May 10, 2018 3:51PM

America’s Finest: The Critics Respond

In a recent opinion piece for the Wall Street Journal I highlighted the plight of America’s Finest, a fishing vessel that, unless it is granted a waiver, will be prohibited from operating in U.S. waters due to its violation of the Jones Act. Although built in Washington state, the ship used steel, amounting to approximately 10 percent of the ship’s weight, that was cut and bent in the Netherlands. Coast Guard rules related to the Jones Act limit the amount of such foreign‐​modified steel to 1.5 percent (foreign‐​made raw steel, in contrast, can be used in unlimited amounts). Unsurprisingly the column has generated some notes of dissent, including a letter to the editor from Chris Philips, the managing editor of Fishermen’s News:

Regarding Colin Grabow’s “The Jones Act Drives America’s Finest Into Exile” (op‐​ed, April 30): The Jones Act is a cabotage rule similar to those enacted in most countries having a coastline, including Canada, Japan, South Korea, China, Germany and France. Mr. Grabow claims: “The shipyard says it simply wasn’t aware of the rule.” The shipyard in question has been building Jones Act vessels for more than 40 years. No one at Dakota Creek Industries, from the security guard to the president, is unaware of the rule.

Mr. Philips is correct that the Jones Act is a cabotage rule. His contention that it is similar to those of most countries, and those he lists in particular, however, is incorrect. The World Economic Forum, for example, has described the Jones Act as the “most restrictive example” of such laws and none of the countries listed by Philips feature the Jones Act’s requirement that ships engaged in cabotage trade be domestically built. Furthermore, both Germany and France as members of the European Union allow ships from other EU members to engage in cabotage. As for the claim by the shipyard which built the America’s Finest that it was “wasn’t aware of the rule,” a fair reading of my column makes plain that this was in reference not to the Jones Act, but rather its specific restriction that foreign‐​modified steel was limited to 1.5 percent of the ship’s weight. Indeed, I cited that 1.5 percent figure in the sentence preceding the claim about a lack of awareness. Philips then continues:

Mr. Grabow says the price of new vessels encourages the use of older ships. This is a no‐​brainer and a non sequitur. The same market forces apply to any depreciable asset world‐​wide. He also makes the oft‐​repeated claim that the Jones Act “made it difficult to ship emergency aid to Puerto Rico.” This is simply false.

Such comments reflect a failure to engage with the substance of what I wrote. By prohibiting access to foreign‐​built ships—or in this case, domestically‐​built ships which use too much foreign‐​worked steel—the Jones Act artificially drives up the cost of newer vessels. This, in turn, forces mariners to work on ships that are less safe and efficient than newer vessels. Indeed, the company which ordered America’s Finest was motivated in part by a desire for greater efficiency and to provide its employees with safety improvements. This is by no means a non sequitur, and gets to the core of the burden imposed by the Jones Act. Regarding aid to Puerto Rico, meanwhile, I stand by my words. Greenpeace, for example, says that it would have been easily able to transport donated supplies on a foreign‐​registered vessel to Puerto Rico absent the Jones Act, but instead the matter was “quite complicated.” Economist Thomas Grennes further notes that a “Norwegian‐​flag ship that was docked in New Orleans offered to take supplies to Puerto Rico, but the waiver expired before it could complete its voyage.” Philips concludes:

The Jones Act exists to protect our nation’s shipbuilding industry, which is critical to the security of this country. Those of us in the maritime and military fields understand this very well.

If this is so then the Jones Act, as typical of protectionist schemes, is a failure. In 2015 the U.S. Maritime Administration (MARAD) listed the number of active shipyards in the United States at 124 of which only 22 are “mid‐​sized to large shipyards capable of building naval ships and submarines, oceangoing cargo ships, drilling rigs and high‐​value, high‐​complexity mid‐​sized vessels.” In comparison, Japan currently has over 1,000 shipyards and it is estimated that China has over 2,000. Europe has roughly 60 shipyards capable of producing ships at least 150 meters in length. Measured in terms of output the picture is equally dismal, with the shipbuilding sector hugely dependent on government contracts. As MARAD itself notes, 10 out of 12 large deep‐​draft vessels delivered in 2014 were to U.S. government agencies and “98 out of the 150 new vessels ordered from U.S. private shipbuilders [that year] were for the U.S. military.” This lack of competitiveness and dependence on government is also evidenced by the fact that from 2006–2016 U.S. shipyards produced an average of merely 4.1 tankers and cargo ships per year. This is the opposite of a thriving sector. Such statistics are the tip of the iceberg in documenting the Jones Act’s myriad shortcomings, both in terms of ensuring a healthy shipbuilding sector and bolstering the country’s national security.