The Protectionist "Shakedown" of Puerto Rico

san juan

By Tony Munoz 2017-10-02 20:04:43

The recent op-ed in The New York Times by former New York State Assemblyman Nelson A. Denis, titled “The Jones Act: The Law Strangling Puerto Rico,” is filled with a number of inaccuracies and misleading statements. It seems that fake accusations are acceptable to even the opinion page editors of this highly respected newspaper.

First, Denis accuses the Jones Act of encumbering Puerto Rico with punitive tariffs, fees and taxes on imported foreign cargoes, which are passed along to the Puerto Rican consumer. But that’s called “foreign trade,” and any foreign ship delivering cargoes to any country in the world will also pay these pass-along costs.

Then Denis says that foreign ships have another option for Puerto Rican cargoes: They can take the freight destined for Puerto Rico to Jacksonville, Florida where it is then transshipped on U.S.-flagged vessels to the island, and those costs are also passed along to Puerto Rican consumers. The fact is that if a foreign ship operator doesn’t call Puerto Rico and the freight is ultimately destined for the island, then it must be transshipped. This is not a Jones Act issue. It is a global trade issue and a fact of life in the shipping industry.

Denis then launches into an economic tirade about the cost of living in Puerto Rico being 13 percent higher than in 325 urban areas of the U.S. Furthermore, he complains that the per-capita income of the island is $18,000, or half that of the lowest state in the U.S., which is Mississippi. Again, he blames the Jones Act for Puerto Rico’s economic woes.

The truth of the matter is that Puerto Rico’s per-capita income is the highest in the Caribbean basin and the 84th largest in the world. While its citizens do not pay federal income taxes, they are covered by the Fair Labor Standards Act, which guarantees a minimum wage of $7.25 per hour. And they do pay into Medicare and Social Security, which affords Puerto Ricans old-age benefits.

Puerto Rico’s economic woes began long before it was devastated by Hurricane Maria. In 1996, President Clinton signed a law to phase out Section 936 of the tax code over ten years. Section 936 allowed corporations to avoid federal taxes on profits made in U.S. territories. Since the tax break ended, there have been plant closures, job losses and a dwindling population due to out-migration to the U.S., all of which have left Puerto Rico nearly $70 billion in debt. But Denis puts all of the island’s woes on the Jones Act.

Sometimes There Are Not Enough Rocks

Denis indefensibly attacks the Jones Act, calling it “a mob protection racket, with Puerto Rico a captive market.” He says that the island is the fifth largest market for American goods and is being exploited. That’s one way to look at it, but since Puerto Rico has no natural resources of its own, raw materials must be imported by American companies and finished goods exported back to the U.S.

The Jones Act does not preclude Puerto Rican companies from trading with other nations. In fact, the majority of petroleum products used by the island are foreign-produced and transported on foreign ships. There are other U.S. trade agreements that Puerto Rico could operate under, including becoming a shipping hub between the Caribbean and South America and the rest of the world, which Denis claims the Jones Act suppresses.

He further cites a 2012 report by two university economists that found the Jones Act actually caused a $17 billion loss to the island’s economy from 1990 to 2010. He adds that If the Jones Act did not exist, then neither would the public debt of Puerto Rico.

This is an unreasonable argument because there are so many other factors involved. As a U.S. territory, Puerto Rico gets more than $20 billion a year in federal aid. And its Jones Act trade creates the majority of its annual GDP of $100 billion. In a recent Census Bureau report, Jones Act companies transported about $42.3 billion worth of goods in the Puerto Rican trade at an estimated transportation cost of $767 million, which is less than two percent of the value.

The Reality

The hurricane damage to Puerto Rico is estimated to be around $30 billion. Meanwhile, 50 percent of the homeowners on the island do not have wind coverage, according to the insurance industry. Only one percent has flood coverage, says FEMA. This means that Puerto Rico's private and public funds will not be enough to cover the cost of rebuilding.

The U.S. Congress has already appropriated $15 billion for Hurricanes Harvey, Irma and Maria, which will obviously include Puerto Rico. And Congress is expected to appropriate billions more to help rebuild the devastated areas. The U.S. Chamber of Commerce Foundation, which tracks private donations, says that  $30 million has been received already for Hurricane Maria, and Starbucks, Verizon and Google have promised another $1.7 million for Puerto Rico.

U.S. corporations like Crowley Maritime and Tote Maritime have invested hundreds of millions of dollars building modern terminals and LNG ships to service the Puerto Rican market. These companies also wisely pre-positioned containers of cargoes on the island for the aftermath of the hurricane. The Jones Act companies serving the island have been at the forefront of support and rescue from the beginning. They are a huge asset for the island.

Denis should also remember that SUNY Maritime and the U.S. Merchant Marine Academy at Kings Point are in his home state of New York. And those Jones Act mariners have been on the front lines of the recovery effort, ensuring that Puerto Ricans do not suffer needlessly or longer than necessary from the disaster that was Maria. – MarEx

Tony Munoz is the President and Editor-in-Chief of The Maritime Executive magazine. He has over 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.

 

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