February 20, 2019 10:42AM

Jones Act Lobby Hits the Panic Button

Puerto Rico’s request for a limited Jones Act waiver to permit the importation of liquefied natural gas (LNG) from the U.S. mainland has touched off what can only be described as a near panic among the law’s supporters. Members of the House Transportation and Infrastructure Committee recently dashed off a letter to the administration expressing opposition to the move. The American Maritime Partnership and other pro-Jones Act special interests are currently urging supporters of the law to send “pre-formatted” emails to Congress. And this past weekend Matthew Paxton, the president of the Shipbuilders Council of America, published an op-ed blasting Puerto Rico’s waiver application.

Alarm bells are plainly ringing, and the Jones Act lobby is willing to do—and say—whatever it takes to prevail in this pivotal battle over the law’s future. That, at least, is the main takeaway from Paxton’s recent op-ed, which is a striking display of misdirection, half-truths, and overall paucity of argument.

Paxton begins the piece by invoking President Trump’s favored catchphrases of “America first” and “buy American and hire American.” Yet the entire point of Puerto Rico’s waiver request is that the Jones Act prevents the territory from buying American. Remember the issue here: Puerto Rico’s desire to purchase cheap natural gas from the U.S. mainland for electricity generation is frustrated by a lack of Jones Act eligible ships to transport it.

That the administration may grant a waiver to address this situation, Paxton continues, demonstrates that “special interests are prevailing over national interests, as deep-pocketed supporters in the oil and gas industry – those who epitomize the very ‘swamp’ that he vowed to drain – are swaying the debate.” Yes, you read that right—the Jones Act lobby is portraying itself as the victim here.

There’s a very simple test for assessing whether a group represents a swamp-dwelling special interest: are they trying to reach into your pockets? In this case, we have the Jones Act lobby which favors federal intervention to reduce competition and force Americans to pay inflated prices for transportation services. On the other side, meanwhile, are opponents of the law who do not ask for a single dollar from the federal government and, in the case of Puerto Rico, merely seek the opportunity to purchase a U.S.-made product. Readers can decide for themselves which is more at home in the D.C. muck.

Paxton then gets into the meat of his argument:

These special interests claim there are no ships in the world authorized to carry LNG from the U.S. to Puerto Rico.  This is patently wrong.  Legislation passed in 1996 allows for LNG carriers built anywhere before that year to transport American LNG to Puerto Rico by being brought under U.S. flag.  There are more than 50 of these ships in service throughout the world today, and a number of them are not on long-term contracts.  They are not serving in the Jones Act trade because there is not yet a firm market.

The loophole to which Paxton refers is far less noteworthy than what he lets on. While there is some number of LNG carriers in the world theoretically able to take advantage of this provision (44 according to the International Gas Union and 37 per the Government Accountability Office), the law still requires these vessels to be U.S.-registered and U.S.-crewed. This has not happened, is unlikely to ever happen, and thus U.S. LNG still effectively remains off limits for Puerto Rico. 

Paxton continues:

If the President goes through with waiving the Jones Act for 10 years for the purposes of transporting LNG along our nation’s coasts and to Puerto Rico, then his will be the administration that undermines this long-standing American law and does irreparable damage to the all-American industry it supports.

Waiving the Jones Act as planned will wipe out an emerging American LNG transportation market while signaling to all that the law will not be reliably enforced under this administration. This will have a devastating ripple effect that indubitably will serve to dry up U.S. investment in shipbuilding. Our situation will resemble that of Australia, Canada, and the United Kingdom – all struggling to revive their once-robust shipbuilding industries.

As a result, the U.S. will soon be forced to outsource shipbuilding to China and Korea. This will mean the shuttering of American shipyards and the elimination of hundreds of thousands of American jobs. It also will mean an end to our ability to respond with a domestic shipbuilding capacity in times of major war.

Let’s remember the facts of the case: the waiver request is for the ability to ship U.S. LNG to Puerto Rico alone and says nothing about “transporting LNG along our nation’s coast.” Should the Trump administration grant Puerto Rico’s waiver request not a single U.S. ship will be displaced, nor a single mariner lose their job. No shipyard will lose any business as there are currently no LNG carriers on order (and given the frightening cost of building such a carrier in a U.S. shipyard, none likely for the foreseeable future).

In fact, if anything the waiver would likely bolster the U.S. maritime sector. Cheaper energy costs for Puerto Rico means more dollars in the pockets of its residents and more money to spend on imports from the U.S. mainland. Those imports, in turn, would be carried by U.S. ships crewed by U.S. mariners.

The reality is that U.S. shipbuilding has far more to fear from the status quo than any waiver that might be granted involving a type of ship which hasn’t been domestically made since 1980. Under the Jones Act’s watch the U.S. shipbuilding industry has seen approximately 300 shipyards close since 1983. In contrast, other forms of transportation not subject to Jones Act-style protectionism such as autos and airplanes see U.S. firms playing a leading role.

As for the outsourcing of U.S. shipbuilding, that ship in many ways has already sailed. The few large oceangoing ships built today typically use foreign designs and foreign components such as the engine. Even some of the shipyards themselves, such as VT Halter and the Philly Shipyard, are foreign-owned. The idea that the Jones Act is all that stands in the way of further shipyard closures, meanwhile, betrays a lack of confidence in the American worker and American ingenuity.

Regarding the wartime utility of American shipyards, there are only three major commercial shipyards in the United States (arguably four if Keppel AmFELS, currently said to be building a containership for Pasha Hawaii, is included). Of these shipyards, only one—General Dynamics NASSCO—also produces ships for the U.S. military. All of the remaining major shipyards in the United States exclusively produce naval vessels and do not compete in the Jones Act market.

Moving along:

China is already a world leader in global shipbuilding. The Chinese crave the opportunity to take over our small but vital commercial market, which they know will hasten the end of American shipbuilding. Then we will become dependent on ocean transportation from a nation the Pentagon recently labeled “certainly an adversary of the United States.”

In other words, after a century of the Jones Act making America strong, waiving it will make China even stronger while bolstering their ability to threaten our economic and national security.

This is a red herring. Puerto Rico’s application for a Jones Act waiver to import U.S. LNG has nothing to do with China, and Paxton’s invocation of the country is a naked attempt at distracting from the issue at hand. Regarding dependence on foreign countries for ocean transportation, this is nothing more than a description of the status quo with over 98 percent of U.S. foreign trade conducted using ships registered under foreign flags.

If a national security case can be made for preventing Americans from purchasing Chinese ships for use in domestic transport, then Paxton and others should do so. But the Jones Act is a blanket prohibition against the purchase of any foreign vessel used in domestic transport, including from treaty allies such as Japan, South Korea, and NATO members. Concerns about China are no reason to prevent the purchase of ships from other countries.

Because the Jones Act was instituted as a national security measure, any waiver requires a national defense emergency to be declared by the Department of Defense or the Department of Homeland Security. But no such thing is currently established in the administration’s justification. This would be a gross and blatant violation of the law.

Paxton references the “administration’s justification” but the Trump administration hasn’t justified anything yet, with no decision made on the matter. And absent such a justification with its attendant evidence and arguments he can’t possibly know whether such a waiver would violate the law.

Let’s be very clear about what is taking place. Paxton, along with the rest of the Jones Act lobby, is terrified of Puerto Rico’s application for a limited Jones Act waiver to import U.S. LNG. And they should be. For nearly 100 years Americans have operated under the Jones Act’s strictures, never knowing a world in which this law did not apply. But if this waiver is approved they could catch a tantalizing glimpse of cheap domestic ocean transport and the possibilities it could unlock. This, in turn, would likely raise questions about other aspects of the U.S. economy that are being shackled by the Jones Act and the wisdom of keeping the law in place.

Things are about to get interesting.