The Jones Act: Has that ship sailed?

After a devastating hurricane season in the Caribbean, damage to the U.S. island territory of Puerto Rico has once again triggered the debate around the Jones Act. Officially named the Merchant Marine Act of 1920, the Jones Act was created in an effort to rebuild the American merchant shipping fleet after the first world war. The protectionist law requires cargo being moved between U.S. ports to be transported by U.S.-built, U.S.-owned, and U.S.-flagged vessels manned by a primarily American crew. The perennial Jones Act debate has resurfaced as Puerto Rico struggles to receive and distribute disaster relief aid.

Background

At the time of its implementation nearly a century ago, American newspapers referred to the Jones Act as an ‘America First’ law, a concept revived by the incumbent President Donald J. Trump. In addition to addressing the vessels’ origin, the law has been modified to regulate the rights of crew members, set vessel maintenance and safety standards, and requires ships to meet certain Environmental Protection Agency (EPA) regulations.

Today, however, the U.S. merchant fleet is tiny. According to the U.S. Maritime Administration (Marad), as of September 2017 there were 181 U.S.-flagged merchant ships in total, 99 of which were Jones Act eligible. U.S.-flagged ships make up less than one per cent of the world’s 41,000-vessel registered merchant fleet. On average, over 8,000 foreign-flagged ships visit U.S. ports around 51,000 times annually.

The Department of Homeland Security, under the direction of the Trump administration, waived the act three times in September following the passage of hurricanes Harvey, Irma, and Maria. Hurricane Harvey led to a temporary fuel shortage in the U.S. as the storm limited the ability of Jones Act-compliant ships to transport petroleum goods from Texas to east coast ports. Hurricane Irma also caused extensive damage to the southern state of Florida. On 27 September, six days after Hurricane Maria devastated Puerto Rico, the Trump administration waived the act allowing foreign ships to deliver aid to the island. The waiver expired on 7 October and has not been extended by the Department of Homeland Security.

U.S.-flagged ships make up less than one per cent of the world’s 41,000-vessel registered merchant fleet.

The Jones Act has come under attack from both Trump’s Republicans and their Democrat opponents for decades. Economists refer to the law as having ‘concentrated benefits’ but ‘diffuse costs’ – the law’s benefits are concentrated, in this case limited to the shipping industry, and the cost is diffused amongst the public who pay more for consumer goods transported on Jones Act ships. This had led some Republicans and Democrats to find themselves on the same side of the argument to repeal the act. Many free-market Republicans believe the law prohibits competition while many Democrats believe that consumers, particularly those living on island territories, are forced to bear the cost, benefiting a U.S. shipping industry that is no longer large enough to merit such special treatment.

While the U.S. Virgin Islands territory is exempt from the Jones Act and the territory of Guam is partially exempt, the territory of Puerto Rico as well as the non-contiguous U.S. states of Alaska and Hawaii are subject to the act. This is troublesome for the islands of Hawaii, Guam, and Puerto Rico as they are heavily dependent on shipping to import almost all goods, from vehicles to food.

Defenders

The Jones Act props up the domestic shipping industry, and proponents of the law, such as shipping firms and shipbuilding companies, fear that ending the act would decimate the shipbuilding industry. In the days following Hurricane Maria, lobbyists for the shipping industry claimed that waiving the act would overburden Puerto Rico’s infrastructure and create a backlog at the territory’s ports. According to the Maritime Labor Alliance, a U.S.-based labour organisation representing maritime workers, there was no shortage of Jones Act eligible ships available to serve Puerto Rico after the storm, but rather, damaged infrastructure on the island was preventing goods from being unloaded. These arguments explain why President Trump was slow to waive the act this year; he mentioned the powerful shipping lobby in his announcement of the waiver.

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