The Jones Act: It Is Time for Reform

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INTRODUCTION

The Jones Act of 1920 set aside domestic trade for US-built, US-flagged and U.S. crewed ships. The primary purpose of the Jones Act was to ensure the United States would have an adequate merchant marine fleet available during national emergencies. Over the past 77 years there have been many significant changes affecting U.S. defense sealift needs and capabilities.

Today, there is serious debate in Washington as well as several state capitals regarding the current benefits and costs of the Jones Act. The two primary debate topics focus on the increased costs of goods in Hawaii, Alaska, Guam and Puerto Rico and the current national defense benefits of the Jones Act. The purpose of this paper is to examine these two primary issues to determine if it is time to reform or eliminate the Jones Act. To address this central question the paper reviews the background of the Jones Act, then analyses the impact the Jones Act has had on military sealift capability and finally examines the economic effects of the Jones Act.

HISTORICAL BACKGROUND

According to Wood and Johnson (1996) cabotage is a set of laws which restrict commerce between a nation's port to carriers of that nation. It is one of the primary ways in which a nation can protect domestic transportation industries.

Cabotage was officially established in the United States under the Jones Act of the Merchant Marine Act of 1920. Its beginning, however, can be traced back to the eighteenth century.

In the late 1700's, the government of the United States began protecting US coastal trade indirectly. Acts passed in 1789 and 1790 levied discriminatory duties and port tonnage taxes on foreign-built ships engaged in U.S. coastal trades. In 1817, these acts were replaced by legislation that preserved US coastal shipping for domestically-flagged ships only. As new trade routes were developed to U.S. possessions and territories such as Puerto Rico, Hawaii, Alaska, and the Philippines, they were included under this rule. During World War II, U.S. cabotage restrictions were temporarily lifted as the merchant marine became fully engaged in wartime missions.

The major piece of legislation that formally stated the U.S. position on coastal trade protection was the Jones Act of the Merchant Marine Act of 1920. It stated in part:

That no merchandise shall be transported by water, or by land and water on penalty of forfeiture thereof, between points in the United States, included Districts, Territories, and possessions thereof embraced within the coastwise laws, either directly or via a foreign port, or for any part of the transportation, in any other vessel than a vessel built in and documented under the laws of the United States (Whitehurst, 1985).

Over the years, there have been some exceptions to the Jones Act. The Philippines and the Virgin Islands were both given exemptions. This became irrelevant for the Philippines when they gained independence in 1946. However, the Virgin Islands exemption still stands today. The original exemptions allowed goods to be transported by foreign-flagged ships if that was necessary to ensure adequate shipping service. In 1936, an amendment to the Jones Act was passed which granted the U.S. Virgin Islands complete exemption from U.S. cabotage laws unless decided otherwise by the President of the United States.

Section 27 of the Jones Act provides for other exemptions. The primary one is that, "vessels of foreign registry may transport between US ports empty cargo vans, shipping tanks, or barges designed for carriage aboard ship and associated equipment used in the vessel's foreign trade" (Whitehurst, 1985). Section 27 also provides for the transfer of goods from one non-self-propelled barge to another, in the contiguous states. In addition, ships built with construction differential subsidies are not allowed to compete in the coastal trades. Occasionally, waivers have been granted when no Jones Act ship was available. …