Is the Jones Act nearing its expiration date?

The US and UK have both seen swings towards political
populism in the past couple of years, leading to some surprising election results
on both sides of the pond. In both countries, populist political rhetoric has
seemed to be increasingly in favour of economic protectionism, particularly in
terms of trade, although little action has been taken so far.

Of course, the US already has its flagship protectionist
policy – the Jones Act – which has been in effect since 1920. Under the
statute, only vessels that have been built, flagged and crewed in the US can operate
in cabotage trades, through bareboat charter agreements only.

Following Hurricane Irma, the Trump administration permitted
foreign-owned tankers to deliver fuel to Florida ports by issuing a Jones Act
waiver. After some wrangling, the administration issued another Jones Act
waiver to allow vessels to bring aid to Puerto Rican ports last month as part
of the hurricane relief effort.

Mr Trump has said any further
waivers will be difficult to issue because of the influence in Congress of
lobbyists from shipowners and seafarer unions. At the same time, deregulation
is a hallmark of Trump’s agenda. Given the events of the past month, it would
seem logical that the Jones Act might be one of the regulations up for repeal,
but so far the Trump administration has stood firm.

Senators John McCain and Mike
Lee have introduced a bill to make the Jones Act waiver permanent for Puerto
Rico. If passed, the country would be added to the list of exempted countries alongside
the US Virgin Islands, which were excluded from the Act in a 1936 amendment.

If McCain’s bill passes, it’s
possible that Alaska and Hawaii will demand similar waivers, which if effected would
mean the Jones Act trade, by and large, would cease to exist. However,
McCain’s earlier attempts to repeal the Act have all failed.

One argument – from shippers – to axe the Act is cost. It is
cheaper for Hawaiian cattle ranchers to fly their animals to mainland America
than transport them by sea on Jones Act vessels. A 2012 New York Fed study
found it costs twice as much to ship a container from the US East Coast to
Puerto Rico than to nearby Haiti. These findings were echoed in a recent report
by the Government Development Bank for Puerto Rico.

Defenders of the Jones Act, most notably the US military and
America’s maritime industry, argue that the Act provides jobs for Americans and
allows the country to expand its naval fleet during war time.

If the Act were to be axed, US labour laws would cease to
apply to foreign competitors that start serving those routes, putting US
companies at a cost disadvantage and forcing them to adapt. On the other hand, as
crew sizes shrink and as the era of autonomous shipping approaches, perhaps
labour concerns will take a back seat as time goes on.

Just 2.0% of America’s domestic freight is carried by sea,
compared to 40% of Europe’s. Meanwhile, the number of private-sector Jones-Act
ships has fallen from 193 to 91 between 2000 and 2016. The American fleet
accounted for 17% of the global total in 1960, compared to just 0.4% today. Britain
axed its Jones-Act equivalent in 1849. The UK fleet today has over three times
the tonnage of America’s.

Countries like China and Australia have already made their
cabotage laws less stringent in recent years. It remains to be seen whether the
US will follow suit, but the events of the past month have posed new questions
for the Jones Act, which could be another thing that did not make it through
hurricane season 2017.

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