As Puerto Rico struggles to recover from the devastating hurricane, its task will be far more difficult thanks to an archaic shipping protectionism law, the Jones Act. Here is a 1991 bash I wrote on that law for Wall Street Journal (excerpted from my book, The Fair Trade Fraud).
Wall Street Journal, November 26, 1991
Torpedo Shipping Protectionism
By James Bovard
The Jones Act of 1920 requires all shipping between U.S. ports to be carried on American-built, American-owned, and American-crewed ships. Though this trade restriction effectively dates back to 1817, a recent proposal by the Nordic countries to include shipping restrictions under the proposed GATT Services Code has sparked hope of abolishing this costly burden on American consumers. (The Bush administration, the world’s premier free-trade theoreticians, opposes the Nordic proposal).
Shipping has long been one of America’s leakiest industries. In the year the Jones Act was enacted, it cost twice as much to build a ship in the U.S. as in Britain. By 1959, American shipping costs were seven times higher than some competitors’. The Congressional Budget Office reported in 1984 that American shipyards charged three times the price of Japanese and Korean yards and were slower in delivery.
Naturally, the less competitive a U.S. industry, the more vigilant Congress is to dragoon customers for it.
Since Congress has given U.S.-flag ships a captive market, congressmen feel entitled to force American shippers to hire American workers, and strong unions guarantee exorbitant salaries. U.S. ship crews cost six times more than Third World crews; American shipmasters routinely cost shipping companies $300,000 a year. The high pay breeds corruption: An FBI sting operation recently discovered that shipping jobs are illegally being sold by one maritime union.
A recent U.S. International Trade Commission study concluded that abolishing the Jones Act would save consumers as much as $10.5 billion as a result of lower shipping costs, while U.S. maritime operators would lose only $630 million in profits. Thus, the Jones Act could be costing consumers $17 for every $1 of domestic shippers’ profits. Federal Maritime Commissioner Rob Quartel, who is championing the repeal of the Jones Act, estimates that the total savings from repeal could actually be $20 billion or more, as the ITC estimate did not include the costs of shipping restrictions on Great Lakes trade, forgone tax revenue, indirect effects on smaller industries, etc.
The Jones Act, by making water-borne transport far more expensive that it otherwise would be, partially nullifies the benefits of the Panama Canal for transporting goods from coast to coast. This makes it more difficult for Pennsylvania steel producers to compete against Japanese steel in California, or for West Coast lumber to compete with Canadian products in the eastern U.S. The ITC estimated that Jones Act restrictions destroyed over 2,000 jobs in agriculture, forestry, mining, and other industries.
Sean Connaughton of the American Petroleum Institute notes, “We are seeing more and more oil imports in the Northeast, and imports have driven out a lot of the previous coastwise oil trade from the Gulf Coast. The Jones Act is a very significant factor in this.” U.S. oil shippers cannot compete with foreign tankers with far lower operating costs. According to the General Accounting Office, the Jones Act restrictions on oil shipping helped cause a serious shortage of heating fuels on the East Coast during a severe cold snap in December 1989.
Americans also have minimal opportunities to travel domestically on passenger ships, largely because of the Passenger Services Act of 1886, a Jones Act equivalent for the passenger cruise industry. In a free market, foreign cruise ships would offer pleasure trips from New York to Baltimore, Savannah, and Miami, and from San Diego to San Francisco. But cruise ships are prohibitively expensive because of federal buy-American and crew-American mandates. Seattle is especially victimized, as each year, hundreds of thousands of tourists fly to Seattle for cruises to Alaska — but then cross over to Vancouver, Canada, in order to catch the cruise ships. Mark Sullivan of the Port of Seattle estimates that the restrictions cost Seattle a minimum of $30 million a year in lost tourist business.
Shipping protectionism has been extended to dozens of types of boats over the years, including Hovercraft, sewer sludge carriers, and dredging ships. The Customs Service has even banned whitewater tour companies from using foreign-made inflatable rubber rafts on American rivers.
The Jones Act is often defended as providing a reserve fleet for military emergencies. But Commissioner Quartel notes that of the 400 ships used in Desert Shield by the Military Sealift Command, only one ship subsidized by the Jones Act was used. (Jones Act ships tend to be too old or of the wrong type to aid a war effort).
The Jones Act is supposed to stimulate U.S. shipbuilding. But, as New York shipping consultant Michael McCarthy observes, “There is only one commercial ship being built in the United States today — a fairly small container ship, at about twice the price of what it would cost to build abroad.” Thomas Crowley, chairman of Crowley Maritime Corp., believes that the performance of American shipyards has been ruined largely by their reliance on government contracts: “Any shipyard that does Navy work isn’t worth a damn for commercial work.”
Though the Bush administration is demanding that foreign governments end their shipbuilding subsidies, it refuses to recognize the implicit subsidy the Jones Act provides to U.S. shipyards. Deputy U.S. Trade Representative Linn Williams declared last February that the act does not amount to a “hill of beans in terms of subsidies” and is a “commercially meaningless program” because so few commercial ships have been built in the U.S. in recent years. But, as the American Petroleum Institute’s Mr. Connaughton observes, “That’s kind of like saying that because we have destroyed an industry, let’s make sure it never arises again.”
The Jones Act engenders a chain reaction of extortion — allowing American shipyards to charge stratospheric prices to American ship buyers, allowing American-flag ships to charge shakedown shipping rates to American businesses, and allowing American congressmen to demand lavish campaign contributions from the American maritime industry (more than $1 million a year).
U.S. maritime lobbies have been so generous that three of the past five chairmen of the House Merchant Marine Subcommittee have been indicted for criminal links to the maritime industry, as Congressional Quarterly reported. (A fourth chairman was indicted for other reasons.) Former Rep. Thomas Ashley declared that the House Merchant Marine Committee “sucks from the taxpayer; it sucks from anything that isn’t nailed down.”
While the Jones Act fleet is relatively small and old, there are 300 U.S.-owned ships flying foreign flags. If Congress actually wanted a large U.S.-flag fleet, it could easily create one almost overnight by abolishing the build-American and crew-American requirements on U.S. owners of foreign-flagged vessels who might otherwise choose to fly the Stars and Stripes. But Congress is more interested in
perpetuating maritime campaign contributions — and those contributions can be garnered only by federal policies that continue sabotaging U.S. maritime competitiveness.
Bovard is the author of The Fair Trade Fraud (St. Martin’s Press, 1991).