A Ports Policy Barnacled with Bad Law

The United States is currently engaged in a number of far-reaching trade talks. However these agreements end up, Americans at least can rest assured that their economic interests are well represented … at least by the foreign negotiators.

To be sure, the U.S. negotiators in the Transatlantic Trade and Investment Partnership, the Trans-Pacific Partnership and the Trade in Services Agreement want to open overseas markets for American companies. That’s certainly a worthy objective for these businesses and their workers. But it is the foreign negotiators—seeking to reduce U.S. trade barriers to their own exporters’ goods—who would deliver the most benefits for Americans. These include lower intermediate-goods costs for U.S. companies, lower prices of final goods for U.S. consumers, and more competition-inspired innovation.

For example: European Union trade negotiators in the trans-Atlantic talks want to open the U.S. market to European “dredgers,” companies that provide maritime excavation and engineering services. It’s an industry most of us don’t think about, yet it’s surprisingly important. Many American ports desperately need to be modernized if the U.S. is to compete successfully in the global economy. But arcane laws protecting domestic dredgers from competition are holding the country back.

The 10-year project to widen the Panama Canal for more traffic and a new class of supersize container vessels called “Post-Panamax” ships, with cargo capacity 2½ times greater than the current standard Panamax ships, is nearly complete. According to the American Society of Civil Engineers, these vessels can lower shipping costs from 15%-20%, but harbors need to be at least 47 feet deep to accommodate them. The U.S. Army Corps of Engineers reports that only seven of the 44 major U.S. Gulf Coast and Atlantic ports are “Post-Panamax ready.”

Many American ports desperately need to be modernized if the U.S. is to compete successfully in the global economy.

The absence of suitable harbors, especially in the fast-growing Southeast, means fewer infrastructure- and business-development projects to undergird regional growth. It also means that Post-Panamax ships will have to continue calling on West Coast ports, where their containers will be put on trucks and railcars to get products from Asia to the U.S. East and Midwest—a slower and more expensive process.

Dredging projects have begun in Philadelphia, Charleston and Miami, and some projects have been approved at other ports. But authorities at some ports, including Jacksonville, Fla., and Mobile, Ala., have complained about being unable to get U.S. dredgers to even bid on projects, as these companies are operating at full capacity.

This capacity shortage is the result of the Foreign Dredge Act of 1906 and the Merchant Marine Act of 1920 (aka the Jones Act). These laws prohibit foreign-built, -chartered, or -operated dredgers from competing in the U.S. The result is a domestic dredging industry that is immune to competition, has little incentive to invest in new equipment, and cannot meet the growing demand for dredging projects at U.S. ports.

For the next few years, federal, state and local government spending on dredging is expected to be about $2 billion annually. That spending will be supplemented by investments from U.S. ports and their private terminal partners to the tune of $9 billion a year to build and upgrade harbors, docks, terminals, connecting roads and rail, and storage facilities, as well as to purchase cranes and other equipment. There would be a lot more of these job-creating investments if European dredging companies were allowed to offer their services.

The trans-Atlantic trade talks offer a great opportunity to fix this problem. The best dredging companies in the world are European, mainly from the low-lying countries of Belgium and the Netherlands, where mastery of marine engineering projects has been developed over the centuries.

Industry analysts at Samuels International Associates estimate that European dredgers could save U.S. taxpayers $1 billion a year on current projects, and enable more projects to be completed more quickly. The European Dredging Association boasts that its member companies win 90% of the world’s projects that are open to foreign competition.

In a global economy where capital is mobile, workforce skills, the cost of regulation, taxes, energy costs, proximity to suppliers and customers and dozens of other criteria factor into where a company will invest. And for companies with transnational supply chains, transportation costs are crucial considerations.

Today the U.S. is falling behind. Here’s hoping the European negotiators will help this country catch up.

Daniel J. Ikenson is director of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.