Jones Act reform: Going nowhere fast

By: | Issue #647 | at 08:00 AM | Channel(s): Liner Shipping  

Enforcement of Jones Act takes lead over change.

Some say that the Jones Act, nearly 100 years old, is one of those pieces of legislation whose time has come and gone. For decades, there have been attempts to repeal or modify it, all without success.

The pendulum is now swinging in the direction of greater enforcement of the Jones Act. Just last year US Customs and Border Protection created a Jones Act Division of Enforcement (JADE), primarily, it is presumed, to catch Jones Act violators in the offshore oil and gas industries. Just recently the Department of Justice settled a case which included payment by a shipping company of the biggest Jones Act penalty ever. (See related story on page 6.)

The Jones Act, passed in 1920, prohibits a foreign vessel from transporting merchandise between points in the United States. A violation of the Jones Act may result in the assessment of a civil penalty equal to the value of the merchandise. A waiver may be obtained, under limited circumstances, from the Secretary of Homeland Security. The act also applies to shipments from points on the North American continent to installations on the Outer Continental Shelf, hence the focus on oil and gas rigs.

Question of Exemptions

Reform efforts in recent years have concentrated on exempting specific trades, such as Puerto Rico, from the act. In 2016, an Alabama congressman offered legislation which would have exempted shipping to and from Puerto Rico from the Jones Act. Then-freshman Representative Gary Palmer, a Republican, said that the measure would provide the island commonwealth some relief from its current economic woes.

Palmer’s was not the first legislation to try to bring relief to Puerto Rico. In 2013, Puerto Rico’s resident commissioner in Washington pushed a similar measure, backed by studies from the Federal Reserve Bank of New York and the Government Accountability Office that concluded that costs are higher than they should be in the Puerto Rico trade, thanks to the Jones Act.

Jones Act critics say its restrictions inflate the price of consumer goods and inhibit economic growth in states and territories not part of the contiguous 48 states. Supporters of the law say that it is necessary for national security—by ensuring a ready reserve of US capacity in case of war or emergency—and creates jobs for US citizens.

“We need to act in a way that frees Puerto Rico from economy stifling regulations to the maximum extent possible to allow them to rebuild their economy,” said Palmer. “The Jones Act exemption helps Puerto Rico, a US territory with limited access to cheaper transportation such as trains or trucks, by reducing prices for goods transported by water.”

Two Puerto Rican economists found that between 1991 and 2010, the Jones Act cost Puerto Rican residents $16.4 billion. “Vehicles cost $6,000 more in Puerto Rico than on the mainland, and food is twice as expensive as in Florida, their study showed.

Not surprisingly, Jones Act stakeholders were dead set against exempting Puerto Rico from the Jones Act. “Such a change would put at risk the reliable, efficient service the island currently receives, as well as hundreds of private sector jobs on the island, with no offsetting gains,” said Michael Roberts, senior vice president of Crowley Maritime Corporation, which runs maritime services from Puerto Rico to the mainland. “It would also send a chilling message that would bring further investment in vessels built in US shipyards to a standstill.”

“Exempting Puerto Rico from the Jones Act would do nothing to address island’s debt crisis,” added Matthew Paxton, president of the Shipbuilders Council of America, “and would actually jeopardize the more than $1 billion the US maritime industry has invested in the Puerto Rican shipping trade, as well as the thousands of good-paying jobs on the island.”

The American Maritime Partnership, a prominent coalition of the domestic maritime industry, released a paper defending the Jones Act status quo. “The Jones Act is not a cause for the island’s financial woes,” said AMP Chairman Tom Allegretti. “The domestic maritime industry has made significant capital investments to service the economy and support thousands of family-wage jobs for Puerto Ricans.”

It’s worth noting that exempting US territories from the Jones Act is nothing new. Three are currently exempt from the Jones Act, including the US Virgin Islands.

That bothers Palmer. “Today shipping costs from the mainland to the US Virgin Islands,” he said, “are nearly half that of Puerto Rico.”

An exemption, Palmer argues, would also encourage business development. For instance, Puerto Rico’s power companies would be able to replace foreign-sourced oil with cheaper, cleaner, US-sourced natural gas. And manufacturers in Puerto Rico would also no longer be at a cost disadvantage relative to Asia and other Latin American countries when shipping goods to the US.

That argument is popular among residents of Puerto Rico, as well as advocacy organizations like The Libre Initiative, a non-profit that “advances the values of economic freedom to empower the US Hispanic community so it can thrive and contribute to a more prosperous America.”

Dan Garza, Executive Director for Libre, wrote a piece for the website Morning Consult that echoes many of Palmer’s concerns: “Puerto Ricans simply can’t have their goods delivered by trains or trucks. Rather, they rely on ships to bring most products to the island. As a result, any product that needs to be shipped to the island on a US ship comes at a higher cost.”

“The Jones Act is a typical case of the government picking winners and losers, and Puerto Rico is one of the hardest-hit losers of all,” Garza concluded. “If Puerto Rico is ever to regain its footing and enjoy a thriving economy, the first step the federal government must take is to drop the Jones Act.”

Despite these urgings, changes are improbable, primarily because supporters of the Jones Act wield significant, and growing, influence, on national policy. Palmer’s amendment died a quiet death during the 114th Congress and has yet to be reintroduced in the current session.

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American Journal of Transportation

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Peter Buxbaum has been writing about international trade and transportation, as well as security, defense, technology, and foreign policy, for over 20 years. Besides contributing to the AJOT, Buxbaum’s work has appeared in such leading publications as Fortune, Forbes, Chief Executive, Computerworld, and Jane’s Defence Weekly. He was educated at Columbia University.