In Defense of the Jones Act for Puerto Rico

The American Maritime Partnership (AMP) has released a statement regarding Rep. Gary Palmer’s (R-AL) proposed measure to exempt Puerto Rico from the Jones Act – which requires waterborne cargo between two points in the United States to be transported on vessels that are American built, owned and crewed.  

The Palmer amendment to H.R. 5278, the Puerto Rico Oversight Management and Economic Stability Act (PROMESA), if adopted, would allow foreign vessels to replace American ships and crews in the operation between the island and U.S. Mainland.

In doing so, says AMP, it would undercut both American ship builders and operators that support the trade, and the ability for the United States to have the shipbuilding and transport capacity during times of war. The amendment also would expose American waterways and ports to foreign vessels traveling from Puerto Rico, where previously they were barred.

"The Jones Act is not a cause for the island's financial woes. While other industries have fled the island, the domestic maritime industry has made significant capital investments to service the economy and support thousands of family-wage jobs for Puerto Ricans,” said Tom Allegretti, AMP Chairman. 

“Weakening the Jones Act would harm, not help, the Puerto Rican people and the Commonwealth's economy. In fact, a vote against the Jones Act is a vote to outsource American jobs, undermine national security and degrade homeland security.”

Allegretti says Palmer’s sponsorship of the amendment is surprising given that Jones Act shipping and shipbuilding is a major industry in Alabama, a “top ten” shipyard state, with 12,800 jobs, according to a study by the U.S. Maritime Administration. Shipbuilding provides $953 million in economic impact in Alabama each year with shipyard jobs paying well above national average wages.

Rep. Duncan Hunter, Chairman of the House Coast Guard and Maritime Transportation Subcommittee, recently stressed the importance of the Jones Act and its vital role in protecting the security of U.S. borders in the Washington Times, asserting:

“It’s imperative not to conflate the unrelated issues of Puerto Rico’s debt and the Jones Act, and to fully grasp the importance of ensuring the safe transport of goods between American ports. There must also be acknowledgment of the dire consequences of exposing ports and waterways to foreign seafarers.”

AMP seeks to set the record straight on false claims put forth by Jones Act opponents who have sought to leverage the current debt crisis to advance their self-interest:

CLAIM: The Jones Act does not contribute to national security.

RESPONSE: The Department of Defense (DOD), Navy, and Coast Guard are among the strongest supporters of the Jones Act because the military relies on the commercial maritime industry for its sealift capacity.  Within the last year, senior military leaders, including the Commandant of the Coast Guard, have emphasized the critical need for the Jones Act for national security.  

Also, in a preeminent study of the Jones Act in Puerto Rico, the independent U.S. Government Accountability Office (GAO) discussed the harm to national security if the Jones Act was changed there. Finally, DOD itself has estimated that it would incur annual costs of tens of billions a year if it were forced to replicate the benefits of the commercial maritime industry.

CLAIM:  Changing the Jones Act in Puerto Rico will help the island, especially considering its current economic crisis.

RESPONSE: Changes to the Jones Act in Puerto Rico would undermine national security, reduce border protection, and outsource American jobs. The GAO study on the Jones Act in Puerto Rico listed a number of potential harms to Puerto Rico itself if the Jones Act were changed, including the possible loss of the stable service the island currently enjoys under the Jones Act and the loss of jobs on the island. 

Moreover, American domestic carriers are making some of the largest private sector investments currently underway in Puerto Rico, spending nearly $1 billion in new vessels, equipment, and infrastructure. They employ hundreds of Puerto Rican American citizens on the island, on the mainland, and on vessels serving the market, providing highly reliable, low-cost maritime and logistics services. These private sector jobs and reliable services are important to the long-term recovery of the Puerto Rican economy and would be jeopardized by changes to the Jones Act.

As recent as a week ago at the 2016 Navy League Sea-Air-Space Exposition, U.S. Maritime Administrator was clear that attacks claiming that the Jones Act punishes the residents of Puerto Rico are “unfounded” and that “there is no supporting information and every time the government has taken a look at it they have found it to be the contrary of that.” 

CLAIM:  The Jones Act increases the cost of goods in Puerto Rico.

RESPONSE: Over the last decade, a parade of politicians and “experts” has attempted to estimate the so-called “cost” of the Jones Act in Puerto Rico. Because the estimates have been wildly contradictory, in 2012, Puerto Rico Delegate Pierluisi asked the GAO to determine the true “cost.” The GAO studied the issue for more than a year and debunked the previous estimates. 

First, the GAO said there are far too many factors that impact the price of a consumer good to determine the supposed cost related to shipping, much less the Jones Act. Second, the GAO said, one could not truly estimate the cost unless one knew which American laws would be applied to foreign ships if they were allowed to enter the domestic trades, which would certainly increase the cost of shipping on foreign vessels.
 
CLAIM: Changing the Jones Act in Puerto Rico is a narrow fix that does not impact the rest of the country.

RESPONSE: Not true. Changes to the Jones Act in Puerto Rico would undermine hundreds of millions of dollars of recent investments in modern, state-of-the-art American vessels operating between the U.S. mainland and Puerto Rico. 

More broadly, altering the fundamental regulatory structure in Puerto Rico — literally changing the rules in the middle of the game after massive investments were made in new vessels for that trade — would undermine future investment in every segment of the Jones Act industry nationwide. Even the GAO discussed the potential ripple effects of a Jones Act change in Puerto Rico throughout other American regions. Changing the Jones Act for Puerto Rico would not affect only Puerto Rico; instead, the implications would quickly affect the entire domestic maritime industry.

CLAIM: The Krueger report from Puerto Rico said, “Import costs [are] at least twice as high [in Puerto Rico] as in neighboring islands on account of the Jones Act.”

RESPONSE: There is no study that supports this statement in any way, and the Krueger report cited none. In fact, anecdotal evidence about rates indicates that the opposite is true. For example, one analysis shows it is 40 percent more expensive to ship goods from the U.S. mainland on foreign vessels to the U.S. Virgin Islands (not subject to the Jones Act) than on Jones Act vessels to Puerto Rico.

CLAIM: The U.S. Virgin Islands are not subject to the Jones Act, so why should the Jones Act apply to Puerto Rico?

RESPONSE: The two areas are treated very differently under U.S. law.  Since 1917, Puerto Rico has operated under a legal structure that generally makes U.S. federal law automatically applicable in Puerto Rico, just as it would be in any American state. That is not true in the Virgin Islands. Also, importantly, the U.S. Virgin Islands are outside the U.S. customs territory while Puerto Rico and the United States are inside the U.S. customs territory.  Historically, the Jones Act has applied to U.S. territories inside the U.S. customs territory and not applied to those outside of it.

CLAIM: The Jones Act has undermined Puerto Rico’s efforts to import LNG.

RESPONSE: Flatly false. American carriers pioneered the use of LNG in Puerto Rican markets, deploying the world’s first LNG-powered containerships and developing small-scale LNG supply and logistics services to help manufacturing and other industrial facilities on the island reduce the cost and improve the reliability of their energy supply. Puerto Rico’s real impediment is limited mainland U.S. export facilities and import facilities on the island, infrastructure to utilize LNG on the island, and demand for bulk LNG. 

Qualified American vessels are fully prepared to provide bulk LNG transportation services to the island. They could begin service promptly using any of the dozens of LNG vessels already authorized to operate in the trade. Or they could design and build new LNG vessels in full compliance with American safety and regulatory standards, including the Jones Act. Blaming the lack of LNG on the Jones Act is a red herring.

CLAIM: All cargo shipped in or out of Puerto Rico must be transported on Jones Act vessels.

RESPONSE: This is a common misconception. Cargo from anywhere in the world can be imported into or exported directly from Puerto Rico. In fact, nearly two-thirds of the vessels calling on Puerto Rico are foreign.