The Jones Act Costs All Americans Too Much

(Bloomberg View) -- Puerto Rico’s post-hurricane plight has drawn attention to the Jones Act, the 1920 law that compels all maritime commerce between U.S. ports to be carried on ships built, owned and crewed by Americans. The law is adding to the island's problems, and should be set aside for that reason alone -- but the Jones Act was, or should have been, a scandal well before the hurricane hit.

What Americans ought to ask is not whether the law should be waived in the long term for Puerto Rico to speed its recovery, but whether its costs are something the country as a whole should tolerate under any circumstances.

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The Jones Act Serves No Purpose

To be sure, the island's needs are most pressing. Jones Act-compliant ships cost more to build and sail than their foreign-flagged counterparts, so Puerto Ricans have to pay more for everything from oil and machinery to food, medicine and clothing. (Adding insult to injury, Jones Act shipping lines servicing the island have been found guilty of price fixing.) As a territory worse off than any U.S. state even before an epic natural disaster, Puerto Ricans deserve a break.

But so does the rest of U.S. The act hits all U.S. consumers with higher shipping bills.

QuickTake: The Jones Act

The law's advocates counter that since no foreign-flag ships have been allowed to carry coastal U.S. cargo, you can't compare costs on an apples-to-apples basis. This is true, but it ignores straightforward evidence and examples compiled by the U.S. International Trade Commission, the U.S. Government Accountability Office, the Congressional Research Service, the Federal Reserve Bank of New York, and disgruntled communities from San Juan to Honolulu. Even the U.S. Department of Transportation Maritime Administration, the act’s official defender, has reported that the operating costs of U.S. ships on international routes are nearly three times those of foreign-flag vessels.

Consider the impact on U.S. energy markets. Shipping oil from Texas to East Coast refineries on a U.S.-flag ship, for instance, costs several times more than sending it further (to Canada) on a foreign one – so those refineries get their oil from Europe. The U.S. has cheap and plentiful natural gas, but no Jones Act-qualified carriers – so Massachusetts imports LNG from Trinidad and Tobago, while U.S. gas is sent overseas on cheaper foreign-flag ships. When pipeline breaches disrupt the national gasoline supply, the small fleet of Jones Act tankers means a bigger spike at the pumps.

Maybe you care more about cutting greenhouse-gas emissions than about cheaper heating oil and gasoline. If so, here’s some bad news. Coastal shipping is more carbon-efficient than trucks and trains -- but the tonnage it carries has steadily declined, leading to dirtier air and more congested roads. Want to build a wind turbine farm off the coast? Good luck finding specialized Jones Act-qualified ships to help you install and operate it. (Once a drill touches the continental shelf, the act applies.)

And this is to say nothing of all the other economic distortions the act creates in tourism, agricultural trade and construction. The U.S. International Trade Commission once labeled the act the country's second costliest form of protectionism. Recent research estimates nearly $2 billion worth of savings in shipping costs if the law were repealed.

Congress is thinking about giving Puerto Rico a new five-year exemption from the law. That's the least it should do. Then it should go on to consider a permanent exemption for the whole country.

--Editors: James Gibney, Clive Crook

For more columns from Bloomberg View, visit http://www.bloomberg.com/view.

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