Tag: Jones Act

Protectionism Is Crippling Atlantic and Gulf Coast Ports

George Will writes in his column today about the importance of the Port of Charleston – and by extension, trade – to the economy of South Carolina. Recent completion of the 10-year project to widen the Panama Canal to accommodate more traffic and passage of a new class of container ships with nearly triple the capacity of their immediate predecessors has exposed a logistics snafu that could cost South Carolina’s economy billions of dollars: Charleston Harbor is too shallow to accommodate these much larger, “Post-Panamax” ships efficiently (only limited sections of the harbor are deep enough and only during high tide).

According to the American Society of Civil Engineers, these vessels can lower shipping costs from 15-20 percent, 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.” American ports must be modernized if the United States is going to continue to succeed at attracting investment in manufacturing and if U.S. companies are going to compete successfully in the global economy.

As I wrote in the Wall Street Journal last year:

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.

The problem can be traced to one major issue: funding.  And that issue is made more complicated by another problem: protectionism.  Most funding of infrastructure inevitably come from federal and state budgets – taxpayers, who should have a voice in the debate about whether these infrastructure projects constitute wise public investments.  But a couple of long-standing, though obscure, protectionist laws have conspired to reduce capacity in dredging services, ensuring that projects take twice as long and cost twice as much as they should.

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The Jones Act Strikes Again

People who have heard of the Jones Act (Merchant Marine Act of 1920) generally are aware that its stated purpose is to maintain a strong U.S. merchant marine industry.  Drafters of the legislation hoped that the merchant fleet would remain healthy and robust if all shipments from one U.S. port to another were required to be carried on U.S.-built and U.S.-flagged vessels.  Unfortunately, things haven’t worked out very well. 

The protectionism of the Jones Act has given the United States the type of merchant marine that would be expected from a sector that has been cut off from market forces for close to a century.  Instead of being a global powerhouse, the U.S. merchant fleet has become a minor player.  In 1955 the 1,072 ships in the fleet accounted for 25 percent of global tonnage.  Today the 191 vessels account for 2 percent of the world total.  Those vessels primarily carry cargoes from one U.S. port to another, along with government-generated exports, such as military equipment and food aid. 

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Jones Act Carve-Out Shows Why Trade Agreements Are Not Free Trade

To the extent that trade agreements result in Americans being “freer” to transact how and with whom they please, I support them.  But one of my biggest misgivings about these agreements, and the negotiations that precede them, is that they reinforce the fallacy that trade is an “Us-versus-Them” contest where the objective is to secure market openings abroad, while preventing such liberalization at home. Liberalization at home – opening the domestic market to competition – is what free trade is about.  Thus, the objective of free trade negotiations is not free trade.  Follow?

In response to a question from House Ways and Means Trade Subcommittee Chairman Devin Nunes about what was being done to ensure that liberalization of trade in film and television services isn’t excluded from the TTIP negotiations, U.S. Trade Representative Michael Froman assured: “The United States has made clear to the EU that we strongly support a comprehensive agreement without exclusions (my emphasis).”

Then there was this question from Rep. Charles Boustany (R-LA): “Can you assure me that the Jones Act will not be diluted in any trade agreements that are negotiated during your tenure?” 

Among other favors it bestows upon domestic shipbuilders, the Jones Act forbids foreign-flagged vessels from operating between U.S. ports, ensuring that U.S. maritime shipping (as crucial as it is to U.S. supply chains and U.S. production costs) is an industry that operates without any foreign competition. None. 

How much more economically self-destructive can policy be than a federal law that consigns U.S. businesses to inefficient production and transportation options, deters investment in U.S. manufacturing and distribution operations, and gives carte blanche to shipbuilders to be as unresponsive to customer needs as they and their unions desire? 

Ambassador Froman’s answer:

We recognize the importance that the Jones Act has for the state of Louisiana.  This Administratrion has continuously ensured that the application of the Jones Act is permitted under each of our trade agreements.  As we continue to participate in discussions where this issue may arise, including trade agreement negotiations, we will continue to take this position.

About being clear to the EU that we strongly support a comprehensive agreement without exclusions…not so much.

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