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End Jones Act Protectionism?

"Only two things are infinite, the universe and human stupidity, and I'm not sure about the former." - Albert Einstein

Published Apr 8, 2013 10:16 AM by Tony Munoz

Recently, I was stupefied by a couple of editorials in U.S. maritime publications calling for the dismantling of the Jones Act. In “The Economics (sic) Justification for the Jones Act Is Still Not Proven,” Martin Rushmere criticizes the American Maritime Partnership’s assumption that the recent GAO report on Puerto Rico was supportive of U.S. cabotage laws. In fact, he says any conclusion that there are pro-Jones Act sentiments in the report is simply “wishy-washy.”

He also interjects that Einstein was hardly needed to deduce that the only reason rates dropped by 17% from 2006 to 2010 was the Great Recession. And in a final effort to provide a summation to his analysis, the writer points out that the GAO report is a complete failure because it did not provide any rate comparisons with foreign carriers calling the island.

Economic Considerations

Let’s get the facts straight. First, the GAO was providing an analysis of whether the Jones Act was adversely impacting the Puerto Rican economy. If the writer did his homework, he would have discovered that Puerto Rico has no natural resources. In 2010 the U.S. exported $11.4 billion in raw materials to the island and Puerto Rico exported $29.9 billion in finished products back to the United States. Jones Act companies transported about $41.3 billion worth of goods in the Puerto Rican trade at an estimated cost of $767 million, which is about 1.86% of the value.

Puerto Rico’s per-capita income is about $16,300, the highest in the Caribbean and 73rd in the world. While Puerto Ricans pay no federal income tax, they are covered by the U.S. Federal Fair Labor Standards Act, which guarantees the federal minimum wage of $7.25. But they do pay into Medicare and Social Security, which affords its citizens old-age benefits.

In the second editorial, “Don’t Limit Jones Act Reform,” Captain Max Hardberger calls the Jones Act an onerous and outdated mode of transport while criticizing the president of the Hawaiian Shippers’ Council for his self-serving statements concerning Hawaii’s proposed exemption from U.S. cabotage laws. Hardberger says ending restrictions on foreign-flag carriers to operate along all U.S. coasts would be a bigger benefit to the economy than exempting just Hawaii and Alaska. He also claims arguments by interest groups seeking to preserve the Jones Act are counterproductive and irrelevant in this age of interdependence. And he “wishes” the U.S. would strip down the artificial barriers of protectionism to free trade and eliminate the outdated Jones Act.

National Security Considerations

As the Korean Peninsula continues to become a tinderbox and China and Russia spend billions of dollars building their military capability, providing open-access U.S. coastlines and inland waterways is not a good idea. Hardberger would have us believe that foreign shipping companies are as patriotic as American companies.

The Jones Act transports about 25% of the nation’s cargoes at only 1% of the national freight bill. Furthermore, U.S. cabotage laws not only create $100 billion in economic output but also sustain around 500,000 jobs, which generate roughly $29 billion in total compensation. U.S. operators have privately invested more than $34 billion building 40,000 vessels in the nation’s shipyards.

Hardberger and Rushmere are way off base in their disregard for the importance of the Jones Act in terms of national security. Must “free trade” mean total access by foreign carriers to America’s coastlines and inland arteries? Yes, Grandma will pay an extra dollar for the iron at Walmart because freedom is not free and the world is a dangerous place. And these two laissez-faire proponents should do a little more research on world affairs and understand that what America needs now are jobs because the Great Recession is not over. And the biggest threat the U.S. faces is in Asia Pacific, which is someplace close to Hawaii and Alaska. – MarEx

Tony Munoz is the Editor-in-Chief of the Maritime Executive Magazine & MarEx eNewsletter.He has 30 years of experience in the maritime industry, which includes working for West Coast steamship lines and PR consulting for some of the industry's largest companies. He can be reached at [email protected].

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.