July 8, 2020 2:33PM

Worthwhile Canadian Initiative: Lessons from Canada on Cabotage Policy

Earlier this month a Panamanian‐​flagged tanker, the Cabo de Hornos, left Burnaby, British Columbia bound for St. John, New Brunswick where it will deliver its cargo of crude oil to a local refinery. Remarkably, this seemingly ho‐​hum event would be illegal if performed in the United States. In the Land of the Free, domestic waterborne transport is subject to the Jones Act, which bars not only foreign‐​registered ships from providing such services but even those built in other countries.

In contrast, Canada has sensibly opted for a less draconian approach to its cabotage policy. Under the country’s Coasting Trade Act, Canadian‐​flagged vessels are given preference for domestic transport. However, if no such vessel is available, foreign ships can be used under license (provided they meet safety and environmental requirements). It was the granting of such a license that enabled the transport of oil between two Canadian ports using a Panamanian‐​flagged ship, and for a Canadian refinery to meet its oil needs from a Canadian producer.

The United States, however, has no such licensing system, and Jones Act waivers can only be issued by the executive branch on national security grounds. If shippers want to send cargo by water from one part of the United States to another, and no Jones Act‐​compliant vessel is available, they are essentially out of luck. Either they must find an alternative method of domestic transportation or obtain the product from a foreign source where Jones Act restrictions do not apply. That means greater congestion for surface transport and lost sales to foreign competitors.

In other words, Americans are forced to bear the costs of Jones Act protectionism even in those instances where no Jones Act service is being offered and thus nothing is being protected. Protectionism is folly, but protectionism for domestic industries or services that do not even exist is simply madness.

The establishment of a means for Americans to use non‐​Jones Act ships in those instances when none are available is a commonsense reform measure that would produce economic relief at no cost to the U.S. maritime industry.

To learn more about both Canada’s cabotage policy and possible reform measures to the Jones Act, pick up a copy of the new Cato book The Case against the Jones Act.