPFMC, Table 3.4-14. 43 NPFMC, Table 3.4-27. 44 NPFMC, page 99. 45 NPFMC, page 100. 46SIA, page 119. 

wants to maximize profits would lower his ex-vessel price and harvesters would 

still have to deliver to him.39

In general, the less the market is segmented, the larger the prevailing ex-vessel 

prices under processor price competition. . . . [t]he more restrictions that are 

put in place to govern the location to which individual harvesters must deliver, 

the less the degree of ex-vessel price competition to acquire market share.40

Other studies reviewed in the Council analysis seem to agree on the effects of thin 

markets. ‘‘The authors [Matulich and Sever] caution that transaction costs can inhibit efficiency. Specifically, they point out that thin harvesting or processing share 

markets (or markets with few participants or shareholders) could reduce efficiency 

gains in both sectors. Limited numbers of participants would limit the ability of participants to purchase the number of shares necessary to operate efficiently. Vertical 

integration is argued to have the potential to contribute to these efficiency losses.’’ 41

Vertical integration does exist in the crab fisheries. Under the proposed Bristol 

Bay red king crab rationalization plan, there are 31 vessels with documented affiliation with a total of 6 processors. This will result in 4 processors being allocated 

an amount over the one percent harvest ownership cap and at least one processor 

receiving over 5 Percent42

These 31 vessels will be allocated 12.6 percent of the total harvest allocations.43

As stated previously, there may well be greater vertical integration due to contracts 

entered into on or before June 10, 2002 and not yet made public. 

Processor Bargaining Tactics in a Two-Pie System 

The Council analysis addressed some of the potential implications of bargaining 

between harvesters and processors in a two-pie system. 

Harvesters and processors in the crab fisheries are related on several levels 

ranging from common ownership to simply repeated transactions in the buying 

and selling of crab. Since the relationships are often manifold, their dynamics 

are also quite complicated. Understanding these relationships, however, is critical to understanding the applicability of a rationalization program in a fishery.44

Harvesters and processors also have support relationships that are important 

to both sectors. Some processors sell bait, fuel and food to vessels (often on credit) and store gear for vessels during the offseason. At times, vessel owners with 

large debts to processors will give the lending processor a lien on their vessels. 

Whether a lien is taken is dependent on the relationship between the vessel 

owner and the processor. Because of confidentiality, the number of these liens 

and whether and the extent to which they are used to exert pressure on vessel 

operators is not know. Vessel owners also enter contracts to tender salmon and 

herring for processors outside of the crab season. Both vessel owners and processors contend that tendering relationships are important to their businesses. 

The extent to which either side exploits the other based on these tendering contracts is also not known.45

Some harvesters also reported that processors required them to deliver all crab 

to them, by linking such deliveries to markets for other fish.46

Pricing [also] varies regionally among processors in the crab fisheries. Regional 

price differences have several sources. In fisheries where vessels make several 

deliveries, the availability of goods and services in a location can be important 

to fishers. Food, bait, fuel, and a good port facilities can make a processor more 

attractive to vessels wishing to offload harvests. Processors in locations that 

offer less goods and services may pay price premiums to induce fishers to sell 

their harvests. Processors that are distant from grounds may also need to pay 

a premium price to compensate fishers for time away from the grounds while 

making deliveries. Proximity to consumer markets can also influence ex-vessel 

prices. Processors with less access to consumer markets may pay slightly less 

for crab inputs than processors closer to end markets since they must bear the 

cost of delivering the crab to market. 

147 

47 NPFMC, pages 101–2. 48 NPFMC, page 102. 49 NPFMC, page 136. 50 NPFMC, page 162. 51SIA, page 67. 52SIA, Table 2.6-4. 53SIA, Table 2.2-5. 

Generalizations concerning the spatial distribution of ex-vessel prices may be 

difficult to make. Dutch Harbor, where the most processors are located can be 

used as the basis for determining prices. The prices in Kodiak are higher (approximately $0.20 in the recent Bristol Bay red king crab fishery) because of 

the longer distance to the fishing grounds and the proximity to consumer markets. . . . These minor price differences between ports are thought to have little 

effect on the competitiveness of vessels that deliver to the facilities a the different ports, when the other costs are considered.47

To an unknown extent, price negotiations and delivery patterns are influenced 

by relationships between harvesters and processors. Some harvesters tender 

salmon and herring for processors. Maintaining this contract might require the 

harvester to continue to deliver crab to the processor. Similarly, some harvesters receive financial support from processors. Whether formalized or not, 

some of these harvesters have a perceived obligation to deliver crab harvests 

to the processor with whom they have the financial relationship. The extent of 

the impact of these relationships and obligations on prices and delivery patterns 

is not known.48

Conclusions of Community Impacts Under a Two-Pie System 

The impact to communities of allocations to processors within those communities 

is not at all certain. This is due to the transferability of processor quotas between 

plants owned by the same company. ‘‘Because allocations are to processing companies, however, and not to specific facilities or communities, economic decisions at the 

corporate level to shift production from one facility to another may have community 

effects that are essentially unknowable beforehand. . . . Given the tendency of the 

marketplace to reveal costs and incentives that had not previously been well know, 

however, this assessment is not one with a great deal of certainty.’’ 49

The issue of processor consolidation is germane to the issue of community impacts. If operations do consolidate they will occur in fewer plants and, without a 

doubt, some communities will suffer losses. The analysis states that ‘‘[w]ith processor quota shares, we can not predict if the processing sector will consolidate’’.50

There are three shorebased pollock co-ops in Dutch Harbor owned by the companies listed above (Alyeska, Unisea, and Westward) and one in Akutan (Trident). 

‘‘Under pollock co-ops, shoreplants have remained more-or-less self-contained, selfsufficient enterprises in the community. This varies from plant to plant, but operations tend to be of an industrial enclave nature, with a relatively low volume of 

purchases of goods and services from the local support sector. Crab co-ops are not 

seen as likely to change this pattern.’’ 51

Processing enclaves do not exist in Kodiak. Only two percent of the population 

lived in group housing in Kodiak in 2000 52 compared to 51 percent in Unalaska the 

same year.53 The processing plants in Kodiak purchase utilities, supplies and services from local venders as do the workers who live in the community. 

Therefore, to the extent that processing is reduced in Kodiak, and shifted to processors which operate from enclaves, there will an overall net reduction in local economic activity in Alaskan communities related to crab fisheries. For all the reasons 

discussed above, this is a likely outcome under a two-pie crab rationalization program. 

PREPARED STATEMENT OF MICHAEL B. LAUKITIS, PRESIDENT, NORTH PACIFIC FISHERIES ASSOCIATION

U.S. Senate Committee on Commerce, Science, and Transportation 

Senator JOHN MCCAIN, Chairman 

Dear Senator McCain: 

The North Pacific Fisheries Association (NPFA) thanks you for the opportunity to 

comment on the Bering Sea Crab Rationalization Plan. NPFA was founded the year 

Alaska became a state and is one of the oldest fisheries organizations in the State 

of Alaska. Our members include Bering Sea crabbers, halibut and sablefish IFQ 

longliners, Gulf of Alaska fixed-gear groundfish harvesters, fishermen who custom 

148 

process their own catch for export markets, and salmon fishermen. Much like family 

farmers we are independent fishermen and fishing families who go out on our own 

boats and work to receive the highest value for our catch. 

NPFA supports the conservation and safety aspects of the Bering Sea Crab Rationalization Plan which are much needed for the benefit of future sustainable crab 

stocks and for the benefit of fishermen who risk their lives to harvest American seafood. We also support individual fishing quotas (IFQ’s) for harvesters. Many of our 

members are involved in the halibut and sablefish IFQ fisheries, and we have seen 

that this carefully designed program is benefiting everyone involved in the industry. 

The halibut industry went from chaos prior to 1995 to a stable and safe fishery 

where the industry is putting very high quality seafood products on American’s 

kitchen tables. We believe the majority of the crab plan could go forward as written. 

There is one very important aspect of the Crab Rationalization Plan that NPFA 

does not support, and that is Processor Quotas, or PQ’s. NPFA and many people in 

Alaskan coastal communities see corporate consolidation in our fisheries and the 

drive by multi-national food companies to control Alaska’s rich fishery resources, our 

management agencies, our coastal communities, and eventually our fishermen as 

the number one threat facing us today. Our fishermen and communities want the 

full protection of Federal anti-trust laws, and we want to be able to develop new 

markets in our communities and to be able to sell our catch in open markets. We 

believe healthy competition brings innovation, and although we are in an old profession many of us pride ourselves as small business entrepreneurs. 

Processor quotas by definition are anti-competitive. They give a market share 

guarantee that eliminates any incentive to maintain ex-vessel prices above the monopoly level. We do not believe the binding arbitration program contemplated by the 

North Pacific Fisheries Management Council is adequate to protect fishermen’s interests. The Council’s expertise is in fishery management and conservation. Obviously its expertise is not in planned economies and anti-trust law. This program 

shifts benefits to the processing sector. Also, after the American Fisheries Act we 

have seen that the processing sector uses the market power derived from processor 

shares in the Pollock fishery to further shift benefits away from harvesters in other 

non-Pollock fisheries. We fear that this trend towards processor quotas only begins 

here and will eventually affect all of Alaska’s fisheries to the detriment of independent fishermen. 

Awarding cartel status to the snapshot of companies who happen to process crab 

in Alaska at this time would also harm other Alaskan processors who might not be 

active in that region of the state currently. (The short history of the American Fisheries Act is a case in point. Several prominent Alaskan processing companies who 

argued for free markets for Pollock leading up to the Act but were ‘‘left out’’, were 

then obviously disadvantaged versus their competitors who had a guarantee share 

and equity in the Pollock fishery, so they are now leading the charge for processing 

quotas in the crab fishery.) Furthermore this crab cartel would harm competing 

processors in other coastal regions of the United States who would then have to 

compete with already powerful vertically integrated multi-national food companies 

who would be granted a guaranteed share of the resource as well as pricing power 

from the boat all the way to the consumer. Although it may seem to be good for 

Alaska to have the companies who operate here given such dominance in the marketplace, it is telling that the overwhelming majority of communities and fishermen 

in Alaska do not support processor shares. It needs to be asked whether granting 

processor shares to companies who happen to process in Alaska’s Pollock and crab 

fisheries eventually triggers uncompetitive consequences for all seafood companies 

in the United States. 

In conclusion NPFA sees the benefits of rationalizing the Bering Sea Crab fishery 

for conservation and safety reasons. We do not feel rationalization should take place 

at any cost. The economic analysis used by the North Pacific Fisheries Council to 

justify processor shares called the Matulich study is seriously flawed as was reported by the GAO earlier this year. Alaskan processors and communities gain protection from other aspects of the Crab Plan (i.e., regionalization requirements for delivery of crab and that catcher boats must deliver their catch in Alaska).. The processor share aspects of the program are unacceptable. They upset the balance between processor and independent fishermen and potentially trigger consequences for 

all fisheries throughout the United States. 

Again, thank you for the opportunity to provide written testimony to this hearing. 

Sincerely, 

MICHAEL B. LAUKITIS, 

President, 

North Pacific Fisheries Association. 

149 

PREPARED STATEMENT OF PHILLIP LESTENKOF, PRESIDENT, CENTRAL BERING SEA FISHERMEN’S ASSOCIATION

My name is Phillip Lestenkof. I am the President of the Central Bering Sea Fishermen’s Association (CBSFA), the management organization for St. Paul Island 

under the Western Alaska Community Development Quota (CDQ) Program. By way 

of background, the CDQ program was established by the U.S. Congress in 1992 as 

a mechanism for ensuring that remote and impoverished Western Alaska communities would benefit from rich Bering Sea fisheries. Initially, 7.5 percent of the fisheries were set aside for the 6 CDQ groups that were created, including CBSFA. 

I want to thank the Committee Chair and members for the opportunity to provide 

testimony on the proposed Bering Sea Aleutian Island (BSAI) Crab Rationalization 

Program (the program) developed by the North Pacific Fishery Management Council 

(NPMFC) which CBSFA has steadfastly supported over the last four years together 

with the City of St. Paul, AK. 

I. Impacts of Crab Rationalization Program on St. Paul 

I will refer to the testimony of Simeon Swetzof, the Mayor of the City of St. Paul 

for a description of the impacts that the collapse of the opilio and other Bering Sea 

crab stocks has had on St. Paul Island’s economy. 

Suffice it to say that, as the local fishermen’s association, CBSFA has been 

stressed by the direct and indirect impacts that the collapsed crab stocks have had 

on economic activity on St. Paul. Crab processing, for example, enables local processors to cover overhead costs and allows them to process other species valuable to 

our community and local fishermen, in particular IFQ and CDQ halibut. The low 

volumes of opilio crab being processed, therefore, have threatened other economic 

activities including those upon which our local fishermen make their livelihoods for 

most of the year. 

The NPFMC’s crab rationalization program will stabilize the situation by ensuring, through regionalized shares, that crab processing will continue to be a viable 

business activity on St. Paul even under a scenario of reduced crab stocks. More importantly, with a rationalized and regionalized crab fishery, CBSFA’s private sector 

partners will be able to plan and predict outcomes to business decisions more easily. 

Numerous projects that intend to take advantage of St. Paul’s unique location 

amidst the Bering Sea fisheries to diversifY into multispecies processing, are on 

hold pending enactment of legislation by the U.S. Congress that will implement the 

program. 

In addition, CBSFA is working on a largely CDQ-owned, vertically integrated crab 

processing and harvesting venture that depends on implementation of the program. 

This new venture has been approved by the State of Alaska and NMFS as the core 

project in CBSFA’s 2003–2005 Community Development Plan. As part of the plan, 

CBSFA is negotiating for equity ownership in various crab industry assets. These 

include: 

1. Five percent of the total Opilio crab harvesting quota. 

2. Five percent of the total Bristol Bay Red King Crab harvesting quota. 

3. More than five percent of the Adak Brown harvesting quota. 

4. Five percent of the Pribilof Reds, Pribilof Blues, and St. Matthews harvesting 

quotas. 

5. CBSFA is also negotiating with processing companies to acquire equity stakes 

in approximately I 0 percent of the entire Processor Quota Share pool created 

by the program. 

If successful, CBSFA’s plan will represent a significant step in increasing the interests of native-owned Alaskan companies crab industry assets, many of which are 

currently owned by Japanese interests. 

II. The Need for Regionalization 

Like the City of St. Paul, CBSFA views the regionalization scheme in the program 

as the most effective tool for fulfilling the guidelines of Standard 8 of the MagnusonStevens Act and accommodating the diverse interests within the BSAI crab fishery. 

Standard 8 directs the fishery councils to take into account the need for sustained 

participation of fishing communities in the fisheries. The need for regionalization 

into northern and southern shares depending on historic activity arose in order to 

protect St. Paul’s (and other BSAI communities’) livelihood and the considerable infrastructure investments made to develop a port which has served the BSAI crab 

industry very effectively and profitably. 

During the 1990s, our community benefited from a derby-style, race-for-fish scenario where vessels delivered crab to the nearest available harbor, in order to immeVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00153 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
150 

diately depart for further loads of nearby abundant crab stocks. In a rationalized 

fishery however, the race-for-fish, would be eliminated and furthermore, with the 

Guideline Harvest Levels (GHL) dramatically reduced as a result of the biomass collapse, harvesters would be limited to single trips and would therefore be more likely 

to deliver their crab to other ports such as Dutch Harbor/Unalaska or to their 

homeports including Kodiak, where a number of harvesters are based. 

Just as harvester and processor investments have been recognized and protected 

in prior rationalization schemes, both CBSFA and the City of St. Paul took the 

novel approach of insisting that community considerations needed to be legitimately 

factored into this process. The stakes were considerable. St. Paul Island, unlike economically diversified communities in the Gulf of Alaska, is almost entirely dependent on crab processing. While St. Paul’s strategic location and its existing infrastructure make it a competitive port, most of the processing operations in the Pribilof 

Islands are·’’satellite plants’’ for diversified, parent seafood companies. 

Therefore, with the incentive for decapitalization and consolidation in a rationalized 

fishery, St. Paul was at risk of seeing local processing operations retreating south 

to larger facilities in Dutch Harbor, Akutan, and Kodiak. 

Regionalization will stabilize the fishery and ensure that existing processing operations will remain in the northern region in a rationalized scenario. One of the 

added benefits of regionalization is that the longer runs involved between the fishing grounds and ports such as Dutch Harbor or Kodiak in a non-regionalized scenario would have implied additional fuel costs to harvesters and greater deadloss, 

to the detriment of the resource. 

III. Benefits to the Resource and the Fleet 

Environmental benefits will accrue as well from the mechanisms to reduce excess 

harvesting and processing capacities. With slower seasons in which to prosecute the 

fishery, fewer crab pots will be lost at sea and deadloss and bycatch will be reduced. 

A healthier, better managed resource is critical to St. Paul as well, since my community’s long-term livelihood depends on the sustainable use of the surrounding Bering 

Sea fisheries Finally, experience demonstrates that to the extent that a rationalized 

management system results in a sustainable, economically viable fishery, then improvements in safety should follow. In a scenario where the ‘‘race-for-fish’’ is eliminated, fatalities resulting from having to fish in poor weather conditions should be 

reduced. 

IV. The ‘‘Third Pie’’: Community Protections and Benefits 

Under the proposed program, allocations of harvest shares would be made to harvesters, the CDQ program, and captains. Moreover, processors would be allocated 

processing shares and harvesters would be permitted to consolidate their efficiencies 

by forming cooperatives. From a community perspective, establishment of processor 

shares protects the considerable investments made by processing companies in remote coastal Alaskan communities such as St. Paul. These investments typically include the processing facility itself, labor housing, docks, cold storage, tender vessels, 

and other infrastructure. 

Communities for their part have spent significant resources on harbor improvements, docks, water/sewer systems, roads, emergency support services, and community administration to attract and accommodate processors. 

In effect, processor shares are necessary for regionalization to work for communities. As a largely processing town, St. Paul’s future is linked to the processors that 

have invested or will invest there. St. Paul (as is St. George) is heavily dependent 

on crab processing business in its harbor and on the floating processors within the 

state boundaries around the island. The community receives benefits from taxes, 

fuel sales, village corporation land leases, store sales, transportation and employment opportunities provided by the processors operating in the community. 

Under the program, processor allocations and the corresponding 90 percent of the 

harvester allocations will be designated into the earlier mentioned northern and 

southern regions, based on historic participation. Provisions allowing for the nonregionally designated 10 percent of harvester allocations to be delivered to any processor at any port ensure that a substantial portion of the crab resource will be subject to competition among ports and processors seeking to attract deliveries. 

However, as specified in the NPFMC’s trailing amendments, a two-year ‘‘cooling 

off period’’ has been established during which processing shares must remain in 

communities where processing was historically conducted, so as to avoid a ‘‘rush’’ 

to consolidation in a few ports immediately after implementation of the program. 

In addition, communities and CDQ groups such as CBSFA have been granted a 

right of first refusal on the sale of processing shares to protect crab-processing dependent communities. 

151 

To accommodate periods of abundance in the crab stocks and provide opportunities for new processors and communities to compete, caps of 175 million pounds for 

opilio and 20 million pounds for Bristol Bay red king crab have been established 

on the amount of IPQs granted for the two largest crab fisheries. However, if stocks 

continue to remain low (and below those caps) the IPQs will provide stability to the 

processing sector and crab dependent communities. 

Other important community friendly provisions from CBSFA’s perspective include 

an increase in CDQ crab allocations from 7.5 percent to 10 percent of the Total Allowable Catch (TAC). CDQ groups will be required to deliver at least 25 percent of 

the allocation to shore based processors. Moreover, CBSFA and other CDQ groups 

have the potential to benefit from provisions extending community purchase rights 

of harvesting and processing shares to community and CDQ groups. These purchases would be conditioned on the use of these shares for the benefit of community 

residents. Finally, CBSFA and other CDQ groups have been granted higher ownership caps than individuals purchasing shares in order to give such groups the 

wherewithal to consolidate their economic interest in the crab fisheries to the benefit of Western Alaska residents. 

VI. Conclusion 

The NPFMC’s BSAI crab rationalization program is a carefully balanced plan that 

requires the unique structure that has been developed over a four year period to 

protect all of the participants in this fishery. It is clear that the program increases 

the economic stakes of communities and CDQ groups in the proper management of 

fisheries on which they depend for survival. Unlike harvesters and processors, communities cannot ‘‘sail away’’ in pursuit of better fishing grounds once a fishery has 

collapsed. 

We urge Congress to support the NPFMC’s plan by enacting legislation as expeditiously as possible. After four years of economic crisis, remote communities in the 

Aleutian Chain and particularly in the Pribilof Islands are highly dependent on this 

program for their economic well-being and survival. 

Mr. Chairman, and distinguished members of the Subcommittee, thank you for 

this opportunity to provide written testimony on behalf of the CBSFA. We look forward to discussing these issues with you and your staffs. 

PREPARED STATEMENT OF RUDY A. PETERSEN, FISHERMAN, CEO, AND OWNER, 

FISHERMEN’S FINEST, INC., F/V AMERICAN NO. 1/F/V U.S. INTREPID

Bering Sea Crab Rationalization 

With reference to my letters of August 26, 2002, September 6, 2002, 

December 13, 2002, and March 6, 2003 (copies enclosed) opposing the North Pacific 

Fishery Management Council’s (NPFMC) proposed ‘‘two pie’’ Bering Sea Crab Rationalization Plan, a plan which endorses ‘‘processor shares’’ for the Bering Sea crab 

fishery, I hereby submit my written testimony to the U.S. Senate Committee on 

Commerce, Science, and Transportation; The Honorable John McCain, Chairman. 

There should be no doubt on the part of the Committee Members of my opposition 

to this plan as well as the opposition of the Independent crab fishermen, concerned 

citizens and Alaskan communities. My letters and petition with over 700 signatures 

of Americans opposing this plan have been faxed and mailed as set forth above to 

the following: 

• House Resources Committee Members 

• Senate Resources Committee Members 

• House Appropriations Committee Members 

• Senate Appropriations Committee Members 

• All members of Washington State Delegation (Governor, Senators, Congressmen, NPFMC members, etc.) 

• All members of Alaska State Delegation {Governor, Senators, Congressmen, 

etc.) 

I am submitting this written testimony as I will be unable to attend the hearing 

in Washington, D.C. In person. I urge you to review my materials once again and 

to oppose any Bering Sea crab rationalization plan that includes ‘‘processor shares’’ 

or a ‘‘two pie’’ formula. 

Processor quota shares are much bigger than a mere ‘‘fish grab.’’ It strikes to the 

very heart of our fishing industry and if allowed to invade our free market driven 

industry, the processor quota two pie allowances will negatively Impact our fishing 

Industry forevermore. 

152 

The Idea of a few fishing companies having control over our crab and other fisheries is not in the best interest of the fishermen nor in the best interest of the public. The resources are after all a public resource; protection of this and all other public resources should be maintained by allowing our competitive free market forces 

to work, not by granting the processing sector a virtual monopoly as proposed by 

the North Pacific Fishery Management Council. 

FISHERMEN’S FINEST, INC. 

Seattle, WA, August 26, 2002 

Hon. JOHN MCCAIN, 

Washington, DC. 

Re: Bering Sea Crab Rationalization 

I am writing to you as CEO of Fishermen’s Finest, Inc., an Independent, wholly 

U.S. owned fishing company located in Seattle, Washington. I operate four small 

catcher/processor fishing vessels which harvest and process groundfish in North Pacific waters and support some three hundred fishing families from across the country. I am also writing on behalf of the many who share my concerns and oppose 

the North Pacific Fishery Management Council’s proposed Bering Sea Crab Rationalization Plan that endorses processor shares. 

Recently, the North Pacific Fishery Management Council voted in support of the 

Bering Sea Crab Rationalization Plan that would award the processing sector with 

an anti-trust exemption by allowing processing shares (referred to as a ‘‘two pie’’ 

system). We oppose the proposed plan which will create a virtual monopoly for a 

few processors. The Honorable Leon Panetta, head of the Pew Ocean Commission, 

said in a recent Interview for the Alaska Fisheries Report, ‘‘I’m just very concerned 

any time that competition is restricted. What happens when you concentrate power 

in any one segment of our economy, is that the little guy is bound to be hurt . . . 

I was very surprised that they (the House Resources Committee) provided an exception for Alaska (and nowhere else in the country). If it’s not good for the rest of the 

country, it’s not good for Alaska . . .’’ 

It is wrong to push through this ‘‘two pie’’ system, which has been rejected in all 

other fisheries, when one sector of the industry—the processors—has the upper 

hand financially and politically and the small independent financially depressed 

harvesters have no organized defense. 

It is implicitly unfair to the harvesters that originally built the crab fishery and 

who are currently experiencing great economic hardship due to depressed resources 

and market conditions. Support of the ‘‘two pie’’ system will give even more control 

of this fishery to the processors and ultimately will hurt the harvesters even more. 

It will be the end of the independent fishermen. The small independent business 

people of this country need your support and therefore I am looking for your help 

to stop this proposed ‘‘two pie’’ system that would unfairly grant the processing companies, most of which are foreign owned, the upper hand at the expense of the independent fishermen. 

Monopolies are bad for America, especially when they involve our natural resources. It is wrong to grant exclusive access to a select few at the expense of the 

small independent fishermen/businesses of this country. Please do not allow Congress to include wording in the Magnuson-Stevens Act Reauthorization, or in any 

other Bill, appropriations or otherwise, that allocates crab rights to processors. Concerned U.S. citizens have signed a petition opposing processor shares and we are 

continuing to gather more signatures. I would welcome the opportunity to talk with 

you and discuss this important issue in more detail should you need any additional 

information. Thank you for your consideration. 

Sincerely, 

RUDY A. PETERSEN

Enclosures: Various Media Articles opposing processor shares (via 1st Class Mail) 

Organizational Charts Illustrating processor foreign ownership (via 1st Class Mail) 

Signed Petitions against processor shares (Via 1st Class Mail) 

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FISHERMEN’S FINEST, INC. 

Seattle, WA, September 6, 2002 

Via 1st Class Mail 

Re; Bering Sea Crab Rationalization 

With reference to my previous letter faxed and mailed to you late last month, I 

am writing to follow up with additional signed petitions opposing the proposed ‘‘two 

pie’’ crab rationalization plan proposed by the North Pacific Fishery Management 

Council that would grant ‘‘processor shares’’ in the Bering Sea crab fishery. 

If by chance you have not seen this previous letter, I will provide a brief overview 

of my opposition to this proposed plan. I am writing to you as CEO of Fishermen’s 

Finest, Inc., an independent, wholly U.S. owned fishing company located in Seattle, 

Washington. I am also writing on behalf of the many who share my concerns and 

oppose the North Pacific Fishery Management Council’s proposed Bering Sea Crab 

Rationalization Plan; a plan that endorses ‘‘processor shares.’’ 

We have gathered in excess of 500 signatures of U.S. Citizens who share our concern for fairness and justice and oppose the proposed ‘‘two pie’’ Bering Sea Crab Rationalization Plan. We will continue to bring this issue to light with the public, as 

awarding the processing sector with an antitrust exemption through ‘‘processor 

shares’’ is wrong. Monopolies are bad for America, especially when they involve our 

natural resources. This plan, if enacted as proposed would grant exclusive access to 

a select few processors at the expense of the small independent fishermen/businesses of this country; this is wrong. 

I offer the following reasons to oppose the ‘‘two pie’’ Bering Sea Crab Rationalization Plan: 

• This type of rationalization of our public natural resources has been rejected by 

all other Fishery Management Councils across the country. 

• The processing sector already has the upper hand financially and politically and 

the small independent financially depressed harvesters have no organized defense. 

• Support of the ‘‘two pie’’ system wilt give even more control of this fishery to 

the processors and ultimately will hurt the harvesters even more. 

• Processor shares equate to a virtual monopoly for the processing sector. 

• A majority of the crab processing companies are foreign owned/controlled while 

the Independent harvesters must meet Maritime Administration required 75 

percent U.S. ownership. 

Please do not allow Congress to include wording in the Magnuson-Stevens Act Reauthorization, or in any other Bill, appropriations or otherwise, that allocates crab 

rights to processors. Concerned U.S. citizens have signed the enclosed petitions opposing ‘‘processor shares’’ and we are continuing to gather more signatures. I would 

welcome the opportunity to talk with you and discuss this important issue in more 

detail should you need any additional information. Thank you for your consideration. 

Sincerely, 

RUDY A. PETERSEN

Enclosures: Over 500 Signed Petitions against ‘‘processor shares/two pie’’ 

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The Seattle Times—Editorials & Opinion: Saturday, November 02, 2002 

CRAB INDUSTRY BAKES A MONOPOLY PIE

The Alaska crab industry is asking Congress for a law that would grant Individual fishing and processing quotas. The fishing quotas, if paid for, may be wise. 

Processing quotas are monopoly privileges, and should be rejected. 

Individual quotas began with halibut. It is a valuable fish, and in the open-access 

fishery, owners kept piling in boats until the season shrank to a few days. Fishermen stayed awake with pills, they put hooks through their palms, and if there was 

a storm, sometimes their boats roiled over. Halibut. available in theory for most of 

the year, entered the market in a flood and were sold tothe consumer frozen. 

The system was crazy. And so came the idea of setting a quota per boat. That 

way, a skipper would no longer be In a rush, and would treat nature, his catchand 

his personal safety with respect. The new system was tried, and ail these public 

benefits were achieved. But there was also a private benefit: the quota shares, provided free to every owner of a halibut boat, were a new asset that could be bought 

and sold. That meant that owners of unneeded boats could sell their shares and be 

paid to leave. 

Nowhere else In American Industry was capital paid to leave. The companies that 

bought the halibut also had excess investment, and they had to write it offas a loss. 

Not any more. The proposed crab plan has quotas for processors, 

What Is being done here is the creation and division of a pie: The pie does not 

consist of the crab, which was always there, but the exclusive rights to the crab. 

It is something like a stock offering, except that the original owner of the shares— 

the public—is paid nothing. The transaction Is political and the public is not represented. The dickering is between the boat owners, the processors, the Alaskan 

coastal communities and the skippers. All get a share. 

The buying and sailing of a right to catch fish makes a certain amount of sense. 

Buying and selling a right to buy fish is selling a monopoly privilege. It will be remarkable if it is even legal. 

181 

Anchorage Daily News—Monday, May 19, 2003 

FISH PROCESSING SHARES ARE BAD FOR ALASKA

To Governor Frank Murkowski, Senator Ted Stevens, Senator Lisa Murkowski, and Congressman Don Young: 

We are Alaskans urging you to reject processing quota because of the controlling effect on markets, fishing families, coastal communities, and the public process. 

WE OPPOSE A RETURN TO PRE-STATEHOOD DAYS WHERE A FEW FISH PROCESSORS CONTROL ALASKA’S FISHERY RESOURCES. GOVERNMENT SHOULD NOT ALLOCATE MARKET SHARES TO PROCESSOR OR FORCE ALASKA FISHERMEN TO SELL THEIR CATCH TO A SELECT GROUP OF PROCESSORS. Danny Powell Sergius Krukoff Robert Linville Kara Lagasse Danielle Santillana Nathan Jankowiak Dean Clark Mack P. Kinney 

Vanessa Layamana Norman Mullan Heather Johnson Malina Nicklas Kenneth Simpson Bill Webber Alexander Ivanov Charles Polak Peter Togiak Alfonso Suralta Brett Zirlott Robert Beedle Earnest D. Linton Richard Thummel Stephanie Pitzman Nikolai Basargin 

James Russell Ryan Johnson James Curran Katrina Higbee Carl Nostrand Ernest Wahl Anton Sanarov Tom Wood 

Tim Quirk Susan Jeffrey John Nevin Greg Moyer Kenneth Mears Lon A. White Robert Williams Le Roy Martin 

David Cline Timothy Stage Howard Henning Brian Dierich John Whittier Margaret Bolger Richard Sheard Linda Kozak 

Ray Bellamy Jeremy Shiok Dan Veerhusen Bodey Lee Winningham Don Dumm Mary Taylor Madeleine Grant Lucio Gonzalez Michael Van Note Hans Tschersich Christopher Lopez Jimmy Weaver John Spute Jennie Jacobsen Julie Millier Lisa Ruoff 

Tracy Lohman Atiana Konev Frederico Sabado Rex Willhite Marie Lowe Laurie Bermudez Rilee Higbee Ken Woodman 

Shelley Rainwater Philip Wiley J. Porter O’Hara Bruce Schactler Colleen Rankin Betsy Wilson Nancy Behnken Vera Basargin 

Dorothy Holm Avram Kalugin Jack Cushing Brian Blankenship Elizabeth Sencac Daniel Harbour Richard Tyler Peter Galaktionoff 

Marie Murray Pepper Nelson Chuck Thompson Kyle Crow Berry Spivey Gregory Spalinger Dave Kaplan Leon J. LeClaire III 

Pete Janstory Nathan Benton Robert Johnson Harry Elliott Robert Livingston James Brennan Kenneth Hoisington Geoffrey Hershberger 

Michael Oleksa Margaret Short Palmer Thomassen Ron Knop Paul Seaton Burt Lekanoff Faustina Tejada Jules Tileston 

Lisa Frederic Tracy Craig Kathleen Ballenger Stephen Hall Edmund E. Pasana Sandra Willhite Vicente Naanos Phillip Favadil 

Kathryn Swiderski Dave Magone Lavro Ivanov Mimi Hogan Ron Huffnage Frances Ashford Jon Glazner Ivan Reutov Feodor Martushev Matt Strametz Richard Davis William Tener Foma Efimov Kenneth N. Holland Casey Eads James Mahaffey 

Tim Shen Delonio Agonoy Dale Banks Mari Reeves Brad Faulkner Shocky Greenberg Kenneth Quinn Bill Schauff Rick DeGroot Eric J. Weathers Mark Hibbard Ronald Eads Duncan Fields Francine Bennis Mark R. Lyman David Reutov 

Frank Lloyd Kent Helligso Monica Zacharof Eladio Francisco Malcolm Milne Twyla Hunter Duane B. Perk Kathryn Hansen 

Vivian Menaker Candace Ozols Johanna Tellman David Woodruff Susan Luzadden Vasily Reotov Wendy Beck Rion Vanek 

Jeff LaPlant Vladimir Polushkin Ruth Longhenry Laura Sheldon Mark Edens Carl Byers Geoffry Peterson Louis Barr Sergei Reutov Nikit Reutov Bob Marquardt Zenaida Latonia Susan Payne Benjamin Golodoff Jeremy C. Hansen Charles Kramer 

Karen DiBari Walter Sonen Ben Ballenger John Hamik John Luzadden Robert Mead Roberta Highland Rick Ladd 

Lavender Beattie Locke Finley Leonard Kelley Katya Kirsch Sandra Hudson Leo Robichaud Linda Sargent Richard Powell 

Suzi Golodoff Tuan Tran Trifilyi Reutov Konstantin Basargin William Barnes Phillip Wyman Sandra Stepanoff Beth Pattinson James Sandin Sherri Pristash Mike Hough Bruce Hendrickson Paul Dan Clare lattimore Larry Dooley Hal Long 

Sanford Crane Kevin Lowell Cecil Ranney Abi Woodbridge Eleanor Werbe Kathie Veltre Gregory Hoffman Jeff Yates 

John Bahe Peter Kojin Amanda Appell Bill Choate Ralph Ash Mark A. Lanchuk Hida Kudrin Klaus Czerweny 

Gary Jackson Barbara Thompson Alexus Kwachka Grant Miller Nikolai Kuzmin Thomas Ely Thor Skulstad Scot R. Cummings Mark Galdu Eric Brese Jeff Cline David Hulien Pete Hendrickson KJ Herman Marga Raskin Nikita Kuzmin Henry Cooper Shawnee Kinney Daren M. Traxinger Nina Faust Bob Johnson Alex Martushoff Jeanne See Kurt Marquardt 

U.R. Johnson Pete Cummiskey David Goldstein S. Dolph Robin Engel Charles Rehder Mary Lentfer James Wild 

Janis Harsila Mike Martushoff Annette Stepetin Daniel Gleason Betsy Goll Robert Allen Wagner Greg LoForte Peter Jack Sam Powell Kim Menster Mike Clark Ian Pitzman Henry M. Wieve Noel Johnson Michelle D. Frank Floyd Tomkins 

Scott McCracken Nora M. DeSylva Dorothy Childers Brenda Greenbank Nicholas Dirks Dan Oliver Ray Tremblay Jimmy Charliaga Ashley Eads Bruce Short James Skonberg Sung Kim Johnny Lind Douglas Deplazes Reutov Mike Consolasion Ramirez Gary Marincovich Phil Gordon Albert Fredericks Sergey Serebrekoff Lisa Martushoff Janelle Everett Ruperto D. Gonzales Patrick Dineen 

Brian Scully Henry Timm Janel Keplinger Jason Suralta Tony M. Stouers Joseph Kelso Rosanne Curran Craig Brault 

Stephen Howell Rebecca Bartee Edward R. Hansen Joseph Emerson Dora Suetzed Constance Jensen Kevin Stalker Paul Castellani Laura Lucas Dan Kondak Zahary Martushev Paul Saunders Jim Stewart Ivan Usoltsoff Chuck Vendt Vasily Reutov Vikki Garroutte-Simpson George Reutov Marvin Yagie Robert Schell Chris R. Branch Brad Sapp Artemon Basargin Nancy Jones Bruce Flanigan David Coleman Bert Stammerjohan Barry Fredericks Nicole Caputo George Krukoff Rika Mouw Ivan Martushev Ray Blanco George Owletuck Eric Bergloud David Mazen Danny Clarion Donald Hanson Penny Ripple Robert King 

Richard J. Sharpe Tom Dooley Oliver Owen Bill Rotecki Theresa Peterson Kevin Kiel Freddie Cnossen Foma Reutov 

Dave Beebe Robert Pletnikoff Jack Lentfer Ellen Mahle Rena Peterson Stuart Mach Hazel Jones Bobbie Jo Skibo 

Nicholas A. Troxell Michelle Church Dennis Young William ‘‘Webber, Sr.’’ Patricia Olsen Joni Whitmore Ken Zafren William H. Barker 

Akaky Martushev Yaroslav Eglevsky Anita R. Carpenter Danny Carpenter Arseny Kuzmin Pelalgia Reutov Bill Prout Kenneth Duckett 

Marina Cabangbang Alice Schell Theresa M. Gurske C. Cleary John LeClair Feoktista Kuzmin Isa Wirz Andrea Hernandez Peter Lekanoff Stanley Jhemas Nestor Ivanov Anissa Berry-Frick Ellen Flint Eileen Mullen Kent Herschleb Joseph O’Gorman 

David Sperbeck Donald Lawhead Lazar Reutov Jim Smith Mary Kay Cichoski Maureen Knutsen Cora Holmes Kandi Powell Kevin Thomet Michael Grunert Felicia McAuley Alan Kelly Peter Konev Deborah Williams Scott Kerr Edward Shaishnikoff Kondra Kuzmin Dean Harker Linnea Osborne Penni M. Hees Douglas Anderson Annmarie Squires Jessie Wilson Leo Soucy 

Robert Russell Tim Marsh Grant Trask June Sargent Chris Burns Steve Webb Sandy Barclay Gary Squires 

Teri Poulos Philip Freitag Jun Blanco Susan Byersclorter Mary Monroe Al Weathers Teresa C. Bishop Karen Williams 

182 

Anchorage Daily News—Monday, May 19, 2003—Continued 

FISH PROCESSING SHARES ARE BAD FOR ALASKA

Mark Tarabochia Stu Pechek Julia Forte Natividad S. Canete Greg Johnson Jason Geck John DiBari Charlie Parsons 

John Anthony Denny Kay Weathers Richard Schultz Winslow Hoffman Dan Farrer Martin Robards Teresita Layamana Nikolai Reutov 

Bill Sullivan James Canitz Thomas Finn David Otte Eric Weathers Stacy Arbelovsky Girard Lucore William A. Bunter 

Bobby Storrs John Chapple Lynn Collier Bob Wood Tim Longrich Sarah Blue Angela McBride Stefan Horwath 

Sandra Nelson Eva Holm Rob Dierich Annie Poirier Justin Fager Charles Edwards Stuart Schaaf Kiril Basargin 

Mary Rosenthal Mark Kozak Gordon Blue Mako Haggerty Jeff Coleman Pete Hannah Brad Stevens Emil Berikoff Sr. 

James Johnson Matt W. Clark Sue Libenson Wendy Close Eskew Eldor Lee Logan Hull Sherry Hoyt Alexey Besargin 

Thomas Solenberger Elino Culler Lee Martin Raymond Hinkl Joshua H. Conn Steve Schoonmaker Marty Remund Jerry Bongen Kathy Kurtenbach DJ Vinberg Thea Thomas Doug Hogen Ginna Purrington Willy Dunne Dan Gritman Rebecca Poulson 

Michael Bentley Robert T. Gustafson Peg Tileston Claire Laukitis Spence Ellsworth Lewis W. Myers Bob Bacolas Rodolfo Baru 

Jennifer Castellani Chris Myrick Margaret Runser Eric Almocera Eppie Seczesny Kenneth Simpson Steve Haney Garland Blanchard Jacob Slaven Iosif Martishev Mike McCune William Paulo Steven Horn David Harris Shila Hough Tom Lohman 

Sandra Marker William Dushkin Eros Kuzmin Ralph Guthrie Charles McCallum Song Perk Michael Yourkowski Morgan McBride Oliver Felton Christine Hoen Charles Harvey Borghy R. Holm Sam Eads Jody Spivey Erica C. Thompson Greg Forte 

Layne Wilde Ben Enticknap Linda McCullough James McCullough Ralph Lohse Lori Lee Vern Culp Robert Dentler 

Bert Wheeler Kenneth Dewey John Munns Peter Thompson Steven Campbell Ilia Kuzmin Caroll Hamik Sarah Gregson 

Valerie Ellis Fran Latham Lacey Berns Karoly Gaspar Geneva Macinko Gene Anderson Bill Rome R. Martens 

Lisa Reutov Nancy Berland David Whitmire Brad Sapp Richard Berns Paul Bowen Tracey Wooden Michael McConnell 

Sonny Nguyen Suzanne Abraham Ian Russell Marietta Coons Martin Budnick Kari Johnson Joe Macinko Walter Tellman 

David Little Geredine Taan Alex Ladutko Chris Lynch Meri Holden Michael Poole Clinton Mullins Tonya M. Weth 

Wade Buscher Terry Johnson James Barton Wendy Johnson Stanley Houghton Nicholas Dowie Jennifer A. Creelman Leonard Efta Joe Newhous Wesley J. Humbyed Steve Fish Jeff Jensen Glen Carroll Shirley Snyder Bob Nehus Harvey Goodell 

Jolene Holl Jim Tolson Sharon Brown Paul Robancho Clay Frick Carl Burton II Lenon J. Norman David Stanton 

John Faris Edgar Callen Ron Hepler Royce Curry Leigh Thomet Nick Mazin Gerald Brookman Sharon Shears 

Bill Gurske Greg Brown John Lee III Iris Kessler Annie Wilson Paul Shadura II Toras Fisk Karl Ohls 

Susan Houlihan John Ludvick Christopher Richards Amy Lewis Andrew Jacobsen Jr. Jeffrey Yeoman Don Lane Gordon Wilson 

Laura Schmidt Joni Lenz Jody Adams James Brown John Reisdorf Robin Faulk Annette Blankenship Oliver Holm 

Severean Reutov Jennifer Butler Shirley Liss Ernesto Casano Joshua Williams Shawn Knudeson Terry Cummings Stacy Studebaker 

John A’Piak Nick Dull Barbara Marsh Diana DeFazio William Terry Greg Wilson Betsy Pitzman Trina Smallwood 

Beaver Nelson James Sprague Brenda Tellman Christina Henslee Milton Holmes Frank Gwartney Kavik Anderson Dan Falvey 

Ken Jones Mike Brooks Luckida Boatwright Ken G. Graham Linda Behnken Bill Murray Summer Mack Philip Lindley 

Fadey Kuzmin Carl Holman Chris Awythe Steve Kalugin Lawrence Trani William Fiorentino Chris Stiehm Cliff Ward 

Roy Smith Alexander Basargin Andrew Edgerly Harry Curran David Reutov Eric Meyer Jim Webber Nathan S. Dall 

Dana MacAuley Cid Blase Roberta Copeland Per Nolan Ray Kranich Donald Roberts C.O. GigDecker Edgar Smith 

Dave Schuckman Florence Collins Paulino Wayne Jackson Clare Stockert Sergei Litvin Marjorie Hermans Kris Anderson 

Sister Diane Bardol Richard Musgrove Ken Roosa Wendy Beck Leonard Jones Don Hernandez Thomas Wischer Jacob Stepetin 

Derek Rusan Salvador S. Taboy Patricia Phillips Nick Budnick Herta Tschersich Philip Oman Dean Cramer Lilia Howard 

Sherry Hermeling Ibarra L. Francisco Rodrigo Cadillo Lee Neel Walter Sargent Mim McConnell John Ketelle Lori Sword 

Harold Martin Tarri Thurman Jeff Carr Vincent Shavender Ernest Shaishnikoff Norman Blank Rachel Alinsunurin Simian Basargin 

William Ourada Erik Fellows Robert Arnold John Lyle Richard Nelson James Niemela Constance Griffith Chris Whittington-Evans 

Mike Litzow Doug Sackett Debra Corbett Stanley Wolrich Ivan Konev David Hermeling Graciano Suralta Kathy Kuletz 

Boris Galaktionoff Howard Peterson Nikola Basargin William Auger Jason Ginter Susan McLane James Wheeler Mary Timm 

Alan Parks Astafey Afonin Kurt Goetzinger Michelle Powell Cesario Suralta Evtropii Matveev Charlie Schollenes Linda Ellsworth 

Julia Walker Shellie Mathews Clay Durham Phyllis Perry James Clauss Taylor Jones Richard Kaminsky Elizabeth Johnson 

Mimi Tolva Stacey Clark George Overpeck Michelle Ridgway Keegan Keplinger Eric Myers Coral Chernolt Gerald Sanger 

Nancy Lord Blair Martens Larry Shaishnikoff Steve Brown John Mouw Thia Falcone Matthew Wiley Jenny Norris 

Pasha Isadore Russell Betterton Bienvenido Ricafrente Alan Ryden Scott Seaton Marie Finn David Pray Leroy Cossette 

David Le Cathy Gleason Joyce Levine Joseph Reutov Bob Hooyman Marc Meindl Tom Walters Susana Macadaan 

Kent Barkhau David K. Edens Art Schultz Bill Lindow Thomas Crane Colleen Newman George Smallwood Alfred Peeler 

Allan Hayes Lena Lawhead Edesy Fefelov Victoria Ellis David P. Aers Ivan Reutov Elizabeth West Kate Finn 

Frederick Deveau Nikita Basargin Shelley Suydam Darlene Port Kristin Smith Neil Sargent Kathy Nugent Lauralee Matlock 

Andy Endresen Vasily Kuzmin Lawrence Prokopeufh Scott Seaton Roberto Mendoza Paula Terrel Randy Baker Claire LeClair 

Jason Gsertsien Remedios A. Small Becky Horton Ruben Topacio Coral Ricketts-Fotter Christine Holland Wendy Willis Marie MinkoffJuliana Martin Michael Bender Charles Wilber Chris Skelly Laura Viac Ben Marsh Stephen Rosa Valarie Donaldson 

James Nestic Colleen Helligso Jason Mack James M. Bailie Angie Perry Deborah Goodell Troy Zimmerman Alvin Bereskin 

Mike O’Meara Greg Streveler J. Bateman Michael Boskofsky John Renner Tom Miller Peggy J. Smith Michelle Squires 

Dave Beam Yakov Reutov K.E. Jr. Berggren Kip Thomet Jeremy Millen Bob Childers Robin Stevens Kevin McDougall 

James Forsberg Gregg Jones Robert Mee Joshua Lowes Ronald Tennison John Gregory Cyn Muhs Terese Jones 

Todd Hoppe Jill Wittenbrader Lynn Johnson Mike Mahoney Frederick Reynolds Bob Shavelson Charles Mclinn Frank Coma 

183 

FISHERMEN’S FINEST, INC. 

Seattle, WA, December 13, 2002 

Hon. JOHN MCCAIN

Washington, DC. 

Re: Bering Sea Crab Rationalization 

Dear Senator McCain: 

With reference to my previous letters faxed and mailed to you earlier this year 

(copies enclosed for your reference), I am writing to follow up with additional signed 

petitions opposing the ‘‘two pie’’ crab rationalization plan proposed by the North Pacific Fishery Management Council (NPFM Council) that would grant ‘‘processor 

shares’’ in the Bering Sea crab fishery. 

To date, we have collected in excess of 700 signatures opposing this plan. Many 

prominent fishermen as well other concerned Americans have signed my petition, 

for example: 

John Boggs of Lynnwood, WA Richard Hastings of Langley, WA 

Stanley Hovik of Edmonds, WA Karl Hansen of Seattle, WA 

David Little of Sammamish, WA Einar Longesater of Shoreline, WA 

Frank O’Hara, Sr. of Rockland, ME Thomas Parks of Edmonds, WA 

Alf Sorvik of Edmonds, WA Konrad Uri of Seattle, WA 

I understand from response to my previous letters that many feel I oppose rationalization of the crab fishery altogether. This is not the case. The fishery can be adequately and fairly rationalized at the independent fishermen’s level; it is not necessary to offer processor shares as doing this will equate to a virtual monopoly for 

the processing sector. In fact, the very antitrust laws of our Country that were put 

in place to protect our free economy would need to be re-written to allow this type 

of rationalization of the Bering Sea crab fishery. 

In addition to my opposition and that of many other concerned Americans, fishermen and otherwise, I understand the following Alaskan Communities oppose this 

plan as well: Akutan, Anchor Point, Chignik, Chignik Lagoon, Clam Gulch, Cold 

Bay, Cooper Landing, False Pass, Homer, Hope, Kachemak Bay, Kasilof, Kenai, 

King Cove, Kodiak, Moose Pass, Nanwalek, Nelson Lagoon, Nikiski, Ninilchik, Port 

Graham, Portage, Seldovia, Seward, Soldotna, Sterling, Tyonek, and Whittier. 

Please do not allow the NPFM Council to set a precedent for other fisheries in 

our Country by allowing their ‘‘two pie’’ crab rationalization plan, which would grant 

‘‘processor shares’’ in the Bering Sea crab fishery, to move forward either as an 

amendment to an Appropriations Bill or as part of the Magnuson-Stevens Act Reauthorization. This type of rationalization of our public natural resources has been rejected by all other Fishery Management Councils across the country. If it Is wrong 

for the rest of America, it is wrong for Alaska as well—we, the Independent fishermen, concerned citizens, and Alaskan Communities need your help to stop this plan. 

I would welcome the opportunity to talk with you and discuss this important issue 

in more detail should you need any additional information. Thank you for your consideration. 

Sincerely, 

RUDY A. PETERSEN

Enclosures: My previous letters dated 8/26/2002 and 9/6/2002 

Signed Petitions against ‘‘Processor Shares/Two pie’’ 

Seattle Times Editorial ‘‘Crab Industry Bakes a Monopoly Pie’’ 

184 

FISHERMEN’S FINEST, INC. 

Seattle, WA, March 6, 2002 

Hon. JOHN MCCAIN, Chairman, 

U.S. Senate Committee on Commerce, Science, Transportation, 

Washington, DC. 

Re: Bering Sea Crab Rationalization 

Dear Senator McCain: 

With reference to my previous letters faxed and mailed to you last year (copies 

enclosed via First Class Mail, for your reference), I am writing to urge you to oppose 

the North Pacific Fishery Management Council’s (‘‘NPFMC’’) proposed ‘‘two pie’’ crab 

rationalization plan that would grant ‘‘processor shares’’ in the Bering Sea crab fishery. 

Please do not allow Congress to allow wording in the Magnuson-Stevens Act Reauthorization, or in any other Bill, appropriations or otherwise, that allocates crab 

rights to processors. The fishery should be rationalized at the harvester level, as all 

other fisheries have been rationalized in our Country. 

As this is a very important issue that will set a dangerous precedent for the entire 

Country, should the NPFMC plan be adopted, I will continue to oppose the ‘‘two pie’’ 

crab rationalization plan for the following reasons: 

• Violates Anti-trust. 

• Grants the Processing Sector an unfair advantage. 

• Contrary to all other Fishery Management Councils’ actions. 

• Places U.S. natural resources in foreign owned companies control. 

• Many Alaskan Communities oppose plan. 

• Over 700 concerned citizens have signed my petition opposing plan. 

• Sets a dangerous precedent that may be applied in other fisheries. 

The Bering Sea crab fishery should be rationalized at the harvester level only because: 

• Consistent with all other Fishery Management Councils’ actions. 

• Provides some protection for the economically depressed crab fishermen. 

• Fishing vessels must meet U.S. ownership requirements under MARAD. 

Please contact me should you need any additional information regarding this very 

important issue. Thank you for your consideration. 

Sincerely, 

RUDY A. PETERSEN

185 


520FAXED1.eps

. -.!1~--
186 

PREPARED STATEMENT OF RON PHILEMONOFF, CHAIRMAN AND CEO, 

TANADGUSIX (TDX) CORPORATION OF ST. PAUL ISLAND ALASKA

My name is Ron P. Philemonoff. I am Chairman and Chief Executive Officer of 

Tanadgusix Corporation, the ANSCA Village Corporation for the Aleut Community 

of St. Paul Island. St. Paul Island is home to the largest Aleut community in the 

world, and a focal area for both crab catching and crab processing. We speak in opposition to the plan before your Senate Committee, as it is written and presented. 

Our corporation owns 90 percent of the land on St. Paul Island as a result of 

ANCSA (Alaska Native Claims Settlement Act) entitlements. As the former hunters 

and processors of the Northern Fur Seal, the Aleut people have inhabited the 

Pribilof Islands since being forcibly placed on these remote islands prior to the purchase of Alaska by the United States from the Russian Emperor. The Aleuts of the 

Pribilof Islands harvested and processed fur seals thru the Russian occupation, and 

under United States oversight until 1984. Our people were wards (some say slaves) 

of the United States government until fur seal harvesting and the Fur Seal Treaty 

of 1911 was abolished in 1984 due to national and international environmental politics. 

At the time of the cessation of the harvest, St. Paul Aleuts were specifically promised that we would enjoy the fruits of freedom and free enterprise, through the enjoyment of an economy based on the fisheries resources of the Bering Sea. By the 

providence of nature, more than 75 percent of the fisheries resources of the Bering 

Sea are located within 200 miles of the Pribilof Islands. With such abundance within close proximity, we were optimistic that an equitable share of those resources 

would be made available to us to meet the economic needs of the Aleut people of 

the Pribilof Islands. 

In the mid-1980s, TDX began writing to NPFMC and to the government, notifying 

them that the realization of Aleut dreams and the government promise of economic 

development would be severely compromised by the heavy capitalization of the fisheries in the Bering Sea, which was proceeding rapidly, supported by government 

loans and NPFMC policies. We duly registered our serious concerns that our people 

would be left out of participation, by not having the historical participation so commonly used under fishery management regimes, to qualify corporations and large 

vessel owners for entitlement to resource rights. Our concerns were largely ignored. 

By 1989, overcapitalization had created a crisis for government loan portfolios, Seattle corporations and foreign corporations, such that threats to the entire resource 

were perceived. The inshore/offshore resource split was invoked in 1992, as a means 

to ‘‘rationalize’’ the groundfish fisheries, because the larger companies were fighting 

over respective share and threatening the entire resource. In less than a decade, the 

‘‘rationalization’’, called inshore/offshore, was converted to a full scale property entitlement to the pollock fishery resource, now enjoyed by the same beneficiaries who 

were first ‘‘rationalized’’. 

Crab Processing North of 56 Degrees. In 1987, while all the furor over groundfish 

was starting to occur, there were no crab facilities or processing on the Pribilof Islands, nothing North of 56 degrees with exception of floating processors that followed the crab fleet. Harbors promised to us by the government in 1984 had become 

bogged down in engineering and the politics of contracting and government. Our corporation perceived back then that Aleuts would not get a chance in any fishery if 

we did not accelerate our participation as a community. TDX thereupon embarked 

on a program to convert port proximate properties on St. Paul Island to participate 

in the crab fisheries. The heyday of Bering Sea King crab fishing had occurred in 

the 1970s and early 1980s, and our people had watched helplessly from the shore 

as hundreds of vessels, foreign and domestic, lighted our islands from offshore, 

using our island as a lee in the Bering Sea wind, working and exploiting the crab 

resource off our shores. We were determined by the late 1980s to mount participation in the crab fisheries, for the economic good of the Aleuts. 

With our own entitlement and settlement funds, and with the help of a willing 

Japanese entrepreneur, TDX cleared and refitted an abandoned fur seal processing 

facility, converting it to crab processing facilities. While the government sponsored 

breakwater and harbor facilities on St. Paul Island were barely functional, TDX 

Corporation spent millions of dollars to build a 300 foot ocean dock and to dredge 

immediate proximate tidelands areas so that we could invite into St. Paul, the Bering Sea crab fleet and process their product. By 1992, about the time the inshore/ 

offshore debate had reached its height, we had succeeded in cornering about 25 percent of the Bering Sea crab resource, purchased and processed right on St. Paul Island. We planned and developed a new shoreside processing facility that is now the 

largest crab processing facility in the world. Use of that facility was ultimately purVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00190 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
187 

chased from our partner in 1993 by Trident Seafoods, a member of the pollock and 

salmon clubs, and the major processor of crab in the Bering Sea. 

While TDX and Aleuts may have been inexperienced in fisheries and the politics 

of NPFMC in the 1980s, we suffer from no current illusions regarding what ‘‘rationalization’’ is all about, and what it means: resource entitlement and property rights. 

Our opposition to this plan is based on the fact that our corporation and our shareholders, as pioneer investors and venture capitalists of processing North of 56 degrees, to the tune of over $15.0 million, have been left out of this rationalization 

plan, which has, as a key component and foundation of its rationale for processor 

quota, a rewarding of investments made to support the crab industry, with quota 

property rights. If investments in the industry are going to be considered as a rationale for distributing crab processing rights into private ownership, all in the 

name of ‘‘rationalization’’, then we respectfully request that our investment also be 

rationally considered as a basis for Processor property right PQS for TDX. We own 

the dock, the plant, the land and the tidelands leases upon which the processing 

infrastructure for both Trident and Icicle sits. We view such a settlement that does 

not include TDX, as both unfair and inequitable, and a severe injustice to the Aleut 

people. 

We assert that any assessment of NPFMC and the State of Alaska that Aleut 

needs are served by Community Development Quota participation in this plan, is 

a flawed and technically deficient analysis, that disenfranchises both TDX Corporation and its shareholders, as major equity investors in crab processing North of 56 

degrees, from rightful participation in full and equitable sharing of this proposed resource distribution. We cannot support, and must vigorously object to this plan as 

a matter of simple fairness and justice. 

We should clarify these statements. TDX Corporation does not blame participant 

processors for seeking a share of Bering Sea resources. We do not claim that we are 

solely deserving of resource entitlement, any more or less than any deserving vessel 

owner who annually risked life and limb to participate in these dangerous crab fisheries. Trident Corporation and Icicle Seafoods, both current St. Paul Island tenants 

of TDX Corporation, are responsible and reliable tenants, as well as owners of catcher vessels. But their rights in this plan to crab processor quota rights, north of 56 

degrees, derives from use of TDX property, TDX dredged tidelands, and TDX facilities on St. Paul Island, which were developed with corporate resources of 

Tanadgusix Aleut shareholders, unacknowledged, unrewarded and inequitably excluded from participation in this plan of distribution. 

There are so-called ‘‘community protection clauses’’ in this plan which will be 

lauded as preserving and meeting Aleut interests on St. Paul Island. In fact, they 

are last minute adaptations to the growing awareness that community and regional 

protections in the plan, are filled with loopholes: loopholes that exempt bairdi crab 

from the program, that allow PQS to be leased to floaters, that allow PQS to be used 

within the same company outside of so-called regions, sold to other companies, and 

sold for custom processing. These are ambiguous and smoky illusions which will assure that community protections will be fish planned out of existence, in the name 

of ‘‘fisheries efficiency’’. We repeat our contention that, if allocations are going to be 

made based on investments in our St. Paul Island community, those allocations 

should go to those who made the investments, not in the form of a nebulous first 

right of refusal to a CDQ group that has not invested the first dime in crab processing on St. Paul Island, and that is consumed with political posturing and bureaucratic dithering. Aleut survival is much too important to base our community participation on such a wobbly foundation. 

Our request for equity PQS recognizing the TDX investment has been made at 

the last two NPFMC meetings, and has been totally ignored. Specifically, TDX requested before the NPFMC that its original investment in the Anderson Plant be 

recognized by an 8 percent allocation of the Bering Sea crab PQS, all species, recognizing the investments and levels of processing achieved by TDX St. Paul prior to 

there ever being either Trident or Icicle or Unisea in the community, or processing 

in St. George for that matter. TDX went on to say that if there is to be no allocation 

for its investment, then the PQS assigned to and derived from processing at our 

plants and facilities on our lands and leased tidelands, needs to be tied permanently 

and inseparably to those facilities. 

Honestly speaking, the crab ‘‘rationalization’’ plan is a self-serving resource entitlement plan concocted under a democratic veil at NPFMC, by an already well vested group of influential large fishery resource owning companies, whose own interests already include a substantial portion of the crab catching industry, and the 

Bering Sea pollock resource. These companies held the independent crab fishermen 

and crab vessel owners hostage to the threat, that any rationalization or IFQ program in crab was dead on arrival, due to their substantial political influence, unless 

188 

processor quota share was included. The losers here are small businessmen, small 

processors, individual vessel owners, smaller vessel participants, Alaskans, and Bering Sea Aleuts. This program should not be confused with or compared to the Halibut/Sablefish IFQ program, as a rational panacea to ‘‘too many vessels chasing too 

few fish’’. We repeat again our request that NPFMC reexamine the history of crab 

processing development and participation north of 56 degrees, and implement more 

equitable distributions if such distributions are to be invoked in the name of rationality. 

We speak in frustration. This plan is an unfair vesting of resources to which 

Aleuts residents of the Bering Sea, if anyone, should be given priority access. Unless 

and until direct and unambiguous protections are provided for communities north 

of 56, free of loopholes, and unless and until, the investments of Alaskans into the 

industry are considered on an equal par with the investments of large non-resident 

corporations, we must strongly request that your withdraw any support of the crab 

rationalization in its current form. We cannot support processor quotas being distributed when the chance exists, multiple avenues, that those quotas will leave the 

island, for the sake of processor convenience or fishing efficiency. 

TDX has earned the rights to participation with our investments. We request that 

Congress look into these questions, and request the National Marine Fisheries Service or the NPFMC to document and support our historical participation and investment in crab fisheries north of 56 degrees. If our equity cannot be recognized, then 

we ask you to send the NPFMC back to the drawing board for development of a 

crab distribution plan that doesn’t disenfranchise legitimate ground investments, 

and market freedom for long time fishermen, by distributing property rights to the 

few processors still standing in the game. Rationalizing the fishery has never been 

explained as taking all risk out of the fishing business, in the name of supporting 

a few remaining processors. 

Tanadgusix Corporation urges the respected Senators of the Commerce Committee to dump this badly flawed plan that disenfranchises and gives no credence 

to, the true and verifiable investment and equity of the Aleut people of St. Paul Island in the crab industry. Or to make sure that it does so, before authorizing another distribution of public resource to large industry, without considering the needs 

of those who live in the middle of the resource. 

Respectfully Submitted, 

RON P. PHILEMONOFF, 

Chairman and CEO, 

Tanadgusix Corporation. 

PREPARED STATEMENT OF BYRON L. PIERCE

Dear Senators, 

My name is Byron L. Pierce. I am a 53 year old Ex-Marine and Vietnam Vet. Both 

my older brothers were Marines. My middle brother lost his life in Vietnam. After 

my tour of duty I returned to my home in Oregon and attended college for a few 

years. I felt my life wasn’t quite right and felt I needed more so I headed north and 

ended up on the most beautiful Island, Kodiak Island in Alaska. 

It was shortly after arriving here I had a chance to go King Crab fishing in Kodiak. I immediately fell in love with crab fishing and decided then and there that 

this is what I wanted to do with my life. Every aspect of the crab fishing business 

intrigued me. It is man against the sea and his ability to overcome tremendous odds 

while working exceptionally hard and hoping to come home with a good payday, and 

then doing it again and again. That was 30 years ago. 

In my career, I have owned three crab boats. I started with a small boat and over 

the years have upgraded to larger boats. I have lost many close friends over the 

years and in 1993 my family and I lost 3 crewmen when our crab boat Massacre 

Bay sank. We currently own 1 boat now, the Nuka Island, and are a family owned 

business. I have literally given my heart and soul to the crab industry in Alaska 

for 30 years. 

I have watched the crab industry change drastically over the years and now we 

are down to Rationalization, which I believe is needed! 

Senators, the big issue is the whole concept of Processor Quotas and the changing 

of the Anti-Trust laws to allow them. The concept of Processor Quotas tells me I 

have to deliver to just certain processors, and just take what price they choose to 

pay me for my crab. To me this is crazy!! It’s like telling a chicken farmer he can 

only sell to certain markets. This is totally Un American to me!! 

189 

The only people Processor Quotas are good for are Processors. To change the AntiTrust laws on order to get this accomplished is just plain wrong! 

Senator, please don’t tell me that this is what I went to war for or that this is 

what my brother lost his life for! 

In the early 90s, an Individual Quota Program (IFQs) was put in place for Alaskan halibut and sable fish fisheries that has proven to work well. I feel strongly 

that this same program would work perfectly for our crab fishery to the men that 

earned them. The fishermen, Not the processors. 

Again, please vote this down and vote Not to change the Anti-Trust Laws. 

Sincerely, 

BYRON L. PIERCE, 

Crab Fisherman, 

Kodiak, Alaska. 

PREPARED STATEMENT OF RICHARD POWELL

Mr. Chairman, my name is Richard Powell and I have been a resident of Kodiak, 

Alaska for 39 years and have been involved in the Alaskan king crab fisheries for 

that entire time. 

I would like to thank you for the opportunity to submit written comments before 

the Senate Commerce Committee regarding the issue of rationalization of the Bering Sea/Aleutian Islands crab fisheries. My specific comments will be in relation to 

the proposed element of individual processing quota (processing shares). 

I would like to provide a bit of history on how I perceive this issue has evolved 

over the last several years. The crab industry has been through a difficult time in 

the last several years, with the severe downturn of the red king crab and opilio crab 

stocks of the Bering Sea. The fishing industry has been working for years to attempt 

to develop an industry-funded buyback program. This, coupled with a license limitation program designed to only allow recent participants to remain in the fishery, can 

provide some short-term relief to the fleet. 

However, it is apparent that this fishery needs a quota based program, to allow 

individual harvesters the ability to determine when their fishery will occur. As you 

are aware, the job of fishing crab in the Bering Sea is the most dangerous occupation in the United States. In recognizing this, crab harvesters have worked for over 

four years in attempting to create a quota based program, which will lead to a much 

safer fishery, as shown by the results of the halibut IFQ program in Alaska. 

The processing sector in Alaska is a combination of U.S. and foreign owned companies. These companies have a strong lobby and work closely together to achieve 

their goals. When the issue of crab rationalization began to be discussed amongst 

the harvesters, the processors formed a coalition and began working as a unit to 

achieve their goal. My view of this goal is that the processors want to make sure 

to control the fleet as much as possible, in regard to time and location for delivery, 

as well as the pricing structure. This benefits companies who are diversified in their 

processing products, and want to create efficiencies for themselves. 

In order to achieve this goal, they determined that the only solution to their concerns would be processing shares. They needed to begin with a limited entry system 

of their own to create a pool of eligible processors. But this wouldn’t be enough. 

They determined that they didn’t even want to compete between themselves for the 

product. The answer was, of course, guaranteed deliveries based on their previous 

processing history. The processors discussed this with each other and determined 

that they would only agree to a minimum of 90 percent guaranteed deliveries. They 

further agreed that this was the only solution and that no other would be acceptable. This created a very uncomfortable situation for the negotiators of the crab 

rationalizaton committee, which worked for over a year to try and determine elements and options for the Council’s analysis. 

Other options were presented and repeatedly rejected. In fact, the processing sector representatives went so far as to say that if they didn’t get their way, they 

would block the buyback program (which is still in OMB limbo), as well as stop any 

rationalization program from being implemented in the crab fishery. The processing 

lobby is powerful and well-funded. The results are that we are in this dilemma. 

The North Pacific Council, just one year ago, voted 11–0 to send their required 

report to Congress, along with the preferred alternative. The preferred alternative 

included the 90 percent guaranteed delivery requirement to eligible processors, as 

they intended. While the Council debated and voted many times over a period of 

days on the harvester elements of the program, there was no single vote on the policy of granting processor shares. It was simply included as part of a many-page motion. It was not amended or discussed, but simply approved in the final package. 

190 

The Council made it clear that the cornerstones to this program were the binding 

arbitration and community protection portions of the plan. These elements were to 

be followed as ‘‘trailing amendments’’, with their own committees and analytical 

documents. This past month, the Council saw the final documents and reports on 

the ‘‘cornerstones’’ of the crab plan. They were barely able to get a majority to approve them. It is clear that with closer scrutiny, the Council’s preferred alternative 

in June 2002, has serious problems. 

The entire issue of processing shares was discussed briefly by the National Academy of Sciences and the concept was rejected as unnecessary. The Committee was 

not convinced that processors should be granted processing shares, or even if they 

should be granted harvesting shares for eligible vessels they might own. 

I am frankly surprised that this issue has continued to receive serious consideration. It proves to me that the processor lobby is as strong as it was before Alaska 

became a state and they controlled the seafood industry through the salmon traps. 

Their successful lobby resulted in Alaska remaining a territory for years after it 

should have become a state. The fishermen cannot hope to compete with the power 

and funding of this group. We can only hope that our elected representatives will 

continue to use good judgment and reject this proposal. This is not fishery management, it is fishermen management. 

As a crab vessel owner who has a catcher vessel and a catcher/processing vessel, 

I have in years past delivered some of my crab from the catcher vessel to processors 

and some of my crab, I have processed myself with my catcher/processor. Under the 

processing share proposal, I will not have the option in the future to process my 

own crab from my catcher vessel. Now, the last time I checked, this was still America and I had some freedoms to buy or sell as I choose. I shouldn’t be forced to sell 

my crab to a specific, eligible processor, just like they shouldn’t be forced to sell the 

processed product to a specific store or wholesaler. But, this is what is being proposed. It just doesn’t make sense. 

I have every confidence that Congress will carefully evaluate this issue on the 

merits, not the political push and pull that a well-funded lobby can accomplish. 

There is a reason that we have anti-trust laws, let’s not overturn them on a whim. 

It is vital that the Bering Sea/Aleutian Islands crab fisheries be rationalized and 

a quota based program be implemented. It is not right that a few powerful companies can stop this from happening unless they get their own guaranteed lock on the 

product. 

Thank you for considering my comments. 

PREPARED STATEMENT OF ROBERT E. PRIES

‘‘Crab Rationalization’’ is nothing less than a legalized cartel. The fishermen have 

no choice but to sell to the cartel regardless of how low the price or they do not 

sell at all. Even if a portion of the catch is reserved for free market the results will 

be the same: the free buyer could not compete with the cartel if the cost of his fish 

was more than the cartel. If 20 percent of the catch was reserved for the free market then only 80 percent of the fishery will be dominated by small group of monopolies. What a deal. 

I am not a crab boat owner in this particular fishery but I do participate in crab 

and numerous other fisheries. We are shaking in our boots because we see this 

plague engulfing the entire fishing business. Processors everywhere are salivating 

at the prospect. 

The fishermen are not getting a fair shake as it is and this would only make it 

permanent and legally condemn us to the lowest rung of the economic ladder. That 

is not fair for men who work some pretty mean hours, live in some pretty Spartan 

conditions in the most dangerous occupation in the country. 

Ever since Exxon Valdez Oil Spill it has been bad news for nearly all of the fishermen in Alaska, even those who were not directly affected by the spill. That was a 

9.0 disaster on the Richter Scale for a lot of fishermen who still have not been compensated not to mention those who never will which may include nearly all of us 

if it grinds along for another 15 years. 

We have more Pink Salmon than our processors seem to want but do you think 

Alaska will allow foreign processor vessels into our fisheries? Think again. It is all 

about protecting the soft money contributors. 

Senator McCain, I was a dedicated supporter of your bid for the Presidency mostly because of your fight for campaign reform. I believe that that this legalized bribery system of ours is the root of corruption in this country. It sets a bad example 

for the leaders of the country who have not already been corrupted and may be the 

best example of the trickle down theory yet. 

191 

I cringe when I hear our President talk about spreading democracy. Make no mistake we are governed by a Plutocracy. The ratio of CEO to worker compensation 

increasing from 400–1 to 4,000–1 during the past 20 years should convince anyone 

that this country is more and more being run by the wealthy for the benefit of the 

wealthy. Those CEO’s make those fantastic salaries even when their Companies are 

failing. 

I served my country just like you Senator McCain. I was a Navy fighter pilot too 

and I am not blind nor am I deaf. I hear Perot’s sucking sound. I see that the law 

is for the highest bidder. I see antitrust as a bad joke. I see outright white collar 

criminals all over. The politicians revolving door . . . and greed heads everywhere. 

I think that we may be in bad trouble. I don’t think it was always like this. We 

are in dire need of truth, honesty, integrity all over this country. 

The only hope for the boat owners and crews is for a free market. WE only ask 

for a fair price for our catch something we will never see under this scheme which 

was contrived by a processor and his favorite politician. Best I can tell this processor 

has become very wealthy while his boat owners barely got by if they did and the 

crews were asked to live on a pitiful wage. 

Please look past the attempt to cloak this greed under a respectable name like 

‘‘Rationalization’’. The Processors want a shoe in deal and my 25 years experience 

with them tells me that they will be just as greedy as Enron. Each one of these 

processors want their own monopoly and nothing less. Free market used to be the 

mantra of our economy playing field this ‘‘Rationalization’’ couldn’t be further from 

a level playing field in a free market. 

The proper name is CRAB ABOMINATION. 

PREPARED STATEMENT OF DAVID SOMA, 

DEEP SEA FISHERMEN’S UNION OF THE PACIFIC

The Deep Sea Fishermen’s Union of the Pacific (DSFU), a labor organization that 

has represented working fishermen for 90 years, is grateful for the opportunity to 

provide a statement for the record of this hearing on the Bering Sea and Aleutian 

Islands (BSAI) Crab Rationalization Plan (Plan). The long history of DSFU has been 

marked by a clear vision for the longline halibut and sablefish fishery, a progressive 

outlook for the industry, an emphasis on safety and the immense professionalism 

of its members. DSFU is justifiably proud of its unbroken service to working fishermen. The Union has amassed an unparalleled string of successes in safety, fishing 

management, conservation and equitable treatment for our members throughout our 

history. 

The almost 300 current members of the Union represent a growing number of the 

longline schooner fleet crewmen and an even faster growing number of crab fishermen from Washington and Alaska. 

The Union was formed, when the crews were confronted by extremely low prices 

for halibut, poor resource conditions, and fishing in very bad weather and unsafe 

conditions that led to several vessels sinking and the loss of several crewmen. The 

time was right to take some action. They created the Union with goals that were 

straight-forward and practical; fair wages, better living conditions, improved benefits, and a closed shop. 

As working partners in fishing operations, the members of the DSFU took responsibility for the management and well being of their livelihoods. The Union’s principles continue to be: The proper long-term management of resources for conservation and efficiency; the fair and straightforward treatment of vessel, skipper and 

crew; professional work standards; and the integrity of fishermen to stand together. 

After a turbulent beginning with the Fishing Vessel Owner’s Association (FVOA), 

initial differences were settled and the two organizations established a simple, elegant and precise contract, now known as the Set Line Agreement. It became the 

basis for payment and working conditions for all longline fishermen, Union or otherwise, working from the mouth of the Columbia to the Bering Sea. 

Relations between these two organizations have been candid and collegial ever 

since. There were many good reasons for the Union and FVOA to cooperate and collaborate. Many captains, boat owners and crewmen realized that their goals were 

inextricably linked. It was rapidly apparent that there were a sizeable number of 

key issues that would need the full cooperation and lobbying power of both the 

Union and management. 

In 1962, the North Pacific Fisheries Commission ruled that the Bering Sea halibut stocks were underutilized. They then became fair game for the Japanese. American fishermen strongly objected, but to no avail, and the decision negatively impacted every American fishermen working in the North Pacific. From 1966–1974, 

192 

the halibut quota dropped precipitously. Longlining reached its lowest point in 1974 

with just over 21 million pounds caught for the entire year. Trips took 20–25 days— 

fish were old when delivered and ‘‘hole’’ trips (ones that made no money) were common. 

In the Senate, Senator Warren Magnuson from Washington State and Senator 

Ted Stevens stepped up to the plate. Under their leadership, the foundation was 

laid for the Americanization of the fisheries within 200 miles of our coasts. 

However, a race ensued among American fishermen, as the domestic fleets grew 

in size and efficiency. For halibut, openings grew shorter. In 1980, area three was 

open for eight days and by 1983 it was five. Crew fitness and endurance became 

increasingly important. The Union grew with young men who were drawn by the 

reputation of the schooners and the Union’s professionalism. An old sideline, black 

cod, increasingly became a mainstay of the longline fleet. 

FVOA and DSFU worked together to stop the inequities involved in fishing for 

black cod. All hook and line fishermen in the North Pacific again benefited from the 

effort. 

By 1991, fishing time for both black cod and halibut had shrunk to a scant number of days. The Union entered into a dialogue with FVOA about a plan centered 

on Individual Fishing Quotas (IFQs). After lengthy discussion and lots of effort over 

a period of seven years, IFQs were adopted for the halibut and sablefish (blackcod) 

fisheries. The decision was not an easy one. The prime-mover for this process was 

the North Pacific Fishery Management Council, which began considering options in 

the late 1970s. Dangerous ‘‘derby’’ fisheries that caused safety, care of gear and 

quality of product issues were resolved by IFQ’s. 

The Set-Line Agreement was renegotiated between the Union and FVOA in 2002, 

again demonstrating its utility and the ability to stand the test of time. 

DSFU continues to set the standard for longlining in the North Pacific. The Union 

has unhesitatingly stepped up as a key part of the most powerful lobbying body for 

hook and line operations in the North Pacific. The recent addition of a growing number of crab crewmen and skippers to its ranks is a testimonial to the worth, stability 

and advocacy for working fishermen DSFU has always demonstrated. From dories 

to schooners, from lay-up to IFQ—the Union has really been about people—its incredible membership. 

Background and Need 

Owners of the crab boats operating in Alaska, most of which are based in Seattle, 

have been struggling for a decade to stay solvent despite plunging populations of 

most crab species. In September 2002 the National Marine Fisheries Service 

(NMFS) and the Alaska Department of Fish and Game made the situation even 

more critical when they announced that the allowable catch for snow crab, the most 

populous species, was lowered for the 2003 season. This was a 15 percent decrease 

from the 2002 catch. Without enabling legislation from Congress, the fishery will 

continue to operate under the Olympic quota system. The Olympic system forces 

boats to race for the fish, usually resulting in uneconomical marathon fishing sessions that are damaging to the crab stocks and dangerous to crews. This system is 

the main reason crabbing is considered the most dangerous fishery in the United 

States. 

The proposed alternative, a quota allocation system, would give catchers, processors, communities and skippers specific quotas of the available catch. Under the 

system, quota owners will be able to catch crab according to market and weather 

conditions and their own best operating efficiencies as opposed to the dangerous and 

innefficient ‘‘derby’’ system. 

Versions of the quota allocation system have been implemented by the halibut, 

pollack and whiting fisheries, all with positive results. The Pacific halibut fishery, 

once poorly controlled and managed, is now considered well-managed, environmentally responsible and sustainable for the forseeable future. The fishery currently 

fishes 20 percent of the available biomass while providing good wages for the crewmen and a profitable business for the owners. In addition, the fishery has seen a 

marked decrease in accidents and deaths since rationalization. In a recent Seattle 

Times article, both Pacific halibut and sablefish were noted as well-managed and 

received Monterey Bay Aquarium’s green, or ‘‘Best-choice,’’ rating. The DSFU believes these remarkable results are directly related to the implementation of a quota 

allocation system. 

It is interesting that, with the decline of the crab fishery and the onset of a rationalization program initiative, crab skippers and crewmen strongly petitioned 

DSFU for representation in 2002. DSFU has stepped up, in adherence to its bylaws, to represent working fishermen. 

193 

Position Statement 

The Union, and its members feel strongly that crab rationalization is the correct 

mechanism to revitalize the industry and encourage a safe, healthy and economically strong crab fishery. However, the members also have some very serious reservations about the plan as currently designed. The inclusion of processor shares 

and more particularly the 90:10 split is worrisome to our members. The fact that 

the Council passed an amendment that significantly weakens the arbitration safeguards for the harvesters is also of concern to our members. In our opinion, the 

processor share portion of the plan comes close to running afoul of the anti-trust 

laws and particularly the restraint of trade provisions. The membership is also concerned about the precedent it sets for the next fishery that rationalizes. Once processor shares are legitimized, we see them becoming a part of all rationalizing plans. 

When this is coupled with an almost negligible 3 percent share for skippers, it becomes even more difficult for the Union to not be concerned about the long-term consequences of the plan. 

Finally, the absence of crew shares has to be of extreme concern to a Union representing working fishermen. A plan that, once again, gives no recognition to those 

who perform the overwhelming majority of the work resulting in the successful prosecution of any fishery can only be considered short-sighted and inequitable by the 

Union representing these working fishermen. We do recognize and appreciate the 

inclusion of a loan program intended to give crewmwmbers the opportunity to purchase quota. However, as can be seen in other fisheries, this is not as easy as envisioned and we feel initial crew shares would be a more equitable approach. 

For these reasons, the DSFU believes it is in our members’ best interests to not 

support or oppose the current plan at this time. The Union is heartened by the 

Council’s letter of 6 May stating its intentions to closely monitor the arbitration and 

community protection sections of the plan and its intention to ask congress for assistance if the plan does not work as anticipated. However, the DSFU believes we 

should reserve our judgement until legislation is enacted and the plan is allowed 

to work for a period of time. We believe that the anticipated positive effects or 

feared negative results will emerge over time and if the results are negative, we 

would respectfully like to reserve our right to petition the Council and ultimately 

the Legislature for relief and modifications as necessary. 

194 


520SANDP1.eps

OS-14-lOU 10;5ta frorti 1r of Su4 Pollll T--Ill P.OUhU liT 

City of Sand Point 

RESOLUTJQN 2003-09 

A RESOLtri'ION OF TilE CIT¥ COUNCIL FOR THf; CITY OF SANP tO !NT 

SUPPORTING ALASKA'S ll'o'DEPEI'IPENT COMMERCIAL FIS'IU:RlltEN AND 

ALASKA'S FISH PROCESSING INDUSTRY AND OPPOSING TIJ£ t:STABLISHMENT OF PROC£SSORQUOTA 5HAJU:S. 

Wli£RfAS !he City of Sand Poicl suppons lhe commercial fish<nnen oF Alasb, WhQ 

are: lhc: hfc:bJood of our coastal communities and who provide economic opportw'lity and 

diveN.ity for our coa.nal communities; and 

WHEREAS 1he Cily of Sand Poin1 suppons !he Ala<lca (db procesS>ng industty which 

provides invesll!l<nl in the state and is !he la!f<$1 <mplo>m<nt ba.c In nl1ny Alaska coutal communirits and i.'ll Sand Point; and 

WHEREAS !he City of Sand Poimrecogoius !hal commorcial fishm: is and will remain 

the predominant economic base fortht: majorityofourcoastal comm\ltlities and Sand 

Point; and 

WHE!UAS 1he City of Sand Poin1 suppom !he fiee merprise system; and 

Wl!fREAS !he City of Sond Point reco:nizes dw fed<ral fishezy Jnalll&<meru in tbe lOO 

mile Ixclw:ive Economic Zcne of the Unhed Slates can havt dramWe e!feets on rhe 

economic groWlh and stabilhy o!coanal communities and Sand Point; and 

WHER£AS !he Nonh Pad6c Fishery Mlnlg<ID<llt Cow>cil has proposed a 

n1ionalizarion plan !or ~ement o! the crab noels in the Bering Sea and Aleutian 

C.l1!lds aru and is curmlllY developinS a rauo.Windon plan for the Oulf of Alaska 

grou.•dfish sooc:lcs; and 

WHWAS che Bering Sea and Aleutian Islands crab plan incol'J)Otates processor quota 

sbi!C1. whtch designate 1h11 90 pertent of lht fishermen's catch musr be sold <O 

duign.al.ed proc:euors: and 

WHEitEAS th~ Nonh Pacific FlShery Man-se-met~ Council's ttcommcndaricn for 

processor eonlrCl of a fishety Is Wlprtc:cderued In !he l.loiled Swes; and 
195 


520SANDP2.eps

WHEREAS processor quota s.hates limit a fuhe:t'llUm's abilit)' to seU t.o any othet m.a.rkc:t 

by reducing or diminJ.ti:ng competition mont processors; and 

WHEREAS processors "'ho ate not gr>~~ted proeessor quota s~s will be pla<e<l at a 

ieriow C'Ompetidve d.indvantage a:nd may disconrinur all proccssint busines.s affecting other fisheries, including saltnon; 

NOW THEREFORE BE IT RESOLVED that the City of Sand Point suppons healthy 

relationships berwun fishermen. processors. and Alaslca coastal communilies. iotluding 

Sand Potnl, that strcngth<n the commercial fishing industry and the tree enterprise 

system; llld be it 

FtlftTif!>R RESOLVED that the Cil)l of Sand Point opposes the North Pacific Fishery 

M~ent Council's proposal to tstabllsh processor quota~ in the Btting Sea 

Aleulim Island Cnb ltalionallwion Plan md !he Gulf of Alaska Groundfish 

R.atio:Wiu.don Plan. 

PASSED AND APPROVED BY A DULY CONSTlTUTED QUORUM OF THE 

SANl> POINT CITY COONCIL TEllS U"'DA¥ OF MAY 2003. 

IN WITNESS nrER.ETO: 

tlfp qudm <9 
196 

PREPARED STATEMENT OF ALF O. SORVIK, OWNER, F/V RAINIER, 

F/V PARAGON, F/V ISAFJORD

As a former member of the Alaska Crab Coalition (‘‘ACC’’), I am submitting this 

written testimony to refute the position of the ACC, as presented today by it’s executive director, Arne Thompson. I, along with many other independent crab fishermen, left the ACC when it became apparent the group no longer represented the 

interests of the independent fishermen and was simply a voice for the processor controlled and/or CDQ controlled crab fishing vessels. 

I am a fisherman and I have been active in the crab fishery in the Bering Sea 

and Aleutian Islands since the 1960s. My vessels have harvested Red, Brown, and 

Blue King Crab; Opilio and Bairdi Tanner Crab for over 30 years. While I have 

fished for many of the processors that stand to gain an unfair advantage by the 

North Pacific Fishery Management Council’s (‘‘NPFMC’s’’) proposed rationalization 

plan which endorses ‘‘processor shares,’’ I cannot support this plan. 

If the Commerce Committee allows this plan to move forward, you will be awarding the processing sector a monopoly. Further, this proposed plan goes against the 

wishes of almost all the Alaskan communities, violates our antitrust laws, sets a 

dangerous precedent for other fisheries, and illustrates just how precarious our 

Council’s position in the management of our fisheries has become. 

I ask you to send a clear message to all the Councils in our Country that the 

Commerce Committee will not stand for proposed rationalization plans that violate 

the law. The NPFMC needs to do what the crab sector asked and agreed upon; provide a rationalization plan in conjunction with a buyback program and let the crab 

sector solve it’s current economic problems without further diminishing the sector’s 

position by granting the processing sector an unfair advantage through a ‘‘two pie/ 

processor share’’ scheme. 

In closing, this is bigger than just a crab rationalization program, it sets the 

course for further rationalization plans across the Country. Set the process on 

course and do not allow the NPFMC’s proposed Bering Sea Rationalization plan to 

move forward with ‘‘processor shares.’’ 

PREPARED STATEMENT OF CAPT. GARY STEWART, F/V POLAR LADY

My name is Gary Stewart. I have fished crab in the Bering Sea since 1969. I have 

been a boat owner since 1978. I am president of the Alaska Marketing Association, 

the collective bargaining association of Bering Sea crab fishermen and the largest 

single group representing harvesters. The AMA negotiates crab prices for the entire 

Bering Sea crab fleet with the exception of the catcher-processor vessels. 

The crab rationalization program seems to be slowly working its way through the 

bureaucratic process. It is looking more to me like the deck is being stacked against 

the crab fishermen of the Bering Sea. I have watched and participated in this process. I think this once promising program will reduce our fishing fleet to the status 

of serfs and sharecroppers. I believe that getting our IFQs may not be worth the 

price we will be paying. Do any of you think we will be better off with processor 

quota shares? I know that processors will be. I know that CDQ groups will be. Some 

fishing dependent communities may be while others, like Kodiak, will be harmed. 

I have strong doubts the fishing fleet will benefit. 

The North Pacific Fisheries Management Council has sided with the processors 

on every phase of the rationalization process. The two-pie that the Alaska Crab Coalition sold me on was a program that gave processors a quota share for 80 percent 

of the crab. I didn’t like it but thought it might be workable if a mechanism were 

in place to allow us to negotiate a fair price. Without public discussion, the NPFMC 

voted unanimously to give the processors 90 percent, with a binding arbitration 

process written by a processor attorney. A committee was formed to discuss arbitration models, and they had many meetings and spent a lot of time trying to hammer 

out a program we could live with—an ultimately is was all in vain as the NPFMC 

rubber-stamped the processors plan, ignoring the AMA and all other harvester 

groups. 

For the first time that I can remember all the crab fishing groups agreed on something-the council’s preferred binding arbitration model did not adequately protect 

harvesters. Jake Jacobsen, the AMA manager, went to the April council meetings 

and testified in favor of changes to the plan in order to better protect harvesters. 

The council voted against us 6–5. 

I had hoped the processor quota share might get tossed out when the Alaska Crab 

Coalition (a harvester political group of 10–15 boat owners) pulled its support. That 

didn’t last long. 

197 

I believe we are stuck with a binding arbitration program that will not be fair 

for harvesters. It was written by processors for processors. 

The Unalaska City Council recently voted to endorse processor quota shares. Privately, some. council members have said that they endorsed the plan only because 

they did not want to upset the all-powerful processors. 

Questions I would like to have answers to: 

1. Why did the NPFMC disregard public testimony on two-pie. 

2. Why did the NPFMC go against the findings of their own analyst in regard 

to binding arbitration? 

3. If processors need the protection of two-pie then why are they going to be able 

to buy 5 percent of the quota, each? Fishermen only get to own 1 percent of 

the fishing quota each! 

4. Why was the AMA not invited to testify at the Senate committee hearing? 

By my own unofficial survey eight out of ten boat owners are against processor 

quota shares, but many are afraid of retaliation from processors so they think they 

must keep quiet. They understand where the power will be in the future. 

Processors have been telling us all along that if we want rationalization we better 

get in line and not object to anything they want. They must be telling the NPFMC 

the same thing. 

If rationalization were to go away tomorrow who would Jose the most? Would it 

be us fishermen? We would be back where we started. As a father who raised my 

family in the crab fishery and whose son is now fishing in the Bering Sea crab fisheries, I pray for a rationalized fishery. Processor quota shares are a bad idea. Sure, 

they make a big deal about the 10 percent harvesters will be able to deliver on the 

open market, but in truth the 10 percent is really much less (processors own many 

fishing boats)-and with processors holding boat loans and tendering contracts over 

the heads of harvesters, there is very little that will not be delivered to them. 

Processors just about have the golden goose wrapped up. But would they really 

‘‘pull the plug’’ on rationalization if fishermen ask for a system that is not so onesided? With all that processors stand to lose, I think not. 

GARY STEWART, 

F/V Polar Lady. 

PREPARED STATEMENT OF BOB STORRS, VICE PRESIDENT, UNALASKA NATIVE FISHERMAN ASSOCIATION (UNFA) 

Chairman McCain, Senator Stevens, and members of the Committee: 

First, we would like to thank you for holding this hearing and receiving testimony 

regarding the Bering Sea crab rationalization plan put forward by the North Pacific 

Fishery Management Council (NPFMC), and in particular—the portion of that plan 

that deals with the gifting of exclusive processor quota shares to specific, largely foreign owned corporations. 

There are some who would tell you that processor quota is an item that can rightfully be handled by the NPFMC. Nothing could be further from the truth. This is 

a question of national policy that reaches far beyond the domain of the Council. 

The decision that you, as our elected representatives, make will reach far beyond 

price negotiations for seafood—far beyond economics and anti-trust issues, it is a 

matter of who will control not only our resources, but also the very social and political structure of our communities forever. 

With that in mind, we only wish that you could have talked with some of the 

many people who have privately apologized to us for not taking a public stand on 

this issue because they fear for their markets or their jobs. This is a sad fact of life 

in the company town scenario. Hopefully it is not the road that you would send us 

down. 

The Unalaska Native Fisherman Association, along with other fishermen’s groups, 

city and village councils, independent processors, and ordinary citizens from across 

Alaska stands absolutely opposed to processor quota shares, and we feel that it is 

unfortunate that some with the State of Alaska and the NPFMC have accepted the 

arguments of several large companies as justified through the theories of one economist. 

Dr. Matulich’s views are based on data selectively released by the processors, and 

neither these findings nor his methodology find broad approval among other economists or by the independent review of the General Accounting Office. 

Some people have asked us how processor quota would directly affect the members of UNFA. We offer a case in point: 

198 

Seven years ago, fishermen from Unalaska and some of the outlying villages met 

to discuss the formation of a co-op. The University of Alaska sent down two economists who helped us draw up by-laws and formulate a business plan. A lease arrangement and was made for the last small family-owned processing plant in the 

Aleutians, and enthusiasm for the project ran high. 

One week before we were to take possession of the facility, it burned to the 

ground in our town’s most spectacular blaze since the Japanese attack of World War 

II. 

Recently, people in our town have again begun to express an interest in re-activating the co-op, perhaps by using a small floating processor. One problem though— 

if processor quotas become a reality, that will be impossible. 

We have repeatedly been told that the 10 percent of the quota left open to the 

free market would accommodate any future plans as well as lend some capitalist 

flavor to this attempt at a planned economy. That is ridiculous. As an economist 

who specializes in co-ops pointed out to us—you cannot have a viable co-op when 

your members are required by Federal law to deliver 90 percent of their product 

to the competition. That is not the American way of doing business. 

The fact of the matter is, if you allow processor quota to become a reality, you 

will have made it functionally illegal for us to have a viable co-operative. You will 

have completed the job that the fire began. 

After 100 years of American anti-trust legislation, is that really where you want 

us to be? 

It is important to remember that all of the goals of fleet reduction, increased safety, community stability, as well as conservation concerns could be achieved without 

granting cartel status to a handful of companies. Conservation and safety issues are 

dealt with on deck and in the wheelhouse—not in a far away corporate boardroom. 

In fact, all that has prevented the communities and the fishermen from achieving 

a safer, more rational fishery has been the fact that these corporations have held 

the public process hostage to their demands for control of the resource. They called 

it their ‘‘poison pill’’ and from the beginning, they made it clear that it had to be 

their way or no way. They realize that they have tremendous political power and 

that they are about to acquire much more. 

This is particularly galling because huge questions continue to go unanswered: 

How great is this so-called corporate distress? Who owns how much of whom? 

Where are the profits—or the losses—being realized? How great are the losses to 

the U.S. Treasury due to abusive transfer pricing? What lessons, if any, are to be 

gleaned from the Bristol Bay price fixing case? 

The Unalaska Native Fisherman Association has, from the beginning, insisted 

that for there to be any meaningful discussion of relief to these companies, the 

books—from Seattle to Tokyo—must be opened. 

Citing proprietary concerns, the companies have failed to do this. They have released only select data through their own select economist. We can see where that 

got us with Emon and Worldcom. 

We find it ironic that any Alaskan fishermen who applies for a loan must completely bare his or her books—including all IRS records for years past, yet we stand 

on the verge of granting virtual ownership of a once publicly-owned American resource to a handful of trans-national companies—all purely on faith. 

Even as we look beyond the forest of ledger sheets and corporate relationships, 

it is very difficult for many of us who make our living at sea to equate the financial 

distress of a crab fishing family to the pains of Nippon Suissan Kaisha—who just 

over year ago purchased Gorton’s Seafoods and a similar Canadian company for 175 

million dollars, and in so doing virtually completed the vertical integration of their 

operations in North America. 

Make no mistake about it—we want these companies to prosper. Perhaps there 

are things we can do to assist them through what they claim are tough times; 

maybe with open books and open minds we can work together to find some new 

ideas that will benefit all of us. Let one thing be clear—granting the companies such 

unprecedented control over our resources and our lives should not even be an option. 

The very idea of facilitating the passage of the processor quota abomination by 

initially applying it solely to our area is—for those of us UNFA members who have 

served our country in combat—particularly offensive. 

Please remember, Alaskans deserve the same economic freedoms and protections 

enjoyed by all other Americans. We are citizens, not pariahs. That is why we urge 

you to reject the idea of processor quotas and allow us all to move foreword in a 

public process unhindered by further threats of corporate veto. 

Again, we thank you for your attention to this matter. 

199 


520BSTOR1.eps

May20, 2003 

Mcmbcn of the Commiuee: 

Here Js a petition &igned by Unalukano opposed to proees&or quotu. and also to !he fact 

lllll tbe usual public process was bypauod in order lAl slide lhrouab City Resolution 

112003-27. llecausc a wspcc:ial mo<odna'' was ealied ooly 24 hours public notice was 

reqw...S. tteoce tile aaion was legal. 

It i• ironic !hat allhou&h oeilhq- our newspaper r.or ou local ciliuns-in!ormed ..,Iii 

tbc W. minute. ~proccs$01' croupo lo Sealtle had bcco infonnod lOd had aJ!Hdy 

p!q>Vcd le~ in suppc11 of !he ruolullon a fuU eip! dayo be ron cbe city council 

medina. Perhaps !hat illustraW wbac ow city odministtati<>M uuc cooutitucocy lies. 

All of lhe signatures on lhb petition oro local Unalasb re&idenl$. most arc property 

owners, and they represent mosl of our local venel o·,vners. Two vessel owners who are 

strong.ly opposed to P.Q's were unable to siso due 10 the postiblcloss of their markclS. 

Such is l.ifr. in a company town. 

Sin=dy, 

Bob Storrs, Vice Pre&ident 

Unalaska Native Fisherman's AsSOCiation 
200 


520BSTOR2.eps

We,thc undersigned, strongly oppose the passage of Resolution No. 2003-27, w.hercin 

the City of Unalaska would endorse a crab rationalizaton plan that would include 

guacantecd exclusive processing shares for 90'/o of the harvest to be awarded only to 

specific: companies. 

We arc greatly concerned about the effects on our town. and resent the fact that it 

would forever preclude our fishenn-en from forming a 'liable local co operative. 

It is not possible to maintain a viable co-op when membei's are required by Fodera I 

Jaw to deliver 90% of their produo:t to the competition. 

We believe that biologica~ wety, and community concerns can be addressed by plans 

that do not include the gift of an American public resource to a handful of largely foreign 

companies. 

We further strongly object to the fact that a "special meeting" was called in orderto 

bypass the normal public process, and that only after lhe processing companies and city 

c<>uneit members were aimed was there any attempt to notifY the general pub!ic, the 

Qawalangin Tribe. or lhe Unalaska Native Fishennan·f Association. 

We believe that an issue such as the granting of exclusive processor quota, that would 

change this town forever, deserves greater public participation-even a referendum-as 

opposed to this current abuse of our public process. 

fiil I 

.P:o.!Jtnc'3 i<f u,.,. fa,r){,. AX 9"!U.s-

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to 1~<.../ 1~i IJe!dt.W·U ?1~; 
201 


520BSTOR3.eps

We, the undersigned, strongly oppose the passage ofResolution No. 2003-27, wherein 

the City of Unalaska would endorse a crab rationalization plan !hat would include 

guaranteed exclusive processing shares for 90% of the harvest to be awarded only to 

specific companies. 

We are greatly concerned about the effects on our town, and resent tbe fact that it 

wo-uld forever preclude our fishermen from fonning a viable }a<;al co·operative. 

It is no~ possible to maintain a viable co--op when members are required by Federal 

law to deliver 90% of their produetto the competition 

We believe that biological, safely, and community concerns can be addressed by plans 

that do not include the gift ofan American public resource to a handful oflargely foreign 

companies. 

We further strongly object to the fact that a "special meeting .. was called in order to 

bypass the normal public process, and that only after the processing companies and city 

council members were alerted wu tb.ere any attempt to notify the general public, the 

Qawalang.in Tribe, or the Unalaska Native Fi:sherman's Association. 

We believe that an issue suclt as the grant:ing of exclusive processor quota, that wouJd ~ 

change this town forever, dC$ervcs greater public participation-even a refer~ndum-as 

opposed to this current abuse of our public process. 
202 


520BSTOR4.eps

We, the undersigned, strongly oppose the passage of Resolution No. 2003-27, wherein 

lbe C1ty of Unalaska would endorse a crab rationalization plan that would include 

guaranteed exclusive processing shares for 90% of the arvestto be awarded only to 

specific companies. 

We are greatly concerned about the effects on our town, and resent the fact that it 

would forever preclude our fishermen from forming a viable Jocal eo...operative. 

It is not possible to maintain a viable co-op when members are required by Federal 

law tO deliver 90% of their product to the competition. 

We believe that biological, safety, and community coocems can be addressed by plans 

that do not include the gift of an American public resource to a handful of largely foreign 

companies. 

We further strongly object to the fact that a "special neeting" was called io order to 

bypu.~ the nonnal public process, and lhat only after the processing companies and city 

council members were alerted was there any attempt to notify the general public, the 

Qawalangin Tribe. or the Unalaska Native Fisherman's Association. 
203 


520BSTOR5.eps

We, the undersigned, strongly Opp<* the pwagc of Resolution No. 2003-27, wbe.eio 

the Ctty of Unalaska wnuld endorse a c:nl> ratiorutlization plan tbat would include 

guaranteed ex<lusive processing shazes for 90% of the lwvest 10 be awarded only to 

specific companies. 

We aro greatly concerned about the effects on our lOw:>, and resent the fact that it 

would forever preclude our fishermen rrom forming a viable local ~perative. 

It is not pOssible to maintain 11 viablo co--op when members arc required by Federal 

law to deliver 90% of their product to U\c competition. · 

We believe that biological, ufety, and community concerns can be addressed by plans 

that do not 1nelude the gift of an American public resowce 10 a handful oflargely foreign 

companies. 

We 1\lrtbu stroogly object 10 lbc faetlbat a "special meeting" was called in order to 

bypass the normal public prooess, and thar only after the proeessinc companies and city 

council munbcrs were alerted was there any attemptiO :tOtify the ge.neral public, the 

Q.1w1tan&)n Tribe. or the Un..luka Native Fishc.nnan~s Auoeiation.. 

We believe that an i$$ue •uch as the grnoting of exel•sivc processor quota, that would 

change this town forever, deserve.~ greater public partieipai.Joo-even a rcfcrtOOum-as 

......... ~"··-.. ~ ... ,,.,;,~~& 
204 


520BSTOR6.eps

We. the undersigned. stronaJyOppOSC thepassaacofResolution Ko. 2003-27, w"""'J" the City of Unalaska would endorse a crab rationaliUboo plan that would include 

guaranteed exclusive processing &hares for 90"4 of tho harvest to be awarded only to 

specific compaoics. 

We arc greaUy concerned about the effects on our town, and resent the fact that it 

would forever preclude our fishermen from forming a viable local co-operative. 

It is not possible to maintain a viable co·op when members arc required by Federol 

law to deliver 90% oftheir product to the competition. 

We believe that biological, safety, and community concerns can be addressed by plans 

that do not include the gift of an Amcricun public r=urce to a handful of largely foreign 

companies. 

We fwtbcr saongly objoct to the fact that a "$p0Cial meeting" was called in order to 

bypass the normal pubtic process, and that only after !he processing companies and c1ty 

council members were alerted was thcTc any attempt to noufy the genenl public, the 

Qawabngin Tribe, or the Unalaska Nabve Fisherman's Association. 

We beticve that an issue such as the granting of C>CCiusivc processor quota, that would 

change this town forever, deserves arc:atcr pubtie partieipatioJ>-.-eVen a refcrtodwn- as 

opposed to this CUITCilt abuse of our public process. 
205 


520BSTOR7.eps

We, !he undersigned, stro~gly oppose the passage of Resolution No. 2003-27, wherein 

the City of Unalaska would endorse a crab rationalization plan that would include 

guaranteed exclusive processing shares for 90% of the harvest to be awarded only to 

specific companies. 

We are greatly concerned abeut the effects on our town, and resent the fact that it 

would forever preclude our fishermen from Conning a viable local co-operative. 

lt is not possible to maintain a viable co-op when :nembers arc required by federnl 

law to deliver 90"/o of their product to the competition. 

We believe that biological, safety, and commwlityconcems can be addressed by p lans 

that do not include the gill of an American public rcsJurce to a handful oflargcly foreign 

companies. 

We further strongly object to the fact Ill at a "special meeting" was called in order to 

bypass the normal public process, and that only after !he processing companies and city 

council members were alerted was there any attempt ro notify the general pubJjc, the 

Qawalangin Tribe, or the Unalaska Native Fisherman's Association. 

We believe that an issue such as the granting of exclusive processor quota, that would 

change this town f'orever, deserves greater public par..icipation-even a referCodum -QS 

opposed to this current abuse of our public process. 
206 


520BSTOR8.eps

We, the undersigned, strongly oppose the passage of Resolution No. 2003-27, wherein 

the City of Unalaska would endotse a crab rationalization plan that would include 

guaranteed exclusive processing shares for 90% of the harvest to be awarded only to 

sped fie companies. 

We are greatly concerned about the effects on our town. and rcsenlthc fact that it 

would forever preclude out fisbenntn from Conning a viable local co.-operative. 

It is not possible to maintain a viable co-op when members arc required by Federal 

law to deliver 90% of their product to the competition. 

We believe that biological, safety, and corrummity coJcems can be addressed by plans 

that do nottnclude the gift or an American public resowce to a handful of largely foreign 

companies. 

We further strongly object to the fact that a "spec.ial meecing" was called in order to 

bypass the nonnal public process, and that only after the processing companies and city council members wCJ:e alened was tb.erc any anempt to :><>rifY t.be general public. tbe 

Qawalangin Tribe. or the Unalaska Native Fishennao's Association. 

We believe that an issue such as the granting of exclasive processor quota, that would 

change this town forever, deserves greater public participation- even a referendum- as 

opposed to this cWTent abuse of our public process. 
207 


520BSTOR9.eps

We, the undersigned, stroogly oppose the passage of Resolution No. 2003-27, wherein 

the City of Unalaska would endorse a crab rationaliution plan that would include 

guaranteed exclusive processing shares for 90'/o ofth~ harvest to be awarded only to 

specific ~mpanies. 

We arc greatly eoneemed about the effects on our ~wn. and resent the fact that it 

would forever preclude our fishennen from fotmi.ng 2 viable local eo-operative. 

II is not pos.~tible to maintain a viable co-op when members are required by fiederaJ 

law to deliver 90% of their product to the competition. 

We believe that biological, safety, and community concerns can be addressed by Jllans 

that do not include the gill of an American public resource to a handful oflargcly foreign 

companies. 

We further strongly object to the fact that a "special meeting" was called in order to 

bypass the normal public process, and that only after the processing companies and city 

council members were alerted was there any attempt to notify the general public, the 

Qawalangin Tribe, or the Unalaska Native Fisherman·s Association. 

We believe !hat an issue such as the granting of e~c usive processor quota, that would 

change this town forever, deserves greater public participation-even a refer~ndum-as 

opposed to this current abuse of our public process. 
208 


520BSTOR10.eps

We, the undersigned, strongly oppose the passage of Resolution No. 2003-27, wherein 

the City of Unalaska would endorse a crab rationaliz•tion plan that would include 

guaranteed exclusive processing shares for 90% oft~e harvest to be awarded only to 

specific companies. 

We are greatly concerned about the effects on our klwn, and resent the fuct that it 

would forever preclude our fishennen from forming a viable local co-operative. 

It is not possible to maintain a viable co-<>p when members are required by Federal 

law to deliver 90% of their produCL to the competition. 

We believe 01at biological, safety, and community concerns can be addressed by _plans 

that do not include the gift of an American public ~ource to a handful of largely roreign 

companies. 

We further strongly object to the fact that a "specill meeting" was called in order to 

bypass the normal public process, atld that only after tbe processing companies and city 

council meJllbcrs were alened was there any attempt to notify the genernl public, the 

Qawalangin Tribe, or the Unalaska ~alive f'isbermau's Association. 

We believe that an issue such as the granting of C'<clusive processor quota, that would 

change this lown forever, deserves greater public participation-even a referendum- as 

opposed to this current abuse of our public proces.,. 

~ ~6:....!..:.-?~e..=---­

~J[/4? JAr-. fc;h/1£<.--. 

1:vc t~S'I ~"­

Agcnc.. ~~ 
209 


520BSTOR11.eps

We, the undersigned, strongly oppose the passage of Resolution No. 2003-27, wherein 

the City of Unalaska would endoTSe a crab rationalization plan that would include 

guaranteed exclusive processing shares for 90% of the harvest to be awarded only to 

specific companies. 

We are greatly concerned about the effects on our town. and resent the fact that it 

would forever preclude our fishermen from forming a viable local co-operative. 

It is not possible to maintain a viable co·op when members are requited by Federal 

law to deliver 90% of their product to tbe competition. 

We believe that biological, safety, and community concerns can be addressed by ~lans 

that do not include the gifl of an American public I'($0Ulee to a handful oflargely fureign 

companies. 

We further strongly object to the fact that a "special meeting" was called in order to 

bypass the nonnal public process, and that only after the processing companies and city 

council members were alerted was there any attempt to notify the general public, the 

Qawalangin Tribe, or the Unalaska Native Fishennm's Association. 

We believe that an issue such as the granting of exclusive processor quota, that would 

change this town forever, deserves greater public participation-even a referendum-as 

opposed to tllis tUrTent abuse of our pub lie process. 

f-(, frl<./(, LoN"<>~ 1J ~ VJV,fl.rl< ,<rlqo flqj~SD:M"""""(..."':----

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f.o A fl{g 4 "*9. 
210 


520BSTOR12.eps

We, the undersigned, strongly oppose the passage of Resolution No. 2003-27, wherein 

the City of Unalaska would endorse a crab rationalization plan that would include 

guaranteed exclusive processing shares for 90".4 of the harvest to be awarded only to 

specific companies. · 

We are greatly concerned about the effects on our town, and resent the fact that it 

would forever preclude our fishennen from forming a viable local co-optrative. 

ft is not possible to maintain a viable co-op when members are required by Federal 

law to deliver 90% of their product to the competition_ 

We believe lbat biological, safety, and community concerns can be addressed by _plans 

that do not include the gift of an American public resource to a handful oflargely fOreign 

companies. 

We further strongly object to the fact that a "special meeting" was called in order to 

bypass the normal public process, and that only aftet the processing companies and city 

council members were alerted was there any attempt to notify the general public, the 

Qawalangin Tribe, or the Unalaska Native Fishermao's Association. 

We believe that an issue such as the granting of eocclusive proce.•sor quota, that would 

change this town forever, deserves greater public participation-even a referendum-as 

opposed to this c-urrent abuse of our public process. 

6rdr!f'-f .t.,h~ 

73ox q;;ro"!u~ Vwv-~..7-}aA.hq,__ 

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~l', .}n .. h.ya,_, 1<U~-sJ4,/s'7Z!~O 'p!f ,4-t;. '27(e,2- • ; 
211 


520BSTOR13.eps

We, the under.;igned, strongly oppose the passage of Resolution No. 2003-27, wherein 

the City of Unalaska would endorse a crab r:>tionalization plan that would include 

guaranteed exclusive processing shares for 9()% of the harvest to be awarded only to 

spe<:iJlc companies. 

We arc greatly concerned about the effects on our town~ and resent the fact that it 

would forever preclude our fishermen from formiug a viable local co-operative. 

It is not possible to maintain a viable co-op when membe~ are required hy FP..rlP.ral 

law to deliver 90% of their product to the competition. 

We believe that biological, safety, and eommwtity concerns can be addressed by plans 

that do not include the gift of an American public re!owce to a handful of largely foreign 

companies. 

\Ve further strongly object to the fact that a uspecial meeting" was called in order to 

bypass the normal public proces.<, and that only alter the processing companies and city 

council members were alerted was there any attempt to notify the general public, lhc 

Qawalangin Tribe, or the Unalaska Native Fisherman's Association. 

We believe that an issue such as the gr:>nting of e:<clusive processor quota, that would 

change this town forever, deserves greater public participation--even a referendum- as 

opposed to this current abuse of our public process . 

...£Jl,J/y;"'1 Ot>sik, 1/.~q, t>Zizr 

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212 


520BSTOR14.eps

We, the W>denigned. strongly oppose the pwag' ofReso!utloo No. 2003-27, wherein lhe City of Unalaska would endorse a crab n.tiona!itation plan that would ioelude 

gua.rantee.d exelosi-.·c processing shares for 90% of the huvtst to be awarded onJy to 

&pcc:ific eomp.anies. 

We are grea.tJy concerned about the effeas on our town, and resem th~ fa.etlh2t it wol.lld rorever preelude our fishermen from forming a viable 1oea1 co-.operative. 

(t ls n.ot poutble to maintain a viable c:o-op wben membetsero required by Federal 

law to deliver Wlo oflhcir product to the competition. 

We believe that bio!ogieol, safely, and <OIIIIUUDity concerns CllD be addre.sed by plaos thai do not include !he gif\ of an AJnerieao pub!ie resource to a handful of lor&ely foreign 

cbmpanios,. 

We further stronglya;bjecl to the faellbat a "apoclal meeting" was called in order to . b)l)I.S.S the. nonnal public pi'oeess., and that only &tter the proce5s1na companies a.nd city 

council mem~rs were alencd was \l:et"e any &Ltercpt to notify lhe gen«al pub lie. th.c Qawa.langin Tribe, or the Unalaska Naljve Ftshcrr.lan 't Assoc:iation. 

We believe !bat an issue sueb as lbe granting of excl.,ivc proeessor quoUI, tbat would change this town forever, deserves gruterpublio participatioo-e-;on a ref~dum-as 

opposed to this eunent abuse of ow publie p!'O-Cts.t. 

:J/JI'1E5.G/tK1fl 
213 


520BSTOR15.eps

We, the undersigned, strongly oppose thepasoage of Resolution No. 2003-27, wherein 

lhe C.ity of Unalaska would endorse a crab rationalizaticn plan that would include 

guaranteed exclusive proc.es.sing sha.tes for 90% of the harvest to be awarded only to 

specific c~mpanies. 

We are greatly concerned about the effects on our town. and resent the fact that it 

would forwer preclude our tishcnnen from forming a viable Joca1 co--operative. 

It is not possible to maintain a viable co-op when members a.ro required by Fedetal 

law to dehver 90% oftheir product to the eor:npcrition. 

We believe that biological, safety, and community concerns can be addressed by plans 

that do not include the gif\ of an American public resoutce to a band lUI oflargely foreign 

companies. 

We further stron'gly objoet to the fact tbat • "special meeting" was ealled in order to 

bypass the normal public process, 3J'1d that only after the processing companies &nd city 

councii members were alerted wa$ there any attempt to notify the genecal public, the 

Qa.wa1angtn Tribe, or the Unalaska Native Fishennao 's Association. 

We believe that an issue such as the granting of exclusive prOce$SOr' quota, that would 

change this town forever, deserves greater public participation-even a referendum-as 

opposed to this current abuse of our public proct.$$. 

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214 


520BSTOR16.eps

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We, the undersii!Jled, strongly oppooc the pwase of Resolunon Ko. 2003-27, wherein 

the City of Unalaska would endorse a crab ra~onaliuticn plan that would lllCiude 

gulBilteod exclusive processing lharu for 90% of the blvest 10 be awarded ooly to 

specific companies. 

We are greatly ooncemcd about I be effect~ on our town. and resent the fact that it 

would forever preclude our fishenncn Crom fonnins a vtable Jocal co-operative. 

It is not possible to maintain a viable co-op when members are required by Federal 

Jaw to dc:liver 90% of their product to the competition. 

We believe that biological, safety, and eomtnunity eo>cems can be addressed by pl•ru 

that do not include the &•II of an American public resouiCe to a handful of largely foreign 

companie..111 

We funhu S!tOngly object tO the fa<:t that a "speeial111ee<ing" was called in order 10 

byp:w the normal public process, and th11 only after the proces.ing eompanieo and clly 

council members were alerted was thctc any artcmpt 10 oonfy the general pub he, the 

Qawalangin Tnbe, or the Unalaska Native F1shennan's O.Ssociarion.. 

We believe that an issue sud! as the I'IJIIl.D& of exeh.sive processor quota, that wovld 

change lh1s tO"-"n forc:va, deserves greater public participauon-e:\-en a refertndu.m-,a.s 

opposed to tlus current abuse of our public process. 

~~.,..--!.,· ~,.....L--VJ ~-. . .!}-{ 

fP 1\->'ru"' ~~ 

w m·t. \J"'A~ &'f. ~%~ 

tn.&,x: ~.1()y~.O«.I-ck &,!,or$"(\i>'( ... 

l_? -h;db:>l6/ ))0/r::k~ p'f'-6 r 1. 

'fD P•-t J..'t~ U.v~tw"•, ,.,._ fF' />-.r 

H::2 -ik.-'7'.2o<P3 - m:. <trb9 2. 

e.o.hBo-Otk~~ Jk fietr,~> % '?qt. 13? UM, l&'#jll l'pt Cfibll$ 

/?Jk $-?i'i' 1h!u!ft1 .. $ '141!2 

8!2 1dlp<& /)II- i"Z6 ~ 
215 

1The year 2001 commercial fishery suffered further from extremely harsh weather conditions 

in which storms with hurricane force winds, together with some of the largest tides of the year, 

produced extremely dangerous sea conditions. The Alaska Department of Fish and Game reported to the NPFMC in April 2001 that ‘‘a number of vessels had wheelhouse windows blown 

out and other structural damage caused by large waves.’’ As a result, many vessels were forced 

to head for safe port a full 12 hours before closure of the season, and the fishery was unable 

to harvest the full GHL. 

In addition to the 86 percent reduction in the GHL from 1999 to 2001, and less than full harvest recovery due to severe weather conditions, the year 2001 commercial snow crab fishery 

faced a reduction in prices. At an ex vessel price of $1.55 per pound, 30¢ per pound less than 

the previous year, the estimated 2001 snow crab fishery value was $35.9 million. This compares 

to an overall fishery value in excess of $55 million in 2000, and $162 million in 1999. (ADF&G 

Report, April 2001). 

PREPARED STATEMENT OF SIMEON SWETZOF, JR., MAYOR, 

CITY OF SAINT PAUL, ALASKA

Mr. Chairman and Members of the Subcommittee, thank you for the opportunity 

to provide testimony on the proposed Bering Sea Aleutian Island (BSAI) Crab Rationalization Program. When implemented, this will be an effective tool for the proper management of the BSAI crab resources and their sustainable commercial use 

by harvesters, processors, and communities. 

My name is Simeon Swetzof. I was born on St. George Island, but was raised and 

have spent most of my life on St. Paul Island. My wife, Phyllis, and I have raised 

our four children on St. Paul. 

I have served my community as a member of the City Council since 1994 and I 

have been Mayor of the City of St. Paul since 1999. In addition to my duties as 

Mayor, I am a commercial fisherman and subsistence hunter. Finally, I have represented St. Paul at the North Pacific Fishery Management Council (NPFMC) since 

1998 and have been intimately involved in the development of the crab rationalization program being considered today and the effort to protect community interests 

in this process. 

I. Introduction 

Following the federally-mandated transition from fur sealing in 1983 and the completion of the St. Paul Harbor in 1990, St. Paul successfully developed a fisheriesbased economy. From 1993 to 1999 St. Paul was the primary crab processing location in the Bering Sea and the second fishing port in Alaska, after Dutch Harbor/ 

Unalaska, in terms of state tax revenues. In 1998 and 1999, crab deliveries to St. 

Paul exceeded 40 percent of the total harvest and the Harbor generated $6 million 

per year in national economic benefits from opilio Tanner crab (also known as 

‘‘snow’’ crab) alone, by providing an alternative to at-sea processing or delivery to 

more distant locations. The strategic value of the harbor, located in the middle of 

various Bering Sea fisheries, speaks for itself. 

The considerable investments made by the community, the State of Alaska, and 

the Federal government to build a harbor and the accompanying infrastructure necessary to service the Bering Sea fishing fleet contributed to the generation of considerable wealth for the community as well as for harvesters and shore-based processors. Unfortunately, as a late entrant into the fishing industry, St. Paul was in 

the process of diversifying its crab dependent economy when the opilio stocks collapsed in 1999, taking with them 85 percent of St. Paul’s economy and affecting related service industries such as air freight, refueling, supplies, and crab pot storage. 

The economic crisis has been compounded by a severe decline starting in 2002 of 

the halibut CDQ fishery, the second most significant activity on the island. 

II. Collapse of the Bering Sea Crab Stocks and Impacts on St. Paul 

a. Status of the Fishery: 

The Bering Sea snow crab fishery, which was the subject of the year 2002, 2001 

and 2000 commercial fishery failure determinations by the Secretary of Commerce, 

has continued in a state of severe decline. The National Marine Fisheries Service 

(‘‘NMFS’’) trawl surveys for several years have determined that the stocks had not 

recovered to any significant extent. The 2003 harvest amounted to about 26 million 

pounds. Last year (2002), the State of Alaska, which manages the crab fishery, set 

the Guideline Harvest Level (‘‘GHL’’) at 31 million pounds. Barely 23 million pounds 

were harvested in 2001, an 88 percent decrease from the 1999 harvest level of 192 

million pounds.1

The cause of the collapse of the Bering Sea crab stocks remains undetermined. 

NMFS’ best available scientific information continues to suggest that the decline in 

216 

2See 66 Fed. Reg. 742, 742–46 (Jan. 4, 2001) (discussing NMFS’ approval of the Snow Crab 

Rebuilding Plan, Amendment 14 to the Fisheries Management Plan for Bering Sea/Aleutian Islands King and Tanner Crab). 3The finding is made as part of the NPFMC’s examination of the importance of the fishery 

resource to fishing communities, mandated under National Standard 8 of the Magnuson-Stevens 

Act. 4The development of St. Paul’s crab dependent economy and a forecast for the future of the 

economy, in light of the collapse of the crab stocks, is discussed in the NRC Report, Attachment 

4 hereto. 5These figures do not include other revenue sources which are not dependent on state of the 

Opilio crab harvests. 6On This Alaska Island, Survival Is More Than Just a TV Game—A Cutback in Crabbing 

Quotas Leaves St. Paul Scrambling To Save its Way of Life, THE WALL STREET JOURNAL, 

Jan. 15, 2001. The irony that St. Paul would be looking to subsistence hunting of the fur seal 

as a source of sustenance underscores the severe impact of the collapse of the crab stocks on 

St. Paul’s crab dependent economy. 

the stocks is due to natural and environmental factors and not to fisheries management policies.2

b. St. Paul—the ‘‘most affected’’ community: 

The NPFMC’s Snow (opilio) Crab Rebuilding Plan recognizes St. Paul as the 

coastal community ‘‘most affected by the low stock sizes of snow crab.’’ 3 Crab landings and processing accounted for 85 percent of the cash entering the community 

in 1999. The City receives a 3 percent sales tax on crab delivered to and processed 

by floating processors within three nautical miles of the Island and a 3 percent sales 

tax on crab delivered inside the Harbor for processing. St. Paul also receives half 

of the fisheries revenues that the State receives as a 3 percent–5 percent tax on vessels fishing outside and inside of the harbor. In addition, the City receives sales tax 

on fuel and supplies that are sold in the Harbor, and derives revenue and jobs from 

the crab fishery in-harbor processors and service support to the crab vessels calling 

St. Paul.4

The community has suffered a loss of 82 percent to 90 percent in revenues from 

offshore and onshore processors, and harbor services in 2000 and 2001 as compared 

to 1999 due to the crab collapse. The total loss in revenues based on the fisheries 

collapse in those two years, as compared to 1999, was 85 percent and 83 percent, 

respectively. Those losses can be summarized as follows (in thousands, rounded to 

the nearest one-tenth of thousand dollars):5

City of St. Paul Revenue Impacts—Opilio Crab Fishery Collapse 1999–2002 

[in thousands of $] 

Revenue 

Source 1999 2000 2001 2002 

revenue 

decline 1999 v. 2000 

revenue 

decline 1999 v. 2001 

revenue 

decline 1999 v. 2002 

Onshore 

processors 1,706.1 254.2 320.1 214.4 –86% –82% –88% 

Offshore 

processors 1,011 156.8 84.1 331.1 –85% –92% –68% 

Fuel 

distributors 85 11.4 30.8 32.7 –87% –64% –62% 

Harbor 

services 759.5 77.5 137.3 199.9 –90% –82% –74% 

Local 

businesses 75.4 28.4 63.1 63 –63% –17% –17% 

Grand totals 3,637.1 528.3 635.4 841.1 –85% –83% –77% 

The revenue losses were directly felt by the Island’s 650 native Aleut inhabitants 

by loss of jobs, loss of community health and safety services, loss of the community 

day care facilities, and curtailment in air passenger, cargo and bypass services to 

the mainland. As reported in the Wall Street Journal,6

St. Paul has been thrown into crisis. Layoffs are mounting, a food bank has 

opened and an exodus from the island has begun that could cripple one of the 

last intact native communities in the U.S. . . . Particularly hard hit has been 

the mainstay of the community, the town government of St. Paul, which has 

axed about half of its 90 workers. A day-care center for city workers was closed, 

217 

7 Under Section 312(a) of the Magnuson-Stevens Act the Secretary is authorized to exercise 

discretion in determining whether there is a commercial fishery failure due to a fishery resource 

disaster resulting from: (a) natural causes; (b) man-made causes beyond the control of fishery 

managers to mitigate through conservation and management measures; or (c) undetermined 

causes. Such a determination authorizes the Secretary to provide funds appropriated for the 

purpose of ‘‘assessing the economic and social effects of the commercial fishery failure, or any 

activity that the Secretary determines is appropriate to restore the fishery or prevent a similar 

failure in the future and to assist a fishing community affected by such failure.’’ 

killing five jobs, as was a town-run dental clinic, wiping out two more jobs and 

islanders’ only access to dental care. [With protein supplies on the island dwindling, the native Aleuts of St. Paul are turning to subsistence hunting of seal,] 

‘‘the island’s last source of sustenance if all else fails.’’ 

III. Actions Taken by St. Paul in Response: 

a. Securing a Commercial Fishery Failure Determination: 

St. Paul’s first step was to seek a determination by the Secretary of Commerce 

that a commercial fisheries disaster had taken place under Section 312(a) of the 

Magnuson-Stevens Act and that St. Paul be recognized as an affected fishing community.7 The Secretary made affirmative determinations for 2000, 2001, and 2002. 

As a result, disaster relief funding was set aside, providing affected communities in 

the Pribilofs and the Aleutian Chain with some degree of relief. 

The City of St. Paul used its initial share of these funds to increase water storage 

capacity for fish processing and fire protection, both necessary steps to develop the 

infrastructure required for diversification into other fisheries in order to reduce the 

island’s overwhelming dependence on crab. Together with the Corps of Engineers, 

the City has also pursued the Harbor Improvements Project in part in order to attract a multispecies processing, shore-based, facility to the island. Negotiations with 

processing companies are ongoing and their success rests in part on the implementation of the crab rationalization program and the economic stability that will accompany it. 

b. Vessel Buy-Back Program and BSAI Crab Rationalization: 

As part of its multi-pronged response to the crab collapse, St. Paul also played 

an active role in promoting initiatives supported by most of the crab industry to reduce the capitalization of the fishery by: (1) promoting a fishing capacity reduction 

program whose goal is to implement a license and vessel buyback program, and (2) 

rationalizing the BSAI crab fisheries. Efforts with regards to the latter resulted in 

Congress directing the NPFMC, as part of the Consolidated Appropriations Act of 

2001 (P.C. 106–554), to: 

‘‘. . . examine fisheries under its jurisdiction, particularly the Gulf of Alaska 

groundfish and Bering Sea crab fisheries to determine whether rationalization 

is needed. In particular the NPFMC shall analyze individual fishing quotas, 

processor quotas, cooperatives, and quotas held by communities (emphasis 

added). The analysis should include an economic analysis of the impact of all 

options on communities (emphasis added) and processors as well as the fishing 

fleets. The NPFMC shall present its analysis to the appropriations and authorizing committees of the Senate and House of Representatives in a timely manner.’’ 

After undertaking the congressionally mandated analysis and an exhaustive four 

year process of public input, and meetings by industry sectors and NPFMC members, the Council concluded that rationalization of the crab fishery would improve 

economic conditions substantially, for all sectors of the crab industry. At its June 

2002 meeting in Unalaska, the NPFMC by a unanimous 11 to 0 vote, identified a 

specific rationalization program as its preferred alternative for rationalization of the 

BSAI crab fisheries. The vote on its preferred alternative known as a ‘‘Three-Pie 

Voluntary Cooperative Program’’ reflects the fact that this is a comprehensive program that balances the interests of communities, harvesters, processors, captains, 

and the resource, and incorporates short and long-term safeguards for all of them. 

IV. St. Paul: A Leading Proponent of Regionalization 

From the outset, St. Paul has been a leading advocate for the inclusion of crabdependent community concerns in any BSAI crab rationalization scheme. One of the 

ground-breaking concepts that the community I represent has helped to promote is 

the concept of regionalization of BSAI crab landings consistent with recent industry 

behavior. 

St. Paul views regionalization as the most effective tool for fulfilling the guidelines of Standard 8 of the Magnuson-Stevens Act and accommodating the diverse 

218 

interests within the BSAI crab fishery. Standard 8 directs the fishery councils to 

take into account the need for sustained participation of fishing communities in the 

fisheries. The need for regionalization arose in order to protect St. Paul’s (and other 

BSAI communities’) livelihood and the considerable infrastructure investments 

made to develop a port which has served the BSAI crab industry very effectively 

and profitably. During the 1990s, St. Paul benefited from a derby-style, race-for-fish 

scenario where vessels delivered crab to the nearest available harbor, in order to 

immediately depart for further loads of nearby abundant crab stocks. In a rationalized fishery however, the race-for-fish, would be eliminated and furthermore, with 

the Guideline Harvest Levels (GHL) dramatically reduced as a result of the biomass 

collapse, harvesters would be limited to single trips and would therefore be more 

likely to deliver their crab to other ports such as Dutch Harbor/Unalaska or to their 

homeports including Kodiak, where a number of harvesters are based. 

Just as harvester and processor investments have been recognized and protected 

in prior rationalization schemes, St. Paul took the novel approach of insisting that 

community considerations needed to be legitimately factored into this process. The 

stakes were considerable for St. Paul, which, unlike economically diversified communities in the Gulf of Alaska, is almost entirely dependent on crab processing. While 

St. Paul’s strategic location and its existing infrastructure make it a competitive 

port, most of the processing operations in the Pribilof Islands are ‘‘satellite plants’’ 

for diversified, parent seafood companies. Therefore, with the incentive for decapitalization and consolidation in a rationalized fishery, St. Paul was at risk of seeing 

local processing operations retreating south to larger facilities in Dutch Harbor, 

Akutan, and Kodiak. 

Regionalization will prevent this migration from taking place, allowing St. Paul 

and other northern communities to survive. In addition, the longer runs involved 

between the fishing grounds and ports such as Dutch Harbor or Kodiak in a nonregionalized scenario would have implied additional fuel costs to harvesters and 

greater deadloss, to the detriment of the resource. 

More importantly, as is highlighted by the crab disaster, St. Paul’s long-term survival is dependent on its diversification into other commercially valuable fish species. Even moderate volumes of BSAI crab valued at $1.50/pound or better go a long 

way to supporting a processor’s overhead costs, allowing it to engage in lesser-value 

cod, salmon, and groundfish processing. Therefore, consolidation of crab processing 

away from the Pribilofs would severely impair St. Paul’s capacity to diversify since 

this activity provides a foundation for cod, IFQ halibut, and CDQ halibut processing. 

V. Benefits to the Resource and the Fleet 

Prior experiences in other rationalized fisheries indicate that the crab resource 

will benefit from reductions in bycatch and associated mortality rates. Environmental benefits will accrue as well from the mechanisms to reduce excess harvesting and processing capacities. With slower seasons in which to prosecute the 

fishery, fewer crab pots will be lost at sea and deadloss and bycatch will be reduced. 

A healthier, better managed resource is critical to St. Paul as well, since my community’s long-term livelihood depends on the sustainable use of the Bering Sea fisheries that surround us. 

Moreover, within the high-risk Alaska commercial fishing industry, the BSAI crab 

fisheries had a disproportionately high level of injuries and deaths. From 1990–2001 

a total of 25 vessels were lost resulting in forty deaths. Twenty-one more lives were 

lost as a result of being swept overboard, crushed by crab pots or entangled in lines. 

Experience demonstrates that to the extent that a rationalized management system 

results in a sustainable, economically viable fishery, then improvements in safety 

should follow. In a scenario where the ‘‘race-for-fish’’ is eliminated, fatalities resulting from having to fish in poor weather conditions should be reduced. 

VI. The Rationalization Program from the Community Perspective 

Under the proposed program, allocations of harvest shares would be made to harvesters, communities, and captains. Moreover, processors would be allocated processing shares and harvesters would be permitted to consolidate their efficiencies by 

forming cooperatives. From a community perspective, establishment of processor 

shares protects the considerable investments made by processing companies in remote coastal Alaskan communities such as St. Paul. These investments typically include the processing facility itself, labor housing, docks, cold storage, tender vessels, 

and other infrastructure. 

Communities for their part have spent significant resources on harbor improvements, docks, water/sewer systems, roads, emergency support services, and community administration to attract and accommodate processors. As a result of these 

types of investments, St. Paul is today the most indebted community in Alaska on 

219 

a per capita basis. Furthermore, the processing of crab on-shore leaves behind numerous benefits to the host community and to the State through taxes, job, and infrastructure development. In effect, processor shares are necessary for regionalization to work for communities. As a largely processing town, St. Paul’s future is 

linked to the processors that have invested or will invest there. 

Processor allocations and the corresponding 90 percent of the harvester allocations 

will be designated under the program into northern and southern regions, based on 

historic participation. Provisions allowing for the non-regionally designated 10 percent of harvester allocations to be delivered to any processor at any port ensure that 

a substantial portion of the crab resource will be subject to competition among ports 

and processors seeking to attract deliveries. The BSAI crab rationalization plan provides the harvesting sector with more flexibility, for example, than is allowed under 

the highly successful American Fisheries Act. Movement is also allowed within the 

regions to provide for some flexibility and competition for private enterprise. 

However, as specified in the trailing amendments, a two-year ‘‘cooling off period’’ 

has been established during which processing shares must remain in communities 

where processing was historically conducted, so as to avoid a ‘‘rush’’ to consolidation 

in a few ports immediately after implementation of the program. In addition, communities and CDQ groups have been granted a right of first refusal on the sale of 

processing shares to protect crab-processing dependent communities. 

To accommodate periods of abundance in the crab stocks and provide opportunities for new processors and communities to compete, caps of 175 million pounds for 

opilio and 20 million pounds for Bristol Bay red king crab have been established 

on the amount of IPQs granted for the two largest crab fisheries. However, if stocks 

continue to remain low (and below those caps) the IPQs will provide stability to the 

processing sector and crab dependent communities. 

Other important community friendly provisions from St. Paul’s perspective include an increase in CDQ crab allocations from 7.5 percent to 10 percent of the 

Total Allowable Catch (TAC). CDQ groups are required to deliver at least 25 percent 

of the allocation to shore based processors. On St. Paul, this will encourage further 

economic development by our local CDQ organization, the Central Bering Sea Fishermen’s Association (CBSFA). As there are few significant economic activities that 

can be engaged-in in geographically isolated communities in the Bering Sea, these 

increases in allocation have the potential to be significant if and when the various 

crab stocks rebound. 

Moreover, either St. Paul or CBSFA will benefit from provisions extending community purchase rights of harvesting and processing shares to community and CDQ 

groups. These purchases would be conditioned on the use of these shares for the 

benefit of community residents. Finally, CDQ groups have been granted higher ownership caps than individuals purchasing shares in order to give such groups the 

wherewithal to consolidate their economic interest in the crab fisheries to the benefit of Western Alaska residents. 

VII. Conclusion 

As stated earlier, the crab rationalization program is a carefully balanced plan 

that requires the unique structure approved by the NPFMC to protect all of the participants in this fishery. In this regard, we applaud the work patiently undertaken 

by the Council members and staffpersons for over four years. 

Concerning BSAI crab dependent communities, reducing or eliminating IPQs 

would prevent this framework from working and would leave communities unable 

to safeguard the processing activities that are critical to the economic health of remote Bering Sea communities. For this reason, we urge Congress to support the 

NPFMC’s plan by enacting legislation as expeditiously as possible. After four years 

of economic crisis, this rationalization program is needed in order to revitalize severely depressed Bering Sea communities. Unlike other parts of Alaska, remote 

communities in the Aleutian Chain and particularly in the Pribilof Islands are highly dependent on this program for their economic well-being and survival. 

Mr. Chairman, and distinguished members of the Subcommittee, thank you for 

this opportunity to provide written testimony on behalf of the City, and the community, of St. Paul. We look forward to discussing these issues with you and your 

staffs. 

220 


520SWETZ1.eps

CITY OF SAINT PAUL P.0.80XII01 SAINT PAUL ISlAND, ALASKA 

-· 

(1107)S48-2331 

AX(II07)~1N 

RESOLUTION 0!~7 

A 'RESOLUTION OF THE ST. PAUL CITY COUNCIL IN SUPPORT OF CRAB 

RATIONALIZATION FOR 1liE BERING SEA ALEUTIAN ISLAND CRAB FISHERIES 

WHEREAS, St. Paul bas succ:esstwly developed a fisbcries based economy based on the St. Paul 

Hatbor wbicb, since 1995, bas bcco lhe primazy czab processini location i.o the Bering Sea anct 

!be number two fishing port i.o Alaska in tenns of fisheries lax revenues; aad 

WlfEREAS, crab deliveries to St. Paul exceeded 40% of the total harvest in years 1997 and 

!998; and 

WHEREAS, St. Paul crab landing,s a.od processing have accountod for approximately 85% of the 

cash entering the communi!)'; and 

WHEREAS, a collapse of the Bering Sea el1lb stoelcs OCCUlTed io 2000 resulting io an 86% 

;eduction in the year 2000 Guideline Harvest Level for Bering Sea snow crab, and a signi6c:ant 

loss of revenue 10 the community; and 

WHEREAS, tbe collapse of the Berina Sea crab stoelcs hll$ resulted io an industry-wide effort of 

harvesters, processors, and communities to develop a ratioralization program; ~d 

WlfEREAS, St. Paul bas actively participated in the development of a rationalization program in 

order to protect its iovcstment in the industJy, which contirues to face a severe downturn on crab 

stoeks and bigb levels of overcapitalization i.o both processi:lg aod barvcsti.og; and 

WHEREAS, the situation wo.rrants immediate legislatve relief to enable an alternative 

management solution to encourage restoration oftbe stocks and 10 enable industry consolidation: 

and 

WHEREAS, tbe United States Conaress authorized, tluougb the December 2000 Omnibus 

Appropriations Bill, provisions which direct the North Pacific Fisheries Management Council to 

do an analysis of crab rationalization options; and 

WHEREAS, the analysis of any quota based program IS specifically to include harvesters. 

processors and communities; and 
221 


520SWETZ2.eps

Resolution 01-07 

Page 2 of2 

WHEREAS, the North Pacific Fishery MllllJigcment Council has stated that it is still committed 

to the overall rationalization process for the crab fisheries; and 

WHEREAS, the North Pacific Fishery Management Council appointed a crab rationalization 

committee and the City of Saint Paul bad a representative appointed to the committee that lcept 

the St. Paul City Council advised on the committee's progress and recommendatiollll to the North 

Pacific Fishery Management Council; and 

WHEREAS, the Council of the City of Saint Paul supports and recognizes the need to protect the 

investments of current paiticipants, including harvesters, processors and the community of 

St. Paul, as well as other affected fishing communities, and the need for a rational 

decapitalization of the industry; 

NOW THEREFORE, BE IT RESOLVED THAT the Council of the City of Saint Paul supports 

the proposal for a fair and equitable quota-based program of a two-pic IFQ allocation to 

harvesters and processors including the requirement that the li~ crab deliveries be to processors 

in the regions Within Alaska in accordance with recency requirements and historic delivery rates; 

and 

BE IT FURTHER RESOLVED that the St. Paul City Council urges the North Pacific Fishery 

Management Council to complete their analysis in a timely manner as they feel this issue is of 

utmost importance and forward their report on to Congress as soon as possible. 

PASSED AND ADOPTED BY A DULY CONSTITUTED QUORUM OF THE COUNCIL OF 

THE CITY SAINT PAUL THIS 2311.1> DAY OF MAY 2001. 

A1TEST: 
222 

PREPARED STATEMENT OF STEPHEN R. TAUFEN, FOUNDER, 

GROUNDSWELL FISHERIES MOVEMENT

Dear Commerce Committee Senators & Chairman McCain: 

The Groundswell Fisheries Movement is primarily concerned about networks of 

foreign owned seafood companies and their global affiliates, and ‘‘abusive transfer 

pricing’’ practices that shift profits offshore to avoid U.S. taxes. Crab ‘‘rationalization’’ is just one more scheme that will harm the U.S. Balance of Payments and allow 

more hidden tax evasion that deprives the U.S. of the ‘‘maximum net national benefit’’ from its fisheries resources. 

We believe that the Senate should not allow illicit drains on the U.S. Treasury, 

derived by unfettered tax evasion (hidden behind taxpayer nondisclosure protections 

that wrongly protect foreign evaders doing business in the USA) and by granting 

exemptions from antitrust scrutiny. 

Instrumental rationalization depends upon fair economics and a balance of market 

powers. Just as for the NASDAQ, mathematicians and economists know that for investment markets to fairly benefit everyone, resource commoditization economics 

must remain a ‘‘win win’’ game for all investors. 

Furthermore, Congress should not institute ’binding arbitration’ processes that 

protect the commercial secrecy of tax evading foreign multinationals in ways that 

guarantee a losing negotiation game for highly invested U.S. harvesters, whose costs 

are fully known to these buying adversaries. 

Groundswell is highly concerned about further ‘‘regulation-negotiation style’’ political intrusions promoting concentration on the buying side of Alaska’s seafood markets while the economic problems are generally on the selling side. Properly addressing problems on the selling side (harvester grounds prices), the Department of Commerce is currently reviewing undertaking a $100 million vessel buyback program to 

lessen pressure on crab fisheries. 

It is a matter of too many boats currently chasing too few crabs. It is not rational 

to resolve this by forcefully collectivizing fleets and forever misbalancing market 

powers. 

The Department of Justice is currently looking into Crab Rationalization and has 

been communicating with the North Pacific Fisheries Management Council on this 

matter. The Senate should consider waiting until that DOJ report is available, and 

remember that the DOJ wrongly dismissed a 1997-era set of criminal indictments 

recommended by its San Francisco branch against Japanese fisheries multinationals 

operating in the U.S. on the idea that ‘‘one species does not an industry make.’’ 

Conveniently, since that time, these foreign firms and others have been marching 

one-species-at-a-time to take over our North Pacific resource rights through their U.S. 

affiliates and subsidiaries. Those firms feel that they were granted immunity from 

prosecution under pollock schemes, which goes a long way to explain why they believe the Congress should grant further antitrust exemptions in Crab Rationalization schemes, too. 

Accordingly, Congress should also consider asking the GAO to further examine the 

overall structural economic problems of Alaska’s fisheries—especially the current 

role of foreign financing and effects of practices of Abusive Transfer Pricing. 

Likewise, there is much to be learned about the economic players involved from 

a major ‘‘restraint of trade’’ trial, L. Alakayak et al v. BC Packers et al (Alaska superior court case #3AN–95–04676 Civil), which began February 3 and lands this week 

in the jury’s hands. It involves dozens of U.S. seafood processors, Japanese importers and their American subsidiaries as defendants. Congress must wait for its verdict. 

Many defendants are the same firms who ask for exclusivitv in controlling crabbuying markets in Alaska. Before giving away national crab rights to them, Congress should know if they are law-abiding, and about their entire global resource 

strategy. 

There are also serious conflicts-of-interest that have plagued the North Pacific 

Fishery Management Council, which has been for many of the defendants’ a control 

point for Crab Rationalization and other policy-making. Groundswell has repeatedly 

testified on the public record regarding the matters of abusive pricing practices, to 

no avail. This Council is not listening and incapacitated in it policy making (unable 

to protect the United States’ interests) because of its conflicts-of-interest. 

The salmon antitrust case evidence has already revealed that the free market (an 

interplay of ‘‘supply and demand’’ and arm’s length transactions) for much of our 

seafood is a conspiratorial fraud, and that in the case of salmon, the oligopsony of 

buying companies runs parallel offshore markets in farmed fish to lower Alaska wild 

fish prices. 

223 

The abundant evidence of ‘‘price verification’’ phone calls among buyers removes 

all doubt about the interrelated workings of the oligopsony that salmon harvesters 

have faced. Economists have estimated the market losses to be over $380 millionbefore applying treble damages in this $1.4 billion case. We must not forger that 

an earlier crab antitrust case showed the price-fixing behavior exists across species 

in Alaska fisheries. 

Many of these firms were under a Federal ‘‘consent decree’’ yet continued to communicate on crab issues, and on pollock and salmon, acting unfettered in forwarding 

their restraints of trade. 

One need look no further for ‘‘the grounds price problem’’ than the pollock fisheries, where similar, exclusive rights were granted under the American (sic) Fisheries Act. On the Japan side of the North Pacific, catcher fleets receive nearly three 

times the price for deliveries as do Alaskan fleets in U.S. ports, for similar product. 

That caused an estimated shortfall of $1.9 billion over the past seven vears to the 

U.S. pollock fleet compared to what they logically should have received. 

Granting similar oligopsony power for crab will worsen the negative economic 

shock on U.S. fleets and our economy, only benefiting the Japanese financiers and 

processors. They repatriate about a billion dollars annually through abusive transfer 

pricing (ATP) techniques to foreign shores, harming the U.S. economy directly and 

through multiplier effects of the lost dollars. 

This is an alternative essence of management from that promised by the original 

Magnuson Fisheries Act. where harvesters and processors would together ‘‘Americanize’’ our Alaskan fisheries and pay taxes. Otherwise, one would assume that a national fish price would be the logical means to protect U.S. interests in our fisheries. 

Congress should not grant exclusive rights to a few corporations on the crab buying 

side because it also affects their price-making powers over other species. too. They 

are already promoting a non-competitive ‘‘salmon rationalization’’ scheme that 

promises to take more rights away from small businesses and forever eliminate 

large competitors from new entry into the market. And they are talking of similar 

powers over other species. There is no end to their greed. 

It is not rational to stifle competition and innovation. especially as our naturally 

healthy seafood supplies become increasingly valuable. To ensure that these few buyers are granted exclusive national resource buying rights, in perpetuity, from captive 

fleets-especially in light of their alleged conduct in other seafood markets—is unimaginable. 

Thank you for your considerations regarding today’s Commerce committee meeting. 

STEPHEN R. TAUFEN, 

Founder, 

Groundswell Fisheries Movement. 

Cc: Senator Maria Cantwell 

Senator Olympia Snowe 

PREPARED STATEMENT OF MIMI TOLVA

Dear Senate Commerce Committee, 

The Crab Rationalization program was originally started to allow Bering Sea crab 

fishermen to harvest the resource in a safer, economically sound manner while drastically reducing mortality ofbycatch and harvested product. By allocating a certain 

allowable catch to each harvester, (an Individual Fishing Quota, or IFQ), the derbystyle fishery each winter would be eliminated. Fishermen could choose to fish in better weather, reducing the accidents and injuries that have plagued the fishery, currently ranked as the most dangerous occupation in the United States. With more 

time and better weather, the quality of the product would be enhanced, mortality 

would be reduced, and bycatch levels would drop dramatically. 

The North Pacific Fishery Management Council (NPFMC) was appointed to develop a plan to implement these ideas for the long-term health of the fishery. Much 

time and effort and many years have gone by, and a pretty good plan has emerged. 

However, one very controversial issue threatens to undermine the entire plan. A 

Processor Quota Shares (PQS) proposal has been added to offer protection to existing processors already in the crab market. Under the PQS proposal, harvester 

shares would be designated ‘‘A-shares’’ and ‘‘B-shares’’. Harvesters would be forced 

to sell all of their ‘‘A-shares’’ to a specified processor. The remaining ‘‘B-shares’’ are 

intended to give harvesters negotiating power, provide a market price indicator at 

the beginning of each season, and allow harvesters to sell that portion to any buyer 

they wished. 

224 

In June of 2002, the NPFMC voted to accept this proposal at a ratio of 90 percent 

A shares and 10 percent B-shares. (You read that right) 

With a 90 percent A-share ratio, processors will not need to competitively bid on 

product. Fishermen will not be able to negotiate a fair price. Almost total control 

by a few canneries will squelch any new developing crab markets and negatively 

affect price negotiations for the entire crab industry. This system would be anti-competitive and would severely curtail or eliminate opportunities for small processing 

businesses and independent fishermen. It goes completely against the free market 

system and would require a change in the current anti-trust laws to even be legal. 

Crab Rationalization is not complete. The Processor Quota Share component is 

not necessary to implement the rest of the plan. The processor quota component 

could be pulled from the overall plan if enough people weigh in on the issue. It could 

also be modified to a more fair and equitable split of 50 percent each of ‘‘A’’ and 

‘‘B’’ shares. 

Please do not allow this very biased proposal to go through as it stands now, with 

the 90:10 ratio. 

MIMI TOLVA

PREPARED STATEMENT OF PETER TYACK, SENIOR SCIENTIST AND WALTER A. AND

HOPE NOYES SMITH CHAIR, BIOLOGY DEPARTMENT, WOODS HOLE OCEANOGRAPHIC

INSTITUTION

Madame Chair and distinguished members of the Committee, my name is Peter 

L. Tyack. I am a Senior Scientist and Walter A. and Hope Noyes Smith Chair in 

the Biology Department of the Woods Hole Oceanographic Institution in Woods Hole 

Massachusetts. Thank you for the opportunity to provide my views on the Marine 

Mammal Protection Act (MMPA) reauthorization as it relates to scientific research. 

I have been fascinated since I was a child in the social behavior of marine mammals and how they use sound to communicate and explore their environment. I have 

spent much of the last 25 years following these animals at sea, listening to their 

sounds and watching their behavior. As I started my career in basic research it 

never occurred to me that chasing my personal interests would ever become central 

to such an important policy issue. In my testimony I address issues concerning regulation of harassment takes under the MMPA, especially those for scientific research 

and incidental takes resulting from exposure to manmade noise. 

Introduction 

Three committees of the National Research Council (NRC) of the National Academy of Sciences have reviewed issues concerning low frequency sound and marine 

mammals. Each of these NRC committees has published a report: 

National Research Council (NRC). 1994. Low-Frequency Sound and Marine 

Mammals: Current Knowledge and Research Needs.National Academy Press, 

Washington, D.C. 

National Research Council (NRC). 2000. Marine Mammals and Low-Frequency 

Sound: Progress Since 1994. National Academy Press, Washington, D.C. 

National Research Council (NRC). 2003. Ocean Noise and Marine Mammals. 

National Academy Press, Washington, D.C. 

I was a member of the first two committees and reviewed for the NRC the report 

produced by the third committee. I would like to take this opportunity not only to 

give my personal views, but to reiterate some of the repeated suggestions of the 

NRC committees for changes to the MMPA. 

Regulations to protect marine mammals need to be drawn to focus scarce 

regulatory resources on situations where ‘‘takes’’ are most likely to risk 

adverse impacts to marine mammals. 

One of the most important suggestions of the NRC reports on marine mammals 

and ocean noise is to regulate harassment in the same way for all activities, allocating regulatory effort where harassment takes are most likely to risk adverse impacts to marine mammals. Currently we are far from this goal. For commercial fisheries, the MMPA allows incidental taking of endangered marine mammals as long 

as there is negligible impact from incidental mortality and serious injury. NMFS interprets this as an exemption for commercial fisheries from the prohibition of harassment. Harassment takes are ignored for effects of propulsion noise from vessels, 

and a NMFS enforcement officer reported to the Marine Mammal Commission last 

year that his region will not prosecute cases of level B harassment for companies 

that take tourists to swim with wild dolphins. This growing industry based upon 

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intentional harassment thus can count on freedom from prosecution of its violations 

of the MMPA. On the other hand, marine mammal biologists are required to wait 

half a year or more for permits covering the slightest possibility that their research 

may disrupt the behavior of marine mammals. Once they receive a permit, the permitting process itself may trigger litigation that can block urgently needed conservation research. Many other users of sound in the sea, from the Navy to geophysical 

contractors to academic oceanographers, find themselves in a no man’s land, where 

the appropriate regulatory process for harassment takes is obscure. So far the solutions of the regulatory agencies have fared poorly in court. 

Congress speaks through the MMPA to give commercial fisheries a special exemption with much more scope to harm marine mammals than other activities such as 

conservation research, naval exercises, or oil exploration. This is in effect a statement of national priorities, ranking activities for which the United States is most 

willing to risk the well being of marine mammals. I would ask all members of this 

Committee to stop and think whether commercial fishing should automatically rank 

as a higher national priority than scientific research, the search for domestic sources 

of petroleum, or the ability to protect ourselves from enemy submarines. 

Problems with permitting scientific research on marine mammals. 

As a biologist personally concerned with protecting marine life, I believe that the 

double standards in the MMPA have led to a counterproductive situation for permitting scientific research designed to protect marine mammals. The permitting process 

was created to allow an exemption for scientific research from the MMPA prohibition on taking marine mammals. It is ironic that, far from exempting research from 

an effective prohibition, the permitting process restricts for researchers, activities 

that are unregulated for other users. As early as 1985, NMFS stated in its Annual 

Report on the MMPA that ‘‘one of the most extensive administrative programs in 

NMFS is the permit system that authorizes the taking of marine mammals for scientific research and public display.’’ From my perspective, this is backwards. Scarce 

regulatory resources should only be devoted to minor harassment takes for research 

after the much more significant takes of activities that do not benefit marine mammals are controlled by regulations that are effectively enforced. As I pointed out in 

a 1989 article, a scientist playing back the sounds of a tanker to monitor responses 

of whales requires a permit to cover any ‘‘takes’’ for animals whose behavior has 

changed, while the thousands of tankers entering U.S. ports are unregulated. This 

is particularly ironic since the first warning about effects of noise on marine mammals concerned the risk that increased shipping noise might significantly reduce the 

range over which whales could communicate, a warning issued in 1972, the year the 

MMPA was enacted. Not only can they ignore the likely disruption of behavior 

caused by noise, but even the lethal ‘‘impacts’’ caused when a vessel collides with 

a whale are completely unregulated. Nothing we have learned in the following decades has reduced scientific concern, yet in spite of three decades of warnings, NMFS 

has not taken the first step to protect whales from the risks posed by vessel traffic. 

It has been recognized for over a decade that the regulatory focus on research activities is interfering with research needed to obtain critical information to evaluate 

risk factors for noise exposure in the sea. As the 1994 National Academy report on 

Low-frequency Sound and Marine Mammals put it: 

Scientists who propose to conduct research directed toward marine mammals 

are aware of the permitting requirements of the MMPA and of the Endangered 

Species Act (ESA) and the associated regulations. Most of their research can be 

conducted under the scientific permitting process. They routinely apply for and 

obtain such scientific research permits. However. the lengthy and unpredictable 

duration of this process can create serious difficulties for research. . . . In addition to permit delays, certain types of research that are considered ‘‘invasive’’ 

or ‘‘controversial’’ either are not allowed under the current permitting process 

or may require an Environmental Assessment or even an Environmental Impact 

Statement under the National Environmental Protection Act (NEPA). Such a 

regulatory burden actively discourages researchers from pursuing those lines of 

study. (p 29) 

The committee strongly agrees with the objective of marine mammal conservation, but it believes that the present emphasis on regulation of research is unnecessarily restrictive. Not only is research hampered, but the process of training and employing scientists with suitable skills is impeded when research 

projects cannot go forward. Experienced researchers are the ultimate source for 

expanding our knowledge of marine mammals. A policy that interferes with the 

development of this resource appears to be self-defeating. (p 30) 

226 

Things were bad in 1994, but they have recently become much worse. The delays 

for permitting have become much longer, over 21 months in some cases. In addition, 

the judge in a recent court case regarding the permitting process ruled that all 

acoustic research on marine mammals is controversial. This led him to rule that a 

permit for acoustic research requires an accompanying Environmental Assessment 

or Environmental Impact Statement. This decision means that all of the research 

that can help resolve the marine mammal issues raised by the National Academy 

reports is subject to much more regulatory burden than before. Unless Congress 

changes the regulatory process or provides new funds to the NMFS Office of Protected Resources to conduct the analyses required under NEPA, the permitting process will not only discourage research, but may make it almost impossible to conduct 

some research that is urgently needed for conservation biology and that has negligible effects. 

Let me illustrate with an example from the research of Scott Kraus, a biologist 

at the New England Aquarium who has studied North Atlantic right whales for decades under a series of research permits from NMFS. In August of 2001, he applied 

for a new permit, as his old one was set to expire 31 December 2001. In November 

2001, after the end of the public comment period, the Permit Division received a 

letter from a self styled ‘‘environmental warrior’’ claiming, incorrectly in my belief, 

that the research would harm right whales. In early December 2001, operating 

under his old permit, Kraus started aerial surveys to keep ships from hitting 

whales, and he was told the biological opinion for the new permit was almost done. 

Kraus never received his permit by the time his old one expired, and on 24 January 

2002, NMFS informed him that they would defer decisions on a permit until an Environmental Assessment was conducted following NEPA rules. This was a complete 

surprise for Kraus, who had to cancel a research program designed to develop 

whale-safe lines for fishing gear. During 2002, eight right whales were known to get 

entangled in fishing gear, and six were thought to have died. It is now May 2003. 

Kraus had to cancel another attempt to repeat the whale safe fishing line project 

in 2003, and he still has no prediction from the NMFS Permit Division as to when 

his permit will be issued. There may be a new determination of a need under NEPA 

for an Environmental Impact Statement for his permit, not just an Environmental 

Assessment. 

Let me recap. The survival of right whales in the North Atlantic is threatened 

because so many are killed from entanglement in fishing gear and from vessel collision. Unlike any airline, as a scientist, Kraus needs a permit to fly over right 

whales, in case the whales might hear the plane and somehow be disturbed. Delays 

in permitting endanger his ability to fly surveys designed to warn ships of the presence of whales. The ships that regularly kill whales are subject to no regulation, 

and travel wherever they please at any speed through critical habitats of the most 

endangered whale in U.S. waters. In spite of some fisheries regulations, whales are 

dying in fishing gear at alarming rates. Fishermen can continue to place lethal fishing gear where it can kill whales, but Kraus cannot test new ideas for whale safe 

fishing gear, because the environmental paperwork for his research is not sufficient, 

even after 21 months of delay. Is there something wrong with this picture? 

I have also personally had experience with the mad world in which Federal actions block the research needed to protect marine mammals from poorly regulated 

impacts of human activities. We cannot protect marine life from intense underwater 

noises until we get better at detecting when a marine mammal or sea turtle is in 

the danger zone. Recently, there have been promising developments for whalefinding sonars. These are high frequency sonars that work like fish finders to detect 

echoes from animals close enough to be harmed by unintentional exposure to intense sounds. When these whalefinding sonars reached the point in their design 

process where they were ready to be tested at sea, I submitted an application to 

amend my research permit to test how well a whalefinding sonar could detect migrating gray whales. We know how migrating gray whales respond to noise, and we 

expected little if any behavioral response to the whalefinding sonar. The study was 

designed with very sensitive methods to detect whether whales avoided the sound 

source by a hundred meters or so, and we requested permission to ‘‘take’’ the whales 

by harassment. 

The Permit Division of NMFS issued the amendment to my permit in a timely 

fashion, but only after deciding that the environmental assessment it had conducted 

for my original permit sufficed, i.e., that the amendment did not require a new environmental assessment. The wording allowing ‘‘takes’’ of gray whales alarmed an animal rights advocate in Australia, who gathered a few small fringe groups to request 

an injunction against the research the day before the study was to begin. The study 

was delayed by a temporary restraining order and the entire field team and one of 

the research vessels in our national oceanographic fleet were tied up for most of the 

227 

month planned for the research. In the end, the judge ruled that the amendment 

to my permit was invalid because the NMFS Permit Division had not prepared a 

new Environmental Assessment under NEPA not just for my original permit, but 

for each amendment to the permit. In the end, hundreds of thousands of taxpayer 

dollars were wasted and we are a year behind in developing more effective methods 

for monitoring marine mammals. 

The NMFS Permit Division of the Office of Protected Resources has just nine personnel and is increasingly inundated. In 2001 they advised scientists applying for 

a permit to expect processing times of at least 90 days for most marine mammal 

permits with an additional 135 days for permits affecting endangered species. However, some permits have been subject to greater delays. NMFS currently advises scientists to allow at least 6 months for processing, longer for research involving endangered species. In the cases of my and Kraus’ permits, it appears that last minute 

complaints by a fringe extremist could trigger a ‘‘public controversy’’ condition requiring exhaustive environmental assessments. Given these precedents, I consider 

that only permits backed by environmental analyses acceptable under NEPA are 

solid enough to protect research from nuisance lawsuits. My understanding is that 

it typically takes several months and $50,000–$100,000 to produce an Environmental Assessment, and $500,000–$1,000,000 and 1–2 years to produce an Environmental Impact Statement. Due to the increasing number of scientific research permits, and the renewed emphasis on NEPA analysis, some permit applications may 

be delayed much beyond 6 months, with dramatic increases in the burden on the 

Permit Division and on the applicants. 

Congress has in the past few years taken strong steps to fund research to help 

resolve urgent conservation problems such as declining populations of Steller sea 

lions, or the threat of extinction for the North Atlantic right whale, and I applaud 

these actions. Yet both of these research efforts were delayed by more than a year 

because of delays in the permitting process for scientific research. Recent litigation 

has highlighted the importance of adequate NEPA analysis in order to issue legally 

defensible permits. If Congress wants to support critically needed conservation research, it is not enough to fund the science. Congress will also have to mandate significant increases in funding to the Permit Division. 

The time required to obtain a research permit has swelled from 3 months to 6 

months to 21 months and counting. A very important change suggested by the NRC 

would be for Congress to specify a fixed maximum time for NMFS to process permits and authorizations. The 1994 NRC report suggested 10 days for initial processing, 30 days for the public comment period, and 10 days to issue or deny the permit. The Permit Division used to use a more liberal 30 days for initial review, 30 

days for the public comment period and a concurrent 45 days for review by the Marine Mammal Commission, and 30 days to issue or deny the permit. This totals to 

115 days. Additional limits would need to be set for preparation of environmental 

analyses under NEPA and conducting a public hearing. Yet delays of more than 3– 

4 months pose a serious burden to research. The only way for the permitting process 

to proceed in a timely fashion will be for the Permit Division to conduct programmatic environmental analyses for most typical research activities well before 

applicants request a permit. This additional burden must be achieved while the ongoing flow of permit applications is expedited. If NMFS is to issue timely and legally 

defensible permits, the permit division and other supporting divisions in the Office 

of Protected Resources will need additional program staff, with specialists in many 

areas such as environmental law, NEPA, marine mammal population biology, acoustics, animal health and welfare. Congress will also have to mandate significant increases in funding for the Office of Protected Resources to hire contract personnel 

or to outsource the analyses required under NEPA and the ESA. 

Ironically, it appears that the more serious the conservation problem addressed 

by a research project, the more likely the project is to be attacked by extremists and 

delayed or cancelled. One side effect of the permit process is that it personalizes a 

project in the name of a scientist. When a ship hits and kills a whale, when dolphins 

die in fishing nets, when a sea turtle is killed in an underwater explosion, the impact is no-fault and impersonal. But when a scientist applies personally for a permit 

to help solve these problems, he or she is front and center in a very public process. 

This makes the scientist an all too easy target for uninformed emotional attacks 

against the bigger problem. The ‘‘Tyack permit’’ is the subject of misinformation in 

websites from Australia to the UK. 

Some animal rights groups have specialized in attacking research; it has become 

all too easy for less scrupulous groups to move from attacking suffering and pain 

induced by experiments in captive animals, to raise funds by misrepresenting research directed at helping to protect wild animals from serious threats. Activists 

have actually tried to sabotage some conservation biology projects. It may reduce 

228 

1 A problem with the language of the MMPA involves the use of the word ‘‘take’’ to cover the 

potential for an activity to cause slight and temporary changes in behavior. In this age of the 

internet, it is quite easy for people all over the world to hear of a permit allowing thousands 

of ‘‘takes’’ of marine mammals. It is difficult for people from many countries to find it credible 

that the U.S. would regulate the potential for any change in behavior, so it can easily appear 

that this permit allows ‘‘taking’’ in the normal English sense, which sounds quite drastic. I urge 

the language of the permitting process be changed to use ‘‘take’’ for lethal take, ‘‘injury’’ for level 

A harassment, and ‘‘disrupt’’ or ‘‘disruption’’ for level B harassment. 

the attractiveness of these cynical ad hominem attacks if research institutions or 

consortia were to apply for general authorizations for different kinds of research, 

much as other activities that may ‘‘take’’ marine mammals are authorized.1

The failure of NMFS to prevail in recent challenges to their attempts to exempt 

the permitting process from further environmental review under NEPA suggests the 

need for Environmental Assessments or Environmental Impact Statements for each 

activity that may be permitted or authorized. I cannot imagine that even a newly 

invigorated Permit Office could perform these analyses for every project, although 

there is considerable overlap between the permitting process under MMPA and the 

environmental analyses under NEPA. Given how similar the two processes are, perhaps Congress could specify the categorical exclusion of these permits under the 

MMPA. Otherwise, the MMPA or regulations might specify programmatic environmental analyses of specific research procedures, such as aerial or vessel survey, tagging, biopsy sampling, sound playback, etc. I must emphasize that many of the most 

serious problems with marine mammal research permits have not been MMPA problems as much as NEPA problems. As I mentioned above, the Office of Protected Resources will require a considerable injection of funds and highly skilled personnel 

to be able to oversee the production of the required NEPA documentation. 

Suggested unified procedure for authorizing any takes under the MMPA 

As my testimony has gotten deeper into the problems with the current regulatory 

situation, the discussion has gotten further and further from the basic goal of equal 

treatment of all seagoing activities under the MMPA. I believe that it would be 

much better if Congress could correct the deficiencies in the MMPA so that one or 

two simple regulatory processes for authorizing takes could be applied evenly to all 

seafaring activities. This should be designed to target situations of potential adverse 

impacts while minimizing the regulatory burden for activities with negligible effect. 

If a streamlined and more inclusive authorization process were accompanied by better monitoring and reporting requirements, then we would be in a much better position to identify and devote scarce regulatory resources to situations where marine 

mammals are most at risk from human activities. 

Please allow me to sketch an outline of such an approach based upon suggestions 

from the 1994 and 2000 NRC reports on Marine Mammals and Low-frequency 

Sound. The 2000 report reviews a suggestion made in 1994 regarding amendments 

to the MMPA that were adopted in 1994: 

The NRC (1994) suggested that the regulations governing the taking of marine 

mammals by fishing activities should be broadened to include other user groups 

that might take marine mammals. This concept was incorporated into the 1994 

MMPA amendments. The MMPA now requires calculation for each species of 

a conservative number of animals that might be taken by humans from marine 

mammal stocks, while ‘‘allowing that stock to reach or maintain optimum sustainable population,’’ called the potential biological removal (PBR) level (MMPA, 

sec 1362[t]; see Appendix C). NMFS is required to tally all human-induced mortality for its stock assessments (MMPA Sec. 1386[a]) and uses this number to 

estimate PBR. (p. 66) 

Here is the concept for regulating takes advocated by the 1994 National Academy 

Report on Low-frequency sound and marine mammals: 

The proposed regime is designed to redirect regulation to focus on human activities with the largest impact on marine mammal populations, scaling the extent 

of regulation to the risk the activity poses to populations. The proposed regime 

was initially developed primarily for commercial fishing, but it was designed to 

allow the inclusion of other ‘‘user groups’’ for PBR. If such a mechanism is 

adopted in the revised legislation, this committee recommends that Congress 

and NMFS consider it for regulating most ‘‘takes’’ of marine mammals by research as well. Since the objective of the law is to protect marine mammals, it 

is difficult to understand applying different, and less stringent, rules to activities that kill marine mammals than to activities that are known to benefit them 

or to have negligible effects on them. For any population in which harassment 

229 

is considered to be a serious risk to populations, taking by harassment may be 

included in these regulations. Where taking by fishing is considered to have 

negligible impact compared to other activities, regulatory attention should focus 

on these more significant risks. (p. 35) 

Now we have almost a decade of experience with this PBR regime. The incidental 

take provisions of the MMPA for commercial fisheries require determination of 

whether the incidental mortality and serious injury from commercial fisheries will 

or will not have a negligible impact on marine mammal stocks. Fisheries are categorized as to whether they have frequent, occasional, or remote likelihood of causing mortality or serious injury, and each fishery receives an authorization for incidental takes subject to conditions. As long as a fisher registers with this authorization process, complies with the conditions, and reports any takes, s/he is exempt 

from the prohibition against taking. 

This regime for regulating fisheries takes that may kill animals has been quite 

successful in highlighting situations where populations are threatened by fishing. 

Fishers in low impact fisheries have a simple and streamlined regulatory process, 

and regulation ramps up corresponding to the threat, up to closing down fisheries 

that threaten the survival of marine mammal populations. However, this regime ignores effects of harassment, and is not systematically organized to include takes 

such as vessel collision, explosions, etc. 

The MMPA has a complex tangle of different authorizations for taking marine 

mammals. Each kind of take authorization has had successes and failures. The 

basic goals of the Act clearly have not been well served by such different standards 

for regulating takes for different activities. As the NRC said in 1994, ‘‘it is difficult 

to understand applying different, and less stringent, rules to activities that kill marine mammals than to activities that are known to benefit them or to have negligible effects on them.’’ The only case that I think justifies a lower level of regulation involves takes for scientific research that enhances the survival or recovery of 

species or stocks. After three decades of experience, I believe that the Act would be 

much more likely to meet its goals if it condensed all incidental take authorizations 

to one process that incorporates the best features of PBR and the best features of 

the other mechanisms. 

I suggest that different user groups that may take marine mammals could either 

voluntarily form together or be designated by NMFS. The list of user groups must 

include all activities that may take marine mammals. Such a list would have to include all vessels large enough to be registered in the U.S. that operate in waters 

inhabited by marine mammals. Either the user groups or NMFS should be required 

to prepare a Programmatic Environmental Impact Statement, an Environmental Assessment, or some simpler form of analysis depending upon NEPA criteria, including whether takes, including harassment takes, were anticipated to be frequent, occasional, or occur with a remote likelihood. After this stage, some activities might 

be judged so low risk that they would just need to specify when the user registers 

the vessel, an obligation to report all takes. For activities judged at higher risk for 

takes, each vessel or member of the user group could apply for incidental take authorization similar to that used now by commercial fisheries, but including takes by 

harassment. Before embarking to sea, each user in a high impact activity could be 

required to notify NMFS where they are going and what they plan to do. All users 

should be required to report any takes, including level A or B harassment takes, 

with strict requirements for prompt and complete reporting. For activities that 

might cause harassment takes beyond the range of detection of the vessel, a monitoring program could be established to study animals at different ranges from the 

activity in order to better estimate the number of harassment takes. 

My understanding of the PBR process is that it only counts lethal takes or injury 

so serious that it poses a risk of death. For the purposes of incorporating harassment takes into this regime, NMFS could start by just requiring complete and accurate reporting of all potential takes, including any disruption of behavior. The inclusion of any disruption of behavior should not be interpreted to signify that all of 

these constitute ‘‘takes’’ under the MMPA. Rather, accurate reporting of behavioral 

disruption could be used to help identify what exposures pose a risk of adverse impact. Ultimately, the significance to the population of any take is the effect on the 

demography of the population, the ability of the population to grow or remain a 

healthy size. I strongly encourage Congress to adopt wording requesting that NMFS 

attempt to account for harassment takes conservatively in terms of just the same 

demographic effects as lethal takes. This is currently a challenging scientific problem, but the correct wording would stimulate the appropriate science, while focusing 

attention on the critical issue of keeping marine mammal populations healthy. As 

230 

I discuss more fully in the last section of my testimony, the best way to do this is 

to define harassment in terms of biological significance of the take. 

Ultimately a demographic accounting of harassment takes would require population modeling that relates the dosage of exposure to harassment to population parameters. There has been great progress in this kind of population modeling in the 

past decade, and the PBR process has forced NMFS to sharpen its stock assessments for marine mammals, including summarizing all known lethal takes. However, right now the critical analyses could not be performed for harassment takes 

because we know so little about exposures of marine mammals to harassment. A 

critical aspect of the PBR regime is that it exempts registered fishers from the prohibition on taking as long as they accurately and fully report any takes. A similar 

clause for all vessels that may be involved in harassment would ultimately give scientists the data needed to regulate harassment in terms of biological significance 

of impacts to populations. As in the terms of permits for scientific research, the user 

should report any observed disruption of behavior, but the regulations should be 

clear that not all of these will ultimately be considered ‘‘takes’’ by harassment. 

A timely reporting requirement may also make it easier to prosecute cases of intentional harassment, as failure to report would violate the terms of the exemption. 

This kind of program would allow NMFS to identify situations where 

• A stock was at risk from a particularly high number of takes. 

• An area or activity caused a high number of takes for a variety of species. 

• There were particular hot spots of takes. 

• The cumulative takes pose a risk to the population 

Where the sum of takes, lethal, injury, or harassment, pose a risk to a population, 

this regime should require a take reduction team to reduce the problem. This kind 

of regulatory regime would reduce the burden on activities that pose little risk, 

while focusing attention on species, areas, or activities that pose the greatest risk 

to the most endangered populations. 

Some may be concerned that the regulatory process I sketch out would lead to 

reduced protection. It would certainly streamline the regulatory process and make 

it more predictable for most activities, but I agree with the National Academy 

(2000) report on Marine Mammals and Low-frequency Noise that such a change 

would, if done correctly, increase protection from the status quo: 

The Committee also suggests that activities that are currently unregulated, but 

which are major sources of sound in the ocean (e.g., commercial shipping) be 

brought into the regulatory framework of the MMPA. Such a change should increase protection of marine mammals by providing a comprehensive regulatory 

regime for acoustic impacts on marine mammals, eliminating what amounts to 

an exemption on regulation of commercial sound producers and the current and 

historic focus on marine mammal science, oceanography and Navy activities. (p. 

72) 

This change would be all the more effective if it was not limited to acoustic impacts, but included all sources of takes including harassment into an integrated 

workable regulatory structure. The current MMPA has unbalanced criteria for authorization, allowing some fisheries to kill animals with no requirement beyond reporting, while having no procedure available to other activities to authorize more 

than a small number of insignificant harassment takes. This does not meet the conservation goals of the Act. 

During the past several years, there have been efforts to address the very real 

problems with the MMPA by developing new exemptions for specific activities such 

as military readiness. I do not think that complicating the Act by creating yet another special exemption is the best answer. I strongly urge Congress to respond to 

the problems highlighted by DOD by trying to fix the underlying flaws in the regulatory procedures of the MMPA before granting a special exemption that does nothing for marine mammal conservation and leaves many other producers of sound in 

the sea with no way to meet the regulatory requirements. If done correctly, the regulations might be able to include all activities in a streamlined regulatory approach 

that focuses attention on those situations that pose the most risk to marine mammal populations. Ideally this should include a common mechanism for dealing with 

harassment takes in fisheries as well as other activities. 

Suggested rewording of incidental take authorization for effects of noise. 

While I believe there is an opportunity to improve the MMPA by reducing the 

maze of take authorizations, this may be politically too difficult to achieve this year. 

If Congress cannot achieve a common mechanism for authorizing takes, I would adVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00234 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
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vocate simple changes to the existing incidental take authorizations in sections 

101.a.5.A and 101.a.5.D that I believe would make them appropriate for regulating 

acoustic impacts. When the MMPA was first written, it emphasized takes in commercial fisheries. Certainly no one at that time was thinking about whether the regulatory process would work for issues such as incidental harassment takes resulting 

from unintentional exposure to noise. Nor was there much experience with issues 

under NEPA of whether the impacts of entire activities needed to be evaluated together, or whether it was better to authorize each time a ‘‘take’’ was possible. 

Since the MMPA was passed, many studies have demonstrated that marine mammals respond to ships, dredging, icebreaking and construction, and sound sources 

such as pingers, air guns, and sonars. Most of these sound sources are currently unregulated simply because NMFS chooses not to enforce the prohibition against taking marine mammals by harassment. I doubt that many of these activities could 

find a regulatory procedure under the current wording of the Marine Mammal Protection Act that would allow activities with negligible impact while controlling those 

that might have an adverse impact. As has been pointed out by each of the three 

National Academy reports on this topic, the dominant source of manmade noise in 

the ocean is the propulsion sounds from ships. Yet this has not been regulated by 

NMFS. As the National Academy 2000 report Marine Mammals and Low-frequency 

Sound put it: 

If the current interpretation of the law for level B harassment (detectable 

changes in behavior) were applied to shipping as strenuously as it is applied 

to scientific and naval activities. the result would be crippling regulation of 

nearly every motorized vessel operating in U.S. waters. (p. 69) 

One response to this conundrum is for each activity to seek special exemptions 

if their activities become targets of regulation. However, the National Academy 1994 

report Low-Frequency Sound and Marine Mammals discouraged that approach: 

‘‘However, it seems unreasonable that an exemption from the ‘‘take’’ prohibitions of the MMPA should be available for some human activities, including 

some that kill marine mammals, without being available for other human activities whose goal may include the acquisition of information of potential value 

for the conservation of marine mammals.’’ (p 38) 

The first two reports of the National Academy of Sciences on marine mammals 

and low frequency sound specifically suggest a broader solution to this problem: removing the requirements for small numbers of takes, while retaining a criterion of 

negligible impact: 

Reword the incidental take authorization to delete references to ‘‘small’’ numbers of marine mammals, provided the effects are negligible. (p. 39) 

Low frequency Sound and Marine Mammals (1994) 

In addition to making the suggested change m the level B harassment definition, it would be desirable to remove the phrase ‘‘of small number’’ from MMPA 

section 137l(a)(5)(D)(i). If such a change is not made, it is conceivable under the 

current MMPA language there would be two tests for determining takes by harassment, small numbers first, and if that test were met, negligible impact from 

that take of small numbers. The suggested change would prevent the denial of 

research permits that might insignificantly harass large numbers of animals 

and would leave the ‘‘negligible impact’’ test intact. (p. 71) 

Marine Mammals and Low-frequency Sound (2000) 

My understanding of the judge’s ruling in the legal challenge to operation of the 

SURTASS LFA sonar, NRDC vs Evans, is that the judge ruled against the interpretation followed by NMFS that ‘‘small’’ can be interpreted in terms of population size, 

and exactly following the fears of the National Academy panel, ruled that the current MMPA language does require both negligible impact and small numbers, where 

the meaning of the word small could not be interpreted in terms of size and status 

of populations. 

The restriction in the MMPA authorizations for incidental takes to ‘‘a specified 

geographical region’’ may also rule out this authorization process for most impacts 

of noise. If ‘‘specified geographical region’’ is taken to mean areas small enough to 

involve the same assemblage of species and oceanographic conditions, the requirements of the incidental take authorizations would be incompatible with the NEPA 

requirement to consider all possible uses of a system. Many sound sources are on 

a large number of vessels, each of which may cross the ocean in weeks. Many marine mammals also migrate thousands of miles through very different habitats. This 

makes it difficult to specify a geographical region for a whale that may be in the 

232 

Caribbean one day, and off New England a few weeks later. I do not think that the 

wording specifying a geographical region is easily reconciled with the potential numbers and movements of both the animals and the noise sources. 

The propulsion sounds of ships elevate the ambient noise over the world’s oceans, 

and this global impact is likely to reduce the ability of whales to detect calls at a 

distance. I see no process by which such takes could be authorized under the current wording of the MMPA. Depth sounders and fish finders have sounds that do 

not carry as far, but they are used by tens of thousands of vessels. These sounds 

have the potential to disturb marine mammals, and therefore may take animals by 

harassment, but did Congress intend to require authorization for each user? How 

far could a vessel go before its takes move out of the ‘‘specified geographical region?’’ 

Oceanographic research, much of which uses motorized vessels and uses sound as 

a tool to explore the ocean, also has a global scope, and may be difficult if not impossible to authorize under the current regulatory procedures. 

The House of Representatives has proposed changes in wording of the sections of 

the MMPA for taking and importing marine mammals in HR 1835. My understanding is that the primary effect of these changes is to remove the conditions of 

small numbers and specified geographical region for the incidental take provisions. 

I believe that as long as a sharp focus is maintained on the issue of negligible impact, these changes would make the process work for effects of noise on marine 

mammals, while still protecting marine mammal populations from adverse impacts. 

Since millions of sources such as depth sounders and the propulsion noises of every 

motorized vessel could cause harassment takes under the current definition, I believe that it will be essential for the process to authorize general activities, rather 

than individual vessels or sound sources. This is incompatible with restricting the 

authorization to ‘‘small numbers,’’ if this is taken literally to mean just a few individuals, or ‘‘specified geographical region,’’ if this is taken to mean small areas. 

Definition of harassment 

Until the last paragraph, I have kept my testimony quite general, but I have some 

specific comments on the definition of harassment in the current MMPA and the 

changes suggested by the Administration and House of Representatives in HR 1835. 

The current definition of level B harassment in the MMPA is: 

‘‘has the potential to disturb a marine mammal or marine mammal stock in the 

wild by causing disruption of behavioral patterns, including, but not limited to, 

migration, breathing, nursing, breeding, feeding, or sheltering.’’ 

The 1994 NRC report on Low Frequency Sound and Marine Mammals succinctly 

reviewed the problem of how harassment has been interpreted under the MMPA: 

Logically, the term harassment would refer to a human action that causes an 

adverse effect on the well being of an individual animal or (potentially) a population of animals. However, ‘‘the term ‘harass’ has been interpreted through 

practice to include any action that results in an observable change in the behavior of a marine mammal. . . .’’ (Swartz and Hofman, 1991). (p. 27) 

The 1994 NRC report goes on to note that many minor and short-term behavioral 

responses of marine mammals to manmade stimuli are simply part of their normal 

behavioral repertoire. There is clearly a need for some standard of negligible effect, 

below which a change in behavior is not considered harassment. 

The change in the definition of level B harassment proposed in HR 1835 is: 

‘‘disturbs or is likely to disturb a marine mammal or marine mammal stock in 

the wild by causing disruption of natural behavior patterns, including, but not 

limited to, migration, surfacing, nursing, breeding, feeding, or sheltering, to a 

point where such behavioral patterns are abandoned or significantly altered.’’ 

As a biologist who has studied the behavior of marine mammals for more than 

25 years, I find this wording confusing, and I do not see how it addresses the problem identified by the NRC. The last phrase added to the definition does add a criterion of significant alteration. However the point of the NRC reports was biological 

significance, a disruption that could have an adverse impact. My dictionary defines 

significant as ‘‘likely to have influence or effect.’’ The addition of the word ‘‘significant’’ in the new definition therefore does not give the same standard as suggested 

by the NRC. As our techniques to study marine mammals have grown in sophistication and sensitivity, it is now possible to demonstrate statistically significant alerting or orienting responses that in my opinion fall well below the negligible impact 

standard. 

I find the addition of the word ‘‘abandoned’’ particularly confusing in the new definition. It certainly makes sense to add a criterion for abandonment of critical habiVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00236 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
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tat, but what does this wording mean for behavior patterns? A sperm whale or elephant seal can dive for an hour or more, but any marine mammal that abandons 

surfacing behavior cannot breathe. If it abandons surfacing for more than a few 

hours, it is certainly dead. If a sperm whale group is sheltering a young calf from 

a killer whale attack, even a momentary abandonment of the behavior could be lethal. Calves may be able to survive for days or weeks if their mother abandons nursing, and many whales could survive for years without feeding, but what is the time 

period implied by ‘‘abandon.’’ My understanding of ‘‘abandon’’ is that it means a permanent change. By this definition, the ‘‘abandonment’’ wording turns level B harassment into a lethal take. Far from distinguishing negligible from potentially significant effects, it muddies the waters further. 

Another problem with the use of the term ‘‘abandon’’ is that I take it to mean 

‘‘giving up’’—a 100 percent cessation of an activity. Yet since the definition of harassment also applies to stocks, this definition is not conservative enough for actions 

that may affect a large portion of a stock. For example, suppose an activity caused 

a 50 percent reduction in foraging rates in a majority of the population, or caused 

animals to be 50 percent as effective in finding a mate for breeding. Such reductions 

would not ‘‘alter’’ the form of the behavior, nor would they meet an abandonment 

criterion, but few populations could sustain such changes on a long term basis. 

I would like to take this opportunity to reiterate the suggestion of the National 

Academy of Sciences second report (2000) on Marine Mammals and Low Frequency 

Sound on the definition of level B harassment: 

‘‘NMFS should promulgate uniform regulations based on their potential for a 

biologically significant impact on marine mammals. Thus, level B harassment 

should be redefined as follows: 

Level B—has the potential to disturb a marine mammal or marine mammal 

stock in the wild by causing meaningful disruption of biologically significant 

activities, including. but not limited to, migration, breeding, care of young, 

predator avoidance or defense, and feeding. 

The Committee suggests limiting the definition to functional categories of 

acttv1ty likely to influence survival or reproduction. Thus, the term ‘‘sheltering’’ 

that is included in the existing definition is both too vague and unmeasurable 

to be considered with these other functional categories.’’ (p 69) 

This definition was written by scientists and may require some rewording to fit 

legal and legislative requirements. But if the definition of harassment is to be 

changed, it should be done so in a way that makes biological sense and that corrects 

the need for a negligible impact standard. I do not think that the changes proposed 

in HR 1835 for the definition of harassment succeed in this task. I urge the Senate 

to consider using the definition of harassment suggested by the National Research 

Council in any amendments to the MMPA. 

Conclusion 

Madam Chair, I sincerely appreciate your attention to this difficult and complex 

issue. There are real problems with current implementation of the MMPA in our 

changing environment. However, I am convinced that Congress and the responsible 

Federal agencies can make real progress to create permitting and authorization 

processes that are more predictable and efficient, while improving the protection for 

marine mammals from adverse impacts of human activities. 

Thank you, and I look forward to your questions. 

PREPARED STATEMENT OF KONRAD S. URI

I am providing this written testimony to follow up on my letter this past December to each member of the Commerce Committee as well as each member of the Appropriations Committee opposing the ‘‘Two Pie’’ rationalization plan as proposed by 

the North Pacific Fishery Management Council (NPFMC). 

I am a lifelong fisherman who has participated in the bottomfish (trawl, longline 

& pots) fisheries off the coast of Washington and Alaska for over 50 years. I also 

have been a crab fishermen for over 35 years, harvesting and processing Red, Golden, & Blue King Crab as well as Opilio and Bairdi tanner crab; currently, I fish 

pacific codfish by longline in the Bering Sea/Aleutian Islands area about 6 months 

out of the year. 

I have seen the development of the Bering Sea/Aleutian Island fisheries from the 

1960s, dominated by foreign vessels, to present with the U.S. public resource harvested by American vessels. I was active in supporting and implementing the origiVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00237 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
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nal Magnuson Act, as well as many other fishery management, allocation, political 

issues over the years. 

With the advent of the American Fisheries Act, and now the proposed Bering Sea 

Aleutian Island Crab Rationalization plan, I am discouraged with the direction of 

the government to rationalize the various fisheries of the North Pacific. If you allow 

the NPFMC’s proposed crab rationalization plan to move forward, you will award 

the processing sector with a monopoly. 

Providing the processing sector with ‘‘Processor Shares’’ violates the antitrust 

laws of our land, grants the processing sector an unfair advantage over the independent fishermen, is adverse to the position of all the other Fishery Management 

Councils across the Country, provides quasi ownership interest in the public’s resources under the control of foreign owned companies, goes against all but one Alaskan communities’ resolutions, and sets a very dangerous precedent which I fear will 

be applied in other fisheries in the future. 

I therefore ask the Commerce Committee to reject the proposed plan and send it 

back to the NPFMC for revamping. Beyond a buyback program, the fishery should 

be rationalized at the harvester level, with no ‘‘two pie’’ and/or ‘‘processor share’’ 

provision. 

ALEUTIAN PRIBILOF ISLAND COMMUNITY DEVELOPMENT ASSOCIATION

Juneau, AK, May 19, 2003 

Hon. TED STEVENS

United States Senator 

Washington, DC. 

Re: Crab Rationalization 

Dear Senator Stevens: 

There is little dispute that Alaska’s Bering Sea crab fisheries are in crises. The 

combination of low guideline harvest levels, generally weak ex-vessel and wholesale 

prices, and overcapitalization in both the harvesting and processing sectors have 

brought the crab industry and many of the communities that depend upon it to their 

knees. Many of the participants face bankruptcy if nothing is done and, for some, 

it may be too late already. 

Crab rationalization is the only remedy available. Status quo is not an option. The 

design and implementation of any fisheries rationalization scheme is very controversial. That is because there are winners and losers. There is no way around that. 

In this case, most of the controversy swirls around the creation of crab processor 

quota shares. 

Like Kodiak, we do not particularly like processor quota shares. From our perspective, however, they are a necessary ingredient to make crab rationalization 

work. Without processor quota shares, the political will within the industry as a 

whole that is necessary to bring about crab rationalization does not exist. Therefore, 

without processor quota shares, there is no crab rationalization and the industry 

may be doomed. The impact upon coastal communities in that scenario is unacceptable. 

The logic behind the Council’s crab rationalization program is reasonable. Effort 

in both the harvesting and processing escorts need to be reduced so that the inefficient and wasteful race for crab is eliminated. This presumably, will bring about 

some semblance of stability to the industry. The industry consists of three parties: 

harvesters, processors and communities—the program most to be designed so that 

each component experiences stability, otherwise chaos results. 

Crab harvesters argue they need quota shares to protect their capital investment 

by allowing them to fish crab wisely and efficiently. In that manner they are able 

to survive financially. 

Crab processors argue that if harvesters receive quota shares, processors must as 

well. Otherwise, the processors’ ability to compete and survive in an industry they 

have participated and invested in for decades disappears. They believe they need 

quota shares to protect their capital investment. 

Coastal communities dependent upon crab offer the same rationale. Without adequate community protection in a rationalization program, the capital they have invested in infrastructure is wasted and the economic foundation of their community 

is destroyed. 

All three legs of the stool have the same legitimate need for stability. And like 

any three legged stool, this one will tilt at best, and collapse at worst, if one of the 

three legs is not treated equally. 

235 

APICDA’s focus during the North Pacific Fishery Management Council’s crab rationalization process has been to protect the interests of our member communities. 

Initially, we proposed that all of our communities, including those that had never 

processed a crab, be allowed to construct crab shore plants and purchase crab without requiring crab processor quota shares. The non-APICDA communities argued 

against that approach, reasoning that every pound of crab that would go into our 

non-historic crab processing communities would be stolen from a community dependent upon crab processing. We found that was a reasonable argument, particularly during times when crab quotas are low, and agreed to drop our proposal. 

Forthwith, our focus was to ensure that the crab processing history earned in our 

communities (St. George in particular) would stay in that community. ’ 

Further, we argued that there should be a limit on the amount of processor quota 

shares, with the limit tied to the size of the crab quota; crab harvested above those 

amounts could be delivered to any community and any processor regardless of 

whether or not they have processor quota shares. Our reasoning was simple: when 

crab quotas are above a certain level, there is plenty of crab to address both the 

historic crab processing communities’ needs and to allow for other communities and 

processors to participate. That approach has been adopted by the Council. 

We, as well as other communities argued for a variety of other community protection provisions. These provisions included: that communities in which processor 

quota shares are allocated have the right of first refusal to purchase processor quota 

shares from a processor who is selling; a prohibition on the transfer of processor 

quota shares away from a community during the first two years of the program; 

and, a host of other community protection mechanisms. All have been adopted by 

the PM. 

We understand the concerns voiced by the City of Kodiak. One of our member 

communities is St. George. St. George is a crab dependent community. Unlike Kodiak, there is no other commercial fishing in St. George except a small amount of 

halibut. There has been no crab processing in St. George since 2000 due to the collapse of the opilio stocks. The City of St. George has lost 98 percent of its revenues 

since 2000, and is near default on its bond obligations. 

It is disturbing to us to contemplate the future of St. George in the absence of 

the NPFMC’s crab rationalization program. St. George will flounder. Unlike many 

other communities, St. George does not have a shore based seafood processor, nor 

does it have access to salmon or groundfish. St. George is essentially 100 percent 

dependent upon crab. Without processor quota shares and without crab rationalization, there is no fishery-related future of consequence for the community. There is 

nothing else of economic significance to fall back upon. 

We understand very well how controversial and difficult crab rationalization is. 

We understand the risks and the pitfalls. But we are standing on the abyss with 

status quo, and cannot survive the fall if rationalization does not happen soon. 

Sincerely, 

LARRY COTTER, 

CEO. 

Cc: APICDA Board of Directors 

PREPARED STATEMENT OF MICHELE LONGO EDER, F/V MICHELE ANN

Hon. JOHN MCCAIN, Chairman 

Committee on Commerce, Science, and Transportation 

Dear Mr. Chairman, Senators Wyden and Smith, and Members of the Committee: 

I am a fisherman’s wife from Newport, Oregon, a town of about 10,000 people on 

the central Oregon Coast. My husband is a commercial fisherman, and has been 

fishing for 30 years. He owns his own boat, and has a crew of 3 or 4 men. Usually, 

he fishes for Dungeness crab and sablefish. We also have permits to fish for pink 

shrimp, halibut, salmon, and albacore tuna. 

Let me state from the outset: We are opposed to fish processors being allocated 

quota or shares, or in any way be guaranteed a certain amount of, or access to fish 

that fishermen like my husband and his men go to sea to catch. 

Now let me tell you why. The only way our crewmen can earn a living, and the 

only way our business can make a profit and continue to survive in this industry, 

is to get the very best price for our fish that we can possibly fmd. 

I can’t quote statistics per se, but I can tell you that in the last 15 years, on the 

West Coast of the United States, there has been an absolute collapse in the number 

of independent fish processors that a fisherman can sell their fish to. In towns 

where there had once been booming bayfronts, now there is but one or two procVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00239 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
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essing plants, at most. For example, in Newport, OR, as recently as 15 years ago, 

there were 5 different processors that competed for product from fishermen. Each 

plant had to provide good service, in terms of efficient unloading and quick turnarounds, fresh bait, quality ice, and most of all COMPETITIVE PRICES or they 

wouldn’t get the fish. 

Today, for a variety of reasons, there is one fish processor that processes the majority of West Coast bottomfish and crab, and that is the Pacific Seafood Group. 

Although I can congratulate them on their success for being an efficient business, 

buying up money-losing plants and shutting them down and generally cornering the 

market, what it has done to the family fishing business has been devastating. Other 

buyers are at risk of losing their shirt if they offer fishermen a better price for their 

product, for the largest processor can, and does, immediately sell at a lower price 

in order to recapture any market share they may have lost. This happens season 

after season, fishery after fishery, and year after year. 

Fishermen have it hard enough as it is, trying to find new and better markets 

for their fish on a boat by boat basis, without GOVERNMENT giving to FISH 

PROCESSORS another tool that would allow them to further control and depress 

prices-and the tool that I am referring to is ‘‘processor quotas’’ or ‘‘processor shares.’’ 

In my opinion, processor quotas have absolutely nothing to do with either fisheries management, safety, or conservation-the purposes for which we think government resources and laws should be directed. Instead, quota shares for processors are 

an anti-competitive measure that will make the cost prohibitive for new entrants 

into the processing business, and further, will force fishermen to sell only to those 

that receive an initial allocation or have the capital resources to buy processor 

quota. 

The work that my husband and our men do is brutal. I can’t begin to tell you 

what our life is like. I don’t pretend to know what the rest of the Nation needs, 

but the last thing our West Coast fisheries need is the Federal government entwined with fish processors to give them an even stronger control over the prices 

paid for our fish. Please—don’t make our proud fishing communities nothing but 

‘‘company towns.’’ 

Thank you for the opportunity to offer this testimony. 

Sincerely, 

MICHELE LONGO EDER. 

PREPARED STATEMENT OF DENNIS PETERSEN

Senator JOHN MCCAIN, Chairman 

U.S. Senate Committee on Commerce, Science, and Transportation 

Dear Senators: 

I’ve been a participant in the Bering Sea King & Tanner crab fisheries from 1963 

until l982. In those years I served in all capacities aboard my own & other vessels. 

I also was a board member of the Alaska Marketing Association representing vessel 

owners & crab fishermen in price negotiations with all processors who bought crab 

from all Bering Sea boats. During those years, there were few conflicts of interests 

between being a fisherman & being a processor. Today that line has become 

inexplicably blurred. 

Processors own a very high percentage of the crab catcher boats & in any price 

negotiating process will ultimately dominate that process with independent vessel 

owners finding their voices being stifled by those processors who will ultimately buy 

all the crab. The vessel owner who wouldn’t go along with his processor would stand 

an excellent chance of being cast adrift with no market: truly an economic disaster 

for the small independent fisherman who risks all. 

Further, in the only group representing Seattle vessel owners & fishermen, ACC, 

there is a makeup, I understand, within that association whereby a small group who 

have ownership in multiple vessels, including a very large crab processor, which 

dominates that association on whatever position might come up for a vote. Consequently, that group is highly suspect as to its loyalties within the Seattle crab 

fleet & will probably suffer a real loss of membership for their support of the two 

(2) tier crab rationalization plan. Yet, politically, they are given credence for being 

the ultimate voice of the Seattle fleet (which represents roughly 70 percent of the 

Bering Sea crab fleet). Not so . . . their testimony should be taken for what it is 

. . . completely tainted & not representative of a majority of the Seattle fleet. 

Obviously, I completely oppose the two tier crab rationalization plan even though 

I am completely retired from the industry. It is a product of big money influencing 

decisions where the men who work in the world’s most hazardous profession will 

237 

loose. Do not be swayed by the big moneyed processor advocates who have dominated the North Pacific Fisheries Council’s decision making process as regards this 

super important issue. Please reject this abomination! 

Respectfully submitted, 

DENNIS PETERSEN. Cc Senator Maria Cantwell 

TESTIMONY OF VICTOR SMITH

May 20, 2003 

To: 

U.S. Senate Committee on Commerce, Science and Transportation 

Senator JOHN MCCAIN, Chairman 

Re: Crab Rationalization Hearings 

Dear Senator McCain: 

Congress should not grant exclusive rights to a few corporations on the crab buying side because it also affects their price-making powers over other species, too. As 

a salmon fisher, I am concerned about negotiating against networks of offshore companies and global affiliates. Their abusive ‘‘transfer pricing’’ practices that shift 

profits offshore to lower fish prices and avoid U.S. taxes should be more closely examined, for all species. 

There was talk in Petersburg, AK., after Senator Stevens met with Icicle Seafoods 

fishermen there last June, that Processor Quota Shares were assured for Pacific Cod 

too. And I am most concerned because some are already promoting a non-competitive ‘‘salmon rationalization’’ scheme, as well. 

Fishers are also worried about systemic conflicts-of-interest plaguing the State of 

Alaska, the North Pacific Fishery Management Council, and the fishers own associations. These comprise the power base for Crab Rationalization and other policy-making. I have information on these conflicts of interest that I believe would convince 

you that at best there is only the appearance of a power base, and that that appearance was illegally acquired and has been used to defraud the public. 

This thinly veiled appearance of fishermen’s support for legislation that will be 

harmful to fishermen is the result of a long campaign of intense opinion shaping 

and silencing led by conflicted leaders of the Alaskan fishing community. 

Opposition has been silenced by leaders outright misrepresentations of memberships opinion, as well as leaders preempting association votes by publicly announcing association positions without polling their members. They have also been involved in passage of legislation and policy making detrimental to fishermen without 

fishermen’s approval. As a result, millions of dollars have been taken out of the harvesting side of Alaska’s fisheries. 

Members of these associations (United Fishermen of Alaska, South East Alaska 

Seiners Association, Puget Sound Vessel Owners Association, and possibly others) 

appear to have been engaged with Icicle Seafoods, Trident Seafoods, Norquest Seafoods, and possibly other processors, as well as some Joint Legislative Salmon Industry Task Force members, and others, in a pattern of mutual favoritism. 

Conflicted members of these associations appear to have: 

(1) Assisted processors in attempts to acquire permanent Processor Quota 

Shares and market exclusivity. 

(2) Assisted processors in transferring more production costs to fishermen, lowering prices, and reducing public benefits derived from fisheries resources. 

(3) Helped processors elect and support politicians seemingly willing too exchange support for favors. 

(4) Proposed and led a legislative agenda favoring processors that ignores real 

solutions for fishermen and fishing communities. 

(5) Refused to protect Alaska’s fishermen and wild salmon from pressure from 

fish farmers and other interests and in some cases even supported others interests. 

(6) Engaged in actions to undermine fishermen and public support in a fishermen’s class action court case looking into charges of price fixing in Bristol 

Bay. 

(7) Violated association bylaws, misrepresented associations’ positions, and created the appearance of fishermen’s consensus where none existed. 

(8) Discriminated against non-resident Alaskan fishermen. 

238 

(9) Used libel, character assassination, and intimidation to silence opposition. 

(10) Engaged in lobbying efforts that undermine public support for fishermen. 

(11) Used public money to fund some of their efforts. 

I believe these abuses and more have been going on for at least the last several 

years. I urge you to pay extra close attention to the voices of opposition coming from 

the few fishermen that still have the will to speak out. If I may, I would like to 

forward you this information. We (fishers) have been left behind on our small business rights. 

It is a matter of too many boats currently chasing too few crabs, and fishermen 

not receiving a fair percentage of the retail price of their product. The $100 million 

vessel buyback program should lessen pressure on crab fisheries, without also forcefully collectivizing fleets and forever misbalancing market powers. 

To institute the crab ‘‘rationalization’’ plan will merely stifle competition and innovation, as well as lead to even lower prices for harvesters. Concentrated major 

grocers do not yet control assigned collectives of American farmers, who are then 

forced to supply products only to those particular stores. So, should crab harvesters 

not also share the same antitrust protections as other fishing fleets and businesses? 

We hope that you do not grant processor Quota shares and even think about asking the GAO to study Alaska’s economic structure more thoroughly, so that we all 

understand more about the overwhelming power foreigners and unchecked corporate 

greed now have in the U.S. seafood industry. 

I urge you to ground-truth the testimony you hear by listening carefully to all 

sides. Thank you for considering protecting my independent, small business and our 

community concerns. 

Sincerely, 

VICTOR SMITH. 

TESTIMONY OF VICTOR SMITH

May 25, 2003 

To: 

U.S. Senate Committee on Commerce, Science and Transportation 

Senator JOHN MCCAIN, Chairman 

Re: Crab Rationalization Hearings 

Dear Senator McCain: 

I have read some of the presentations made to your Committee at the Hearing 

on the 20th. I was not surprised to see that Senator Murrary was involved. I had 

predicted her involvement last year when I first learned of her and Senator Stevens 

working together on the Boeing tanker deal. There was an article on the tankers 

in the Saturday Seattle Times. (Right along side an article on the tax cuts.) It was 

also interesting to hear Rush Limbaugh belittling you on Friday on his program. 

I think I know what’s involved there and I believe you’re being charitable referring 

to the Boeing Deal as a handout. 

I don’t think the timing of these events is a coincidence and I believe there’s linkage with the Crab hearings. I believe Patty Murray is Senator Steven’s new consensus building WA. Democrat. I doubt she knows much more about crab than she’s 

been told. Not so with Kevin Duffy. 

Mr. Duffy was the fishermen’s associations’ choice for Commissioner of Alaska Department of Fish and Game. Despite the fact that he’d previously voted for Processor Quota Shares on the Council. Note in the following e-mail how David Bedford, 

who was then General Manager of South East Alaska Seiners Association and is 

now Deputy Director of ADF&G, denies endorsing PQs and denies that SEAS support of Mr. Duffy was support of PQs. 

Now look at where Mr. Duffy is. He is no longer just one of eleven unanimous 

voters on the Council; he is now the expert presenter of the plan. And Gov. Knowles 

is no longer pulling his strings, so who is manipulating him this time? 

It was wrong how Mr. Duffy acquired fishermen’s support to become the processors embedded Commissioner, and his actions now prove this. These people and 

the action they are proposing is a fraud. Mr. Bedfords record of misdeeds goes back 

at least a year, and I have similar material on several other key proponents of this 

plan. 

Have you received any testimony from Oliver Holm, of Kodiak? If you have not, 

I would like to forward you letters from him that outline how United Fishermen 

of Alaska misrepresented fishermen’s support to Senator Stevens two years ago. I 

239 

have also sent his material to the Dept. of Justice. Have they forwarded any of it 

to you? 

This is an incredibly flawed process, and an incredibly involved one. The Bay Case 

was no test of this collusion; in fact, the high level tampering in the press highlighted it. Do you have any advise that might help me decide what to do with this 

information? I’ve received a number of threats that have me wondering now about 

what I should be doing. 

VICTOR SMITH

Original Message 

From: The Smiths 

To: Gordon Blue 

Sent: Friday, May 23, 2003 5:21 AM 

Subject: Re: CR Hearings (2) 

GordonRemember that Sen. Stevens voiced almost the exact same concerns last year 

when he announced the Senate wouldn’t be taking it up and he’s still at it. We predicted Sen. Murray would be involved in this last fall and here she is. I don’t think 

they are any less sure about what they want. Stevens bas got a huge investment 

in Murray. I agree about the importance of the Bay Case but am pessimistic about 

the outcome. Fingers are crossed though. In the euphoria of a win the processors 

might be given just about anything. Kevin Duffy? Read the following e-mail: 

This e-mail (following) was received March 7, ’03, from David Bedford, then 

SEAS General Manager. 

DaveIf, as you say, SEAS has never supported processor quotas, why are we supporting for commissioner Kevin Duffy, who voted for them? 

You confuse support for the individual with support tor one specific action. SEAS 

believes that Kevin will be responsive to the concerns of commercial fishermen, particularly seiners, as he has been as Alaska’s Commissioner to the Pacific Salmon 

Commission and Deputy Commissioner for Fish and Game. Therefore SEAS supports him. Note also that Kevin supported processor shares in the crab fishery, a 

fishery with little direct relevance to the mission of SEAS, because the Governor, 

his boss, instructed him to do so. Further you should recognize that the Governor 

arrived at this stance because his door was closed to commercial fishermen. The crucial issue now is whether we are in a position to work with and influence the current administration. We are. 

Why are we marching in lock step with the UFA, who’s president last spring, 

mischaracterized the UFA boards position as being consistent with processor 

quotas, just as he relayed this same message to Senator Stevens? 

I don’t know what Bob told anyone but I do know that UFA’s position on the AFA 

with its processors quotas is that the organization backs the North Pacific Council 

and opposes having resource management or allocation done by the Congress. As 

I recall, the NPFMC voted unanimously for processor quotas, including the commercial fish representatives, one of whom is an AMCC member from Kodiak. 

Weren’t you one of the UFA exec committee who voted to take no action on the 

UFA boards vote to oppose processor quotas? 

Victor, the truth of the matter is that some crab fishermen supported processor 

quota and some opposed them. A UFA board member sneaked a proposal on processor shares in without giving any background materials to the board and without 

alerting the affected crab fishermen. My position was neither in favor nor opposed 

but rather that there should be a full and fair and informed discussion before UFA 

took a position against one group of fishermen or another. I wanted to talk to the 

fishermen before I voted either for or against a resolution that affected them. 

Wasn’t SEAS board advised not to interfere in the crab rationalization plan? 

Not only no but Hell No. 

The Gilchrest Amendment, which we weren’t opposing, was about considerably 

more that the crab fishery as everyone involved knows. 

You are wrong that everyone knows what the Gilcrest amendment is about. I 

don’t. I take it from the context that it is the legislation that would permit processor 

quotas in the Bering Sea crab fishery. Is it an amendment to Magnuson-Stevens? 

There are a thousand things a day that I don’t have time to oppose, or even find 

240 

out about. If every seiner paid his dues SEAS could afford another one of me and 

there might be time to get to North Pacific Council and Federal waterfisheries 

issues that have no immediate relevance to the seine fishery. 

Why did we support a Governor who wouldn’t take e position against PQ’s? 

There are no PQ proposals for the seine fishery or any other salmon fishery. If 

it happens, SEAS will be in the thick of it. The governor does support the economic 

prosperity of the fishery and the coastal communities. Bread and butter issues seem 

to resonate with the fleet right now. 

Why wasn’t SEAS calling its members to action last spring when this issue was 

before congress? 

What issue? The crab fishery? Gilcrest? Processor quotas? How much free time 

do you think I have? Do you have any idea how much unpaid time I put in tor SEAS 

and for you as a fisherman in the seine fishery? How much more do you want? If 

you want my limited time spent on the Bering Sea crab fishery instead of the Board 

of Fish or the permit reduction program or the MMPA law suit or state fishery legislation or the Federal subsistence program or any of the dozen other things I keep 

tabs on, get the board to tell me to shift my focus from the seine fishery to the 

North Pacific Council. 

Actions speak louder than words. Please explain why one should interpret our 

record on PQs as one of non-support. 

Because we never supported them. 

Insteed of asking me to prove a negative why don’t you prove the assertion you 

make. Show me one printed word, other than spurious e-mails from Kodiak, where 

SEAS supported processor quotas. Never happened. All there is innuendo from one 

disaffected UFA board member who tried to sneak a resolution past the UFA board 

without full discussion—a resolution that was opposed by some fishermen in the relevant fishery, the proposal was advanced by the representative of an aquaculture 

association—a group with no connection whatsoever with the crab fisheries. It sure 

looked like a personal agenda to me so I felt the need to discuss the matter with 

some crab fishermen. 

How would you like it if UFA took a position on the Southeast seine fishery without letting any seiner know? Is that the kind of conduct SEAS should support in 

UFA, policy making by ambush? 

How do you claim SEAS opposes fish farms when we have sided with the UFA 

and their approval or a Senator who has sponsored a fish farming bill. SEAS 

did nothing to alert our members to the code of conduct NMFS was developing 

for EEZ fish farming in WA. and AK, whose comment period ended in Oct. last 

year. 

Let’s double the dues and get more members, then we can hire more help and 

deal with more things. Apparently you have different priorities that the SEAS 

Board. Instead of stating dissatisfaction over SEAS lack of action on a specific issue, 

send me the information to persuade the board to work on mariculture instead of 

the current priorities. 

Why are we sitting by as BC fish farmers assault Alaska with a lobby effort 

for their farm program? Why haven’t we raised the issue of farmed salmon traffickers being on the ASMI board? 

Ditto the last comment. 

And what of our habitat move position, you didn’t even mention that? All for 

now. 

Victor Smith 

CITY OF SAINT PAUL

Saint Paul Island, AK, May 29, 2003 

LINDA FREED, 

Kodiak City Manager, 

Kodiak, AK. 

Dear Ms. Freed: 

I am writing to you concerning representations that you made regarding the community of St. Paul during the May 20, 2003 hearings before the U.S. Senate ComVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00244 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
241 

merce Committee regarding the BSAI Crab Rationalization Program developed by 

the North Pacific Fishery Management Council (NPFMC). 

Although you have recently become involved in this process at the NPFMC level, 

you may be aware that St. Paul has for over four years played a leading role in 

developing a program that rationalizes the Bering Sea crab fisheries and seeks to 

find balance among the competing interests held in these fisheries by harvesters, 

processors, and communities. 

My community’s considerable investment of time and effort in this process is understandable given that 85 percent of our economy is dependent on the crab fisheries (primarily opilio processing) and that since the 1990s St. Paul has been the 

harbor for more than 40 percent of the average annual landings of opilio crab (as 

opposed to under 1 percent for Kodiak). The point is that whereas for Kodiak’s diversified economy, Bering Sea crab processing is a minor economic activity, for St. 

Paul and other Bering Sea communities it is a matter of survival. 

It is unfortunate that, contrary to the facts, during your presentation before the 

U.S. Senate Commerce Committee you chose to mention that St. Paul’s backing of 

the BSAI crab rationalization program was in question. To support your unfounded 

assertion you highlighted the opposition of a local private corporation. While TDX, 

as a local private enterprise seeking private gains out of this process, is entitled to 

its opinion, it does not reflect the voice of the community of St. Paul. My community’s numerous local interests are represented at the City Council. Two years ago 

the St. Paul City Council passed a resolution supporting the NPFMC’s work on the 

crab rationalization program. This support remains solid. 

As the Mayor/representative of a fellow Alaska city government I would have been 

pleased to meet or discuss with you my community’s position prior to the hearings. 

We have enjoyed an excellent relationship with members of your community for 

years and have enabled many of them to make their livelihoods as harvesters in 

the crab fishery to your community’s benefit. In my view, your action last week 

would be akin to me pointing to the numerous voices on Kodiak in support of the 

BSAI crab rationalization program to draw conclusions about Kodiak’s ’’true’’ position. This is all the more surprising, since as a member of the NPFMC’s Community 

Protection Committee you negotiated and participated in the unanimous vote to 

adopt the NPFMC’s community protection provisions. Then last week, you appeared 

to reverse yourself when you indicated during testimony that the program did not 

have community protections. 

I am attaching for your information, a copy of my testimony as well as the St. 

Paul City Council resolution which affirms St. Paul’s position in support of the 

aforementioned program. Should you have any questions or concerns please do not 

hesitate to contact me. 

Sincerely, 

SIMEON SWETZOF, JR., 

Mayor, 

City of St. Paul. 

Cc: Matt Paxton—Office of Senator Ted Stevens 

Bill Woolf—Office of Senator Murkowski 

Anna Knudson—Office of Senator Murray 

Dan Sakura—Office of Senator Cantwell 

Dave Whaley—Committee on Resources, U.S. House of Representatives 

David Benton—Chairman North Pacific Fishery Management Council 

Kevin Duffy—Commissioner Alaska Department of Fish and Game 

PREPARED STATEMENT OF JEFFREY R. STEPHAN, UNITED FISHERMEN’S MARKETING

ASSOCIATION, INC. 

Senator JOHN MCCAIN, Chairman, 

U.S. Senate Committee on Commerce, Science, and Transportation, 

United States Senate, 

Washington, DC. 

Re: May 20, 2003, hearing on the Bering Sea/Aleutian Islands Crab Rationalization 

Plan: U.S. Senate Committee on Commerce, Science, and Transportation 

Dear Chairman McCain, 

On behalf of the United Fishermen’s Marketing Association, Inc. (UFMA), I respectfully submit this testimony to the Record of the May 20, 2003, hearing on the 

Bering Sea/Aleutian Islands (BSAI) Crab Rationalization Plan in the U.S. Senate 

Committee on Commerce, Science, and Transportation. 

242 

UFMA does not support the provision of permits or other authorization that allocates exclusive rights to U.S. fishery resources to, or other exclusive use of such resources by, the U.S. Processing Sector. UFMA does not support the authorization 

of exclusive processing rights or exclusive processing access for the U.S. Processing 

Sector with respect to BSAI crab. including Processing Shares, Individual Processing Quotas (IPQs), ‘‘Two Pie’’, etc. 

Moreover, UFMA does not support the provision of authority to the Fishery Management Councils, or to the U.S. Secretary of Commerce (Secretary), to extinguish 

market access and market freedom for the U.S. Harvesting Sector by requiring U.S. 

fishing vessels to sell and deliver their legally harvested and legally owned fisheries 

products to a specific port, thereby, prohibiting such vessels from selling and delivering their products to buyers or ports of their choice (‘‘Regionalization’’, or mandatory ports of landing). 

We respectfully request that Congress should not judge the perilous and unsound 

notions of Processor Shares and Regionalization only as regional contrivances for 

Alaska or for BSAI Crab Rationalization, nor without first having comprehensively 

examined these concepts as important issues of National Policy. Free and open markets, vigorous competition and the enduring principles that underlie our antitrust 

laws should be as relevant today, and in Alaska, as when the Sherman Antitrust 

Act was passed. 

We respectfully request that Senators and Representatives from coastal states 

with commercial fishing economies should not wreak Processor Shares or Regionalization on Alaska if they are not willing to do so on their own states, and should 

understand that these schemes will ultimately contaminate their own fishing industries. 

Processor Shares and Regionalization are not fisheries management devices. They 

represent market allocation, market regulation and economic protectionism. The 

North Pacific Fishery Management Council earns great respect for their dedication 

and noteworthy accomplishments. The FTC, FCC, SEC and other entities, not the 

Councils, address ‘‘market regulation’’, ‘‘market allocation’’ or ‘‘preservation of competition’’; these terms do not appear in the Findings, Purposes or Policy of the Magnuson-Stevens Act (MSA), and distinguished Council members nationwide are not 

chosen because of their knowledge, experience and understanding of these concepts. 

UFMA is the longest established association of BSAI crab harvesters. The membership of UFMA includes vessel owners and operators who harvest crab, sablefish, 

halibut, salmon, herring, p. cod and other groundfish in Federal and state waters 

of the Gulf of Alaska (GOA) and the BSAI. Moreover, UFMA is actively involved 

and impacted by rationalization initiatives that are currently underway with respect 

to several Fishery Management Plans (FMPs) that govern U.S. fishery resources 

within the jurisdiction of the North Pacific Fishery Management Council (NPFMC), 

including the FMPs for BSAI King and Tanner Crabs, BSAI Groundfish, and GOA 

Groundfish. 

I. National Study of Processor Shares and Regjona!ization 

We respectfully request, prior to any further Congressional consideration of authorizing Processing Shares and Regionalization for application in the U.S. Fishing 

Industry, including the BSAI crab fishery, that Congress direct a full and comprehensive examination and report of Processor Shares and Regionalization. Such 

an examination and report should address foreign ownership, divestiture, anticompetitive concentrations and combinations, why already dominant processing entities need additional help and protection, etc. 

In the Sustainable Fisheries Act of 1996, Congress directed the National Academy 

of Sciences (i.e., National Research Council, or ‘‘NRC’’) to examine and report on the 

issue of Harvesting Sector ‘‘Individual Fishing Quotas’’ (IFQs). It makes sense for 

Congress to direct a similar examination and report of Processor Shares and Regionalization, since Congress did not direct in 1996, nor did the NRC provide in 1999, 

a comprehensive focus on or evaluation of the impacts, effects and mechanisms of 

Processor Shares or Regionalization, especially with respect to the significant anticompetitive and economic power issues that are undeniably present when Processor 

Shares are contemplated for use in fisheries management. 

Such an examination and report on Processor Shares and Regionalization should 

be considered in the context of antitrust and trade statutes and policy, instead of 

in the context of MSA. We respectfully submit that oversight of any further consideration of Processor Shares and Regionalization, and of the above-suggested Congressionally mandated examination and report, should have Judiciary Committee 

oversight, in consultation with the Commerce Committee, Federal Trade Commission and the Secretary of Commerce. 

243 

If after the completion and Congressional consideration of a comprehensive examination and report of Processor Shares and Regionalization, Congress decides that 

these concepts are reasonable devices for use in the management of U.S. fishery resources, then we respectfully request that Congress should hold hearings to guide 

the development of National Standards that would apply to the use and application 

of Processor Shares and Regionalization in the management of U.S. fishery resources. 

As previously referenced. in 1999 the NRC published ‘‘Sharing the Fish; Toward 

a National Policy on IFQs’’ (‘‘Sharing the Fish’’). While Sharing the Fish focused primarily on the impacts, effects and mechanisms of Harvesting Sector IFQs, in those 

instances where the NRC did address Processor Shares, it was clear that they found 

no valid rationale for Processor Shares: ‘‘. . . Nor did the committee find a compelling reason to establish a separate, complementary processor quota system (the ’two 

pie’ system).’’ (Sharing the Fish, page 205); ‘‘Processors also complained . . . The 

committee was not convinced, however, that the solution to the perceived problem 

lies in the allocation of either harvesting or processing quota to processors.’’ (Sharing the Fish, page 155). 

We would be pleased to provide a suggested outline for a Congressional mandate 

of a comprehensive study and report of Processor Shares and Regionalization. 

II. Lack of Adequate, Quality and Relevant Data, and Associated Analysis 

and Consideration 

We ask Congress to closely examine the lack, quality, comprehensiveness, inclusion and availability of data and other information that is important and essential 

to understanding and analyzing the distributional and cumulative impacts of Processor Shares, and to making informed decisions that are associated with the potential application of Processor Shares. This is especially relevant when consideration 

is given to the combination of Processor Shares and Regionalization, and in the context of the BSAI Crab Rationalization Plan. 

There is an incomplete understanding and analysis of the actual factual ownership of, and other vehicles that provide for the exercise of economic power and control over, BSAI Crab Harvesting Sector IFQs by the BSAI Crab Processing Sector. 

There is no clear enumeration of the distribution of Processor Shares by individual 

processing entity, entity location, or port. There is an incomplete understanding of 

the ownership structure of Harvester Sector vessels, and of the cumulative impacts 

that will result from the distribution of Harvester Sector IFQs to Processing Sector 

‘‘affiliated vessels’’ (i.e., vessels that are associated with Processing Sector entities 

through a variety of ownership interests, notes, loans, etc.), combined with the distribution of Processor Shares to those BSAI crab processors who are so affiliated 

with such vessels. 

There is a significant lack of understanding and analysis of the substantial opportunities that exist in the BSAI Crab Rationalization Plan for the exercise of economic power and control that can and will be used by the Processing Sector over 

the Harvesting Sector generally, over the use of Harvesting Sector IFQs, and over 

competitive and fair price formation. It is not now possible to reasonably or accurately understand the substantial economic power and control that will be vested 

in the BSAI Crab Processing Sector as a result of Processor Shares. This is especially worrisome when Regionalization is combined with Processor Shares. 

We respectfully request that Congress direct the Councils and the Secretary to request essential and relevant data that resides with the U.S. Maritime Administration (MARAD); such data that will generally permit the Councils and the Secretary 

to comprehensively evaluate and analyze the cumulative impacts of Processor 

Shares, Regionalization and Harvester Sector IFQs, and specifically with respect to 

the BSAI crab fishery. Possession of this information by the Councils and Secretary 

would significantly assist the Secretary and the Councils in their understanding of 

the social, policy and economic implications and impacts of their regulatory action 

with respect to Processor Shares. 

Further, we request that Congress direct MARAD to release and make available 

the important and relevant information that they collect and compile with respect 

to the underlying ownership structure of U.S. Harvesting Sector vessels. Vessel 

ownership information that is collected and held by MARAD could be of significant 

benefit and use to the Secretary and to the Councils in support of making informed 

decisions with respect to the underlying ownership structure of entities that may 

receive IFQs or Processor Shares, including information that is necessary for evaluating participation in U.S. fisheries, the important distributive impacts and effects 

of IFQ or Processor Share ownership, the anticompetitive impacts of vertical integration, and the extent of foreign ownership of U.S. fishing resources. 

244 

III. Fair and Competitive Price Formation and Arbitration 

Processing Shares and Regionalization invest the BSAI Crab Processing Sector 

with a significant increase of political and economic power, control and influence 

that will greatly obstruct the free flow of inputs to an otherwise but already variably competitive marketplace, including inputs upon which competitive prices for 

the Harvesting Sector depends (price formation). This is especially true for processors who benefit from the largesse of the American Fisheries Act Binding Arbitration as associated with price formation is characterized as a mitigation device. The 

BSAI Crab Processing Sector fashioned the pretension that Arbitration was meant 

to address ‘‘failed price negotiations’’, thereby masking the true and underlying reasons why Arbitration was investigated. That is, successful price formation relies on 

the complex conditions and facts that exist in a competitive marketplace; however, 

price formation and Arbitration, as a result of Processor Shares and Regionalization, 

must rely on information from an artificial and significantly misaligned marketplace. Arbitration, albeit a politically expedient concept, provides a false sense of security and mitigation. 

The Council was offered several meaningful and realistic opportunities to attempt 

to mitigate the obvious and expected negative impacts of Processor Shares and Regionalization on fair prices, and on competitive and open markets, including, for example, provisions that allowed: (1) all BSAI crab vessels to freely sell all their legally harvested and legally owned crab to Kodiak (the ‘‘Kodiak Open Port’’ concept’’; 

(2) all BSAI crab vessels to freely sell their last load of legally harvested and legally 

owned crab to Kodiak; (3) Kodiak-based BSAI crab vessels to freely sell all their legally harvested and legally owned crab to Kodiak; (4) Kodiak-based BSAI crab vessels to freely sell their last load of legally harvested and legally owned crab to Kodiak. The Council discarded all these suggestions. 

An ‘‘Open Port’’ designation for Kodiak would provide some realistic mitigation, 

and at least one competitive market and port, to counter the anticompetitive impacts on prices and markets that are created by the implementation of Processor 

Shares and Regionalization. 

IV. Foreign Ownership 

We respectfully request Congress to evaluate the impacts and implications of 

Processor Shares with respect to competition of, and methods to prevent, limit and 

control, foreign ownership interest in, and economic control of (1) harvesting vessels; 

(2) permits or licenses that permit the Harvesting Sector to operate a vessel in a 

fishery where there exists a limitation on the number of vessels that are permitted 

to harvest a U.S. fishery resource (e.g., license limitation programs); (3) permits or 

licenses that permit the Harvesting Sector to have exclusive rights to harvest a 

quantity of fish, expressed by a unit or units representing a percentage of the total 

allowable catch of a fishery that may be received or held for exclusive use by a person (e.g., IFQs); (4) fishing history of the Harvesting Sector (i.e., landings, participation and other criteria that will determine the qualification of Harvesting Sector entities to receive IFQs, licenses, permits etc); etc. 

V. Divestiture of IFQs and BSAI Crab Vessels in the BSAI Crab Processing 

Sector 

We respectfully suggest that Congress evaluate the use of divestiture as a means 

to mitigate the anticompetitive impacts that result from the application of Processor 

Shares in U.S. fisheries. Processing Sector entities that receive Processor should be 

required to divest themselves of harvesting vessels and Harvesting Sector IFQs as 

a reasonable precondition for receiving Processing Shares. 

VI. Conclusion 

Processor Shares will negatively impact the success and economic underpinnings 

of other fisheries. For example, we believe, as do others in the industry, that Processor Shares in the BSAI crab fishery, coupled with the benefits of the American 

Fisheries Act that accrued to several large dominant Alaskan processing entities, 

will negatively impact the ability of the Alaskan Salmon industry to recover from 

current market and structural related challenges. 

The impacts that result from the application of Regionalization and Processor 

Shares either separately, or in combination, are difficult to analyze and understand. 

However, it is imperative that a thorough examination and understanding of these 

anticompetitive and other social and economic impacts are thoroughly investigated, 

explored and understood prior to a serious consideration of applying Regionalization 

or Processor Shares in fisheries management, including in the BSAI crab fishery. 

UFMA has consistently supported rationalization of the BSAI Crab fishery. We 

believe that it is time to deliver the safety, conservation and management benefits 

245 

of BSAI Crab Rationalization, and we hope that the BSAI Crab Processing Sector 

will loosen their grip on these benefits. We hope that Congress will let the concepts 

of Processor Shares and Regionalization fade away. 

Thank you for your consideration of our comments. 

Sincerely, 

JEFFREY R. STEPHAN

TESTIMONY OF VICTOR SMITH

June 6, 2003 

To: 

U.S. Senate Committee on Commerce, Science, and Transportation 

Senator JOHN MCCAIN, Chairman 

Re: Crab Rationalization Hearings 

Dear Senator McCain and Committee Members: 

Regarding the testimony of Kevin Duffy, it is preposterous that Mr. Duffy was 

the fishermen’s associations’ choice for Commissioner of Alaska Department of 

Fish and Game despite the fact that he’d previously voted for Processor Quota 

Shares on the Council. The support he received from fishermen’s association executives to become Commissioner was unethical and possibly illegally granted. 

Note in the following email how David Bedford, who was then General Manager 

of South East Alaska Seiners Association and has now moved up to become 

Deputy Director of ADF&G appointed by Mr. Duffy, denies endorsing PQs and 

denies that SEAS support of Mr. Duffy was support of PQs. 

This email (following) was received March 7, ’03, from David Bedford, then 

SEAS General Manager. It is Mr. Bedford’s response to questions about SEAS 

endorsement of Mr. Duffy for Commissioner. 

DaveIf, as you say, SEAS has never supported processor quotas, why are we supporting for commissioner Kevin Duffy, who voted for them? (V.S.) 

You confuse support for the individual with support for one specific action. SEAS 

believes that Kevin will be responsive to the concerns of commercial fisherman, particularly seiners, as he has been as Alaska’s Commissioner to the Pacific Salmon 

Commission and Deputy Commissioner for Fish and Game. Therefore SEAS supports 

him. Nota also that Kevin supported processor shares in the crab fishery, a fishery 

with little direct relevance to the mission of SEAS, because the Governor, his boss, 

instructed him to do so. Further you should recognize that the Governor arrived at 

this stance because his door was closed to commercial fishermen. The crucial issue 

now is whether we are in a position to work with and influence the currant administration. We are. (D.B.) 

Now look at where Mr. Duffy is. He is no longer just one of eleven unanimous 

voters on the Council; he is now the expert presenter of the processors PQ plans. 

And Gov. Knowles is no longer pulling his strings as Mr. Bedford claimed, so who 

is manipulating him this time? The Council process is flawed, and its’ goals don’t 

match those of the rest of the country. 

It was wrong how Mr. Duffy acquired fishermen’s support to become the processors embedded Commissioner, and his actions now prove this. Executives of the 

seiners associations and the United Fishermen of Alaska have played a big role in 

hiding from fishermen that there have been plans afoot in the industry to expand 

PQ’s to all Federal fisheries and even State salmon fisheries. These actions now 

demonstrate that there has been a concerted effort by numerous people to advance 

this plan. 

Fishermen’s association Executives violations of association’s by-laws and running 

their associations to achieve their own agendas by silencing fishermen and misrepresenting fishermen’s interests are theft. For policy makers and processors to 

have knowingly relied upon this illegally crafted appearance of fishermen’s support 

as a foundation for advancement of acquisition of resources from the American people is unethical at best. It should also highlight what has been going on in the fishing industry on numerous other issues. It is not possible that what we’re seeing is 

the result of independent actions. 

Sincerely, 

VICTOR SMITH. 

246 

Foremost, we oppose any type of rationalization plan that rewards over capitalization. 

We strongly oppose processor shares. They are not warranted, This is so because 

of the infrastructure already in place by the processors in question. Most of these 

capital investments (infrastructure) have long been paid for. This provides them 

with an advantage against any future competition. 

We believe all coastal communities dependant on commercial fishing will suffer 

negative economic impact. This is so because it, (BSAI Crab Rationalization), would 

be president setting legislation mapping out future rationalization plans. This plan 

guarantees control of our fisheries resources to a select group of processors both 

FOREIGN and domestic. This plan, even if limited only to BSAI Crab, will give 

these select processors a huge competitive and economic advantage. The majority of 

these processors own plants in multiple coastal communities: thus, giving them advantages over competing plants in communities outside of the BSAI Crab region. 

We believe any legislation that contradicts our current Anti-Trust Laws should be 

reviewed in depth with representatives of all groups whom are affected both directly 

and indirectly. 

In closing, we would like to submit that economics itself would be enough to rationalize the BSAI Crab fishery. The pace and safety of this fishery is a concern. 

These concerns can be addressed through trip limits and gear restrictions (i.e. Pot 

Limits). Any further over capitalization (i.e. Capital Construction Funds) should not 

be encouraged by government. We cannot support any further legislation that forever gives control of a public resource to a select few. 

We are a commercial fishing family residing in Kodiak, Alaska. Our above comments are brief. Familarity with the BSAI Crab Rationalization proposal would be 

needed to understand our letter. We are not directly involved in this fishery, but 

understand the effect the BSAI Crab Rationalization will have on future rationalization of the Gulf of Alaska and Bering Sea Ground Fisheries which we are economically dependant on. 

Sincerely, 

RON AND JULIE KAVANAUGH

RON JR—AGE 22, 

MIRANDA—AGE 14, 

SYLVIA—AGE 11, 

GARRETT—AGE 4 

PREPARED STATEMENT OF HON. RON WYDEN, U.S. SENATOR FROM OREGON

Thank you, Mr. Chairman, for holding this hearing today. 

There is a long history of fishing vessels from Oregon traveling up to Alaskan waters to share in the crab fishery that has flourished there. These boats are crewed 

by both Oregonians and Alaskans and deliver their catch to the coastal communities 

of Alaska to be processed. If done fairly, the assigning of quotas within a fishery 

can lead to both a safer fishing season and a more sustainable fishery. However, 

I share the concerns of Oregon fishers about the assigning of processor quota shares 

particularly if they are done in a manner that will benefit a few processors at the 

expense of many fishers and other processors. Assigning quota share in this manner 

raises issues of anti-trust and could lead to the consolidation of processing capacity. 

I also am wondering why the North Pacific Fishery Management Council has devised a plan that they do not have the statutory authority to implement without 

the approval of Congress. 

I thought the purpose of the management councils was to make decisions at the 

regional level under the guidelines provided by Congress. I am not sure Congress 

wants or should get into the habit of debating individual management plans and 

making what should be regional decisions at the national level. Nor should management councils get in the habit of choosing to ignore Congressional instruction. 

I would like to submit the following questions for the record: 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. RON WYDEN TO

KEVIN DUFFY

Question 1. As a representative of the Alaska Department of Fish and Game and 

the interests of all Alaskans, was your testimony reviewed by Mr. Alan Austerman, 

the governor’s fish policy advisor? And if not, would you please explain why? 

Answer. Witness did not respond. 

Question 2. As a member of the Council, do you have any insight as to why there 

were numerous motions on elements of harvesting shares but no motions made on 

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elements of the processing share aspects of the program such as the ratio of A/B 

shares or the qualifying years used to award processing history? 

Answer. Witness did not respond. 

Question 3. The analysis of Dr. Charles R. Plott, the respected economic modeler 

from the California Institute of Technology, demonstrated that the ‘‘last best offer’’ 

arbitration process supported by the processors would be less apt to result in a competitive price for ‘‘A’’ shares, yet you voted for this ‘‘last best offer’’ approach over 

the alternative ‘‘fleet-wide’’ approach. Could you explain why? 

Answer. Witness did not respond. 

Question 4. A National Academy of Sciences panel recommended that ‘‘if the regional councils determine that processors may be unacceptably disadvantaged by an 

IFQ program because of changes in the policy or management structure, there are 

means, such as buyouts, for mitigating these impacts without resorting to the allocation of some different type of quota. For example, coupling an IFQ program with 

an inshore-offshore allocation would preserve the access of shore-based processors 

to fishery resources.’’ What was your rationale for voting against the recommendations of the National Academy of Sciences? 

Answer. Witness did not respond. 

Question 5. You and other proponents of processor shares have frequently cited 

the 11–0 Council vote as an argument for why this plan should be accepted. However, the 11–0 Council vote preceded the decision on the binding arbitration trailing 

amendment which was a contentious 6–5 decision favoring the plan supported by 

the processors. It seems to me that once all of the parts of the proposed plan were 

revealed that the plan was endorsed in the Council by the thinnest of margins. Am 

I wrong? 

Answer. Witness did not respond. 

Question 6. According to the proposed processor share allocation formula, which 

looks at a narrow two-year window, the top 12 processors with one exception would 

receive more quota allocation than they historically processed, 99.4 percent to 75.66 

percent respectively. Why did the Council decide on such a narrow window for determining historical levels of processing? 

Answer. Witness did not respond. 

Question 7. The General Accounting Office (GAO) has been unable to find any 

credible evidence that processors in any fishery have been disadvantaged by the allocation of harvester shares. Why should Congress endorse a plan that not only is 

contentious, but appears to be unnecessary? 

Answer. Witness did not respond. 

Question 8. We know what fishing quotas achieve for resource conservation and 

safety; what do processor quotas achieve for resource conservation and safety? 

Answer. Witness did not respond. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. RON WYDEN TO

LINDA FREED

Question 1. Chairman Stevens has reminded us that the original intent of the 

Magnuson Fishery Conservation and Management Act was to protect the fisheries 

of the United States from foreign interests. Are there crab processors who are 

owned directly or indirectly by foreign interests? Will any processors that are directly or indirectly owned by foreign interests benefit from this proposed plan at the 

expense of American owned processing companies? 

Answer. Witness did not respond. 

Question 2. We know what fishing quotas achieve for resource conservation and 

safety; what do processor quotas achieve for resource conservation and safety? 

Answer. Witness did not respond. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. RON WYDEN TO

DAVE FRASER

Question 1. Chairman Stevens has reminded us that the fishery management 

councils were set up to manage fish populations. Is there any reason processor 

shares would be necessary to manage fish populations? 

Answer. Witness did not respond. 

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Question 2. Has a management plan that allocates processor shares in a manner 

similar to this proposed plan ever been tested in a crab fishery? If so, what is the 

current state of that fishery? 

Answer. Witness did not respond. 

Question 3. The National Academy of Sciences recognized that processors may be 

disadvantaged by fishing quotas. What steps other than processor quotas could be 

used to protect processors? 

Answer. Witness did not respond. 

Question 4. We know what fishing quotas achieve for resource conservation and 

safety; what do processor quotas achieve for resource conservation and safety? 

Answer. Witness did not respond. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. RON WYDEN TO

FRANK KELTY

Question 1. The proposed plan would take a public resource, Alaskan crab, and 

allocate this resource among harvesters. The proposed plan then allocates the harvested crab to processors even though the harvested crab has become private property in the hands of harvesters. As a supporter of this proposed plan, are you telling 

me that the United States government and not market forces should decide what 

fishers may do with their private property? If the issue is fairness and protecting 

processors from the perceived advantage that harvesters will obtain with the allocation of harvester shares, what about consumers? Should the United States Government also be setting prices for the products the processors are selling to protect consumers from the advantage that processors obtain with the allocation of processor 

shares? If consumers don’t need protection from processor shares, why do processors 

need protection from harvester shares? 

Answer. Witness did not respond. 

Question 2. The General Accounting Office (GAO) has been unable to find any 

credible evidence that processors in any fishery have been disadvantaged by the allocation of harvester shares. Why should Congress endorse a plan that not only is 

contentious, but appears to be unnecessary? 

Answer. Witness did not respond. 

Question 3. We know what fishing quotas achieve for resource conservation and 

safety; what do processor quotas achieve for resource conservation and safety? 

Answer. Witness did not respond. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. RON WYDEN TO

ARNI THOMPSON

Question 1. Chairman Stevens has reminded us that the fishery management 

councils were set up to ensure that fisheries decisions would be made at the regional 

level and not at the national level or in the Federal courts. Of the witnesses that 

support this proposed plan, you seem to qualify your support for the plan more than 

Mr. Kelty and Mr. Duffy who seem to support the proposed plan unconditionally. 

In your opinion which specific parts of the plan are the most untested? 

Answer. Witness did not respond. 

Question 2. Once the proposed plan is accepted, you noted in your testimony that 

you expect continual oversight by the Council and Congress to correct or modify the 

processor quota portion of the plan. Based on your experience with the North Pacific 

Fishery Management Council and the United States Congress, do you expect that 

any necessary changes can be implemented in a span of less than two or three 

years? 

Answer. Witness did not respond. 

Question 3. Why should Congress support a plan that is supported by only one 

of the four major associations of vessel owners, which in turn, represents fewer than 

15 percent of issued crab licenses? 

Answer. Witness did not respond. 

Question 4. Of the vessels that you list as members of the Alaska Crab Coalition, 

how many are current members, and of these, how many qualify as ‘‘non-processor 

affiliated’’? 

Answer. Witness did not respond. 

Question 5. The General Accounting Office (GAO) has been unable to find any 

credible evidence that processors in any fishery have been disadvantaged by the alVerDate Nov 24 2008 06:46 Nov 13, 2018 Jkt 000000 PO 00000 Frm 00252 Fmt 6601 Sfmt 6621 S:\GPO\DOCS\32434.TXT JACKIE
249 

location of harvester shares. Why should Congress endorse a plan that not only is 

contentious, but appears to be unnecessary? 

Answer. Witness did not respond. 

Question 6. We know what fishing quotas achieve for resource conservation and 

safety; what do processor quotas achieve for resource conservation and safety? 

Answer. Witness did not respond. 

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