Hawaii Shippers Council testifies to Puerto Rico Senate in support Jones Act reform
by Michael Hansen, Hawaii Shippers Council
The Hawaii Shippers’ Council made history on Wednesday, January 29, 2014, by becoming the first party to testify before a committee of the Puerto Rico Senate via Skype. The Council testified on the third day of legislative hearings regarding the impact of the Jones Act on Commonwealth of Puerto Rico. The hearings began on Monday, January 27, 2014, and are scheduled to continue through Monday, February 10, 2014.
The coastwise laws of the United States including the Jones Act (Section 27 of the Merchant Marine Act of 1920) are commonly referred in Puerto Rico to “the law of cabotage” or “the laws of cabotage” (Spanish, “la ley de cabotaje,” or “las leyes de cabotaje”).
The hearings are being held by Senator Rosanna López León, Majority Whip and Chairman of the Senate Committee on Civil Rights, Democratic Participation and Social Economy, jointly with Senator Ángel R. Rosa Rodriguez, Chairman of the Senate Committee on Government Efficiency and Economic Innovation.
Puerto Rican Political Parties, Political Status & Cabotage
Senators López and Rosa are members of Popular Democratic Party of Puerto Rico, PDP (Spanish, Partido Popular Democratico de Puerto Rico, PPD), and commonly known as “Populares.” As a result of the 2012 elections, the PDP / PPD has a supermajority of 66.67% in the Senate with 18 out of 27 seats, and a simple majority of 55% in the House with 28 out of 51 seats. The current Governor of Puerto Rico, Alejandro Garcia Padilla, is also a PDP / PPD member having won election narrowly in 2012.
The primary political opposition is the New Progressive Party of Puerto Rico, NPP (Spanish, Partido Nuevo Progresista de Puerto Rico, (PNP) ) and is popularly known as the “Progresistas.” The most prominent NPP / PNP member is Puerto Rico’s single non-voting delegate to congress, Representative Pedro R. Pierluisi Urrutia. The position is formally known as the Resident Commissioner of Puerto Rico to the U.S. Congress, and is the only member of Congress serving a four-year term. On the national level, Rep Pierluisi is a member of the Democratic Party and caucuses with the Democrats in Congress. Rep. Pierluisi was reelected in 2012 and will serve until the end of 2016.
The two main parties align with the different political status goals for Puerto Rico, which are linked to and impacts their approach to cabotage. In general, The PDP / PPD supports the existing Commonwealth status while the NPP / PNP seeks Statehood for Puerto Rico. The NPP / PNP should recognize a full exemption from maritime cabotage for Puerto Rico would be unlikely under statehood. In contrast, many members of the PDP / PPD support an advanced or enhanced Commonwealth status akin to that of the Commonwealth of the Northern Mariana Islands (CNMI) whose Covenant with the U.S. specifically exempts the jurisdiction from maritime cabotage (see Covenant Article 5, Section 503 (b)).
Senate Resolution 237
The legislative subject of the hearings is Senate Resolution 237, which was introduced by Senator López on April 12, 2013. As the Resolution’s title states, It proposes “To direct the Committee on Government, Government Efficiency, and Economic Innovation and the Committee on Civil Rights, Citizen Participation, and Social Economy of the Senate of Puerto Rico to conduct a comprehensive study on the economic impact of shipping costs between Puerto Rico and the United States as a consequence of the imposition of Federal Coastwise Laws, based upon the report of the Government Accountability Office (GAO) of March 14, 2013.”
The intention of the Resolution is to formally authorize the members of the two Senate Committees and their staffs to: review three recent and important studies of the impact of the Jones Act on Puerto Rico; resolve the various claims and counterclaims made by the parties involved either in support of the current cabotage regime or those seeking a full or partial exemption from cabotage for Puerto Rico; and, recommend a course of action. The purpose for the extensive 11 days of hearings is fact-finding to support the Committee work.
Dueling Puerto Rico Cabotage Studies
Resolution 237 references the Government Accountability Office (GAO)’s report “Characteristics of the Island's Maritime Trade and Potential Effects of Modifying the Jones Act,” GAO-13-260, issued on March 14, 2013. This report avoided drawing many obvious conclusions, especially in respect of the liner container trade between the U.S. mainland and Puerto Rico. The GAO said that they could not obtain operating data and comparative freight rates to evaluate the liner sector of the Puerto Rico trade, which is a significant shortcoming of that report.
In contrast, in their “Report on the competitiveness of Puerto Rico’s economy” of June 29, 2012, the Federal Reserve Bank of New York (commonly known as the “New York Fed”) was able to obtain comparative freight rates to find the difference between foreign flag freight rates from the U.S. mainland to Caribbean destinations other than Puerto Rico and significantly higher Jones Act rates to Puerto Rico. The New York Fed recommended a full maritime cabotage exemption for Puerto Rico be implemented for a trial period of five years.
Responding to the GAO and the New York Fed reports, the Jones Act industry trade association in Puerto Rico, La Alianzna Maritima de Puerto Rico (The Maritime Alliance of Puerto Rico), commissioned their own study. That report was written by Estudios Tenicos Inc. and issued as “The Maritime Industry in Puerto Rico” on May 3, 2013. That report essentially said that the higher Jones Act freight rates between Puerto Rico and the U.S. mainland are offset by the highly dependable nature of the domestic liner container services.
First Week’s Testimony
On Monday, January 27th, there were several testifiers who support a full exemption from the application of maritime cabotge to Puerto Rico.
Ana Irma Rivera Lassén, President of the Bar Association presented a study prepared by the Association’s Committee on Law and Industrial Relations, "The implementation of the cabotage laws are a violation of human rights of Puerto Ricans,” which says maritime trade between the U.S. and Puerto Rico should be open to international shipping.
The basis for assertion of a human rights violation arises from the international view of Puerto Rico’s political status. Although Puerto Rico was delisted in 1953 from the United Nation’s List of Non-Self-Governing Territories, it is still nominally subject to the U.N. Special Committee on Decolonization because its political status remains unsettled.
The Commonwealth’s Agriculture Secretary Myrna Pagán Comas, and Manuel R. Reyes Alfonso, Esq., Executive Vice President, Puerto Rico chamber of Food Marketing, Industry & Distribution (Spanish, Camara de Mercadeo, Industria y Distribucion de Alimentos (MIDA)) spoke in favor of the repeal of the law of cabotage due to the higher costs involved in the transportation of products to the Island.
President of the Association of Certified Public Accountants, Jover Pagés Hannibal, recalled that " for many years we have expressed our position in favor of the repeal or exclusion of Puerto Rico from the application of the Laws of Cargo and it has remained in force since 2006, when a meeting of the organization unanimously approved a resolution to that end.”
The Hawaii Shippers Council (HSC) testified on Wednesday, January 29th in support of Senate Resolution 237 and answered approximately two dozen questions posed by Senator López (see video of the full testimony). The Council previously submitted written testimony to the Committees and in oral testimony said, “Because of the common regulatory situation, we believe that the best approach to Jones Act reform is to include the four noncontiguous jurisdictions and seek a common solution that would create a single and coherent regulatory regime. Together the four jurisdictions would have greater political effectiveness in seeking reform to federal cabotage, and a common reform solution should be more attractive to federal legislators and regulators than a piecemeal approach “ The Council also suggested that its Noncontiguous trades Jones Act reform (NTJAR) proposal that would exempt those trades from the U.S. build requirement of the Jones Act may be the most appropriate approach at this time.
Closing out the week were three maritime industry insiders testifying in support of the cabotage laws and the current ocean carriers between the U.S. mainland and Puerto Rico.
On Thursday, January 3rd, José J Villamil, President & CEO, Estudios Tenicos Inc., an economic consultancy which researched and wrote the report “The Maritime Industry in Puerto Rico.” The report is a defense of the existing cabotage regime and the practices of the four liner carriers operating in the domestic Puerto Rico trade lane. As the reporting on Mr. Villamil’s testimony was somewhat vague, he submitted a column published February 3rd to clarify his position. He wrote, “So far the only numbers presented have been mentioned by myself and what I suggest is that the impact of cabotage is minimal in the economy and that even may be benefits due to dedicated service,” echoing the conclusions of his study.
Two industry insiders testified on Monday, February 3rd.
Hernán Ayala Rubio, President, Puerto Rico Shipping Association (PRSA), which represents ocean carriers, tug operators, stevedoring companies, and others, in negotiations with International Longshoremen’s Association (ILA) and manages the stevedore benefit funds. This kind of port organization is typically found at all the major ports on the U.S. East and Gulf Coasts, and represents U.S. flag and foreign flag carriers. Ayala testified, "Those who criticize the Jones Act in essence claim it has detrimental effects on the economy of Puerto Rico and makes more expensive most of the products we consume. Nevertheless, these findings are not supported by the actual data, and ignores the direct and indirect benefits that cabotage provides to Puerto Rico’s coastal shipping,"
Eduardo L Pagan has multiple roles in the maritime industry. He is Vice President of the Puerto Rico Shipping Association (PRSA), Treasurer of La Alanzia Maritima de Puerto Rico (The Maritime Alliance of Puerto Rico), which is the Jones Act industry trade association on Puerto Rico and closely allied withAmerican Maritime Partnership (AMP), and Vice President & General Manager for Puerto Rico & Caribbean, Sea Star Line Agency Inc., part of the TOTE Inc. shipping group (based in Princeton, New Jersey), which is a division of Saltchuk Resources Inc. of Seattle, Washington State.
El Nuevo Dia reported that Mr. Pagan, “stressed that when the GAO developed its study, none of the international shipping submitted comments or information to validate the alleged difference between its freight and U.S. companies nor detailing how their entry into this market would improve the services you on the island receive.”
Legislative Process for S.R. 237
After the current hearings are completed on February 10, 2014, the Committee staff members will prepare and submit the Committee Report covering the hearings to the chairs of the committees. Preparation of the Committee Report is expected to require approximately two weeks. As such, the Committee Report should be available during the last week of February 2014. The Committee Report will be a public document and available on the Puerto Rico Senate’s website after its submitted to the committees.
Following submission of the Committee Report, the two Committees will meet and hold a joint vote on S.R. 237. That joint committee meeting may occur in March 2014. The Resolution is expected to be voted out of Committee.
Assuming the Resolution is voted out of the two committees of jurisdiction, it then goes to the Senate Committee on Rules and Calendar, which will schedule a floor vote in the Senate. Given the supermajority that PDP / PPD enjoys in the Senate and the high level of interest in the subject, it is reasonable to expect that the Senate will adopt the Resolution. The Resolution does not require action by the House of Representatives to go into effect.
Once the Resolution is adopted by the Puerto Rico Senate, then the members and staffers of the two Committees of jurisdiction will then have to sort through the three reports and two weeks of testimony to come to their own conclusions regarding the application of cabotage to Puerto Rico and recommend a way forward.
Video of Testimony: The Jones Act in Puerto Rico, Mike Hansen, Think Tech Hawaii, January 29, 2014
Puerto Rico news articles in Spanish regarding the Senate hearings:
- Nuevo intento para exonerar a Puerto Rico de las leyes de cabotaje, El Nuevo Dia, January 23, 2014
- “Las leyes de cabotaje violan derechos humanos”, Sin Comillas, January 27, 2014
- Como un “teatro político” catalogan discusión de Ley de Cabotaje en @SenadoPR, EnVivoPR.com, January 27, 2014
- Agricultura y MIDA apoyan la derogación de la ley de cabotaje, Sin Comillas, January 27, 2014.
- Busca que se exima a la Isla de Leyes de Cabotaje, El Nuevo Dia, January 27, 2014.
- Siguen las vistas sobre Ley de Cabotaje. Sin Comillas, January 30, 2014
- Navieros defienden las leyes de cabotaje, El Nuevo Dia, February 3, 2014
- La Ley de Cabotaje, by Jose J. Villamil, Sin Comillas, Monday, February 3, 2014
Puerto Rico news articles translated from Spanish to English by Google translate:
- HSC-599: New attempt to exonerate Puerto Rico Cabotage laws, El Nuevo Dia, January 23, 2014
- HSC-602: Cabotage laws violate human rights, Sin Comillas, January 27, 2014
- HSC-603: As a “political theater” discussion in cabotage law @ SenadoPR, EnVivoPR.com, January 27, 2014
- HSC-609: Agriculture and MIDA support the repeal of the cabotage law, Sin Comillas, January 27, 2014
- HSC-610: Search to exempt the Isle from Cabotage Laws, El Nuevo Dia, January 27, 2014
- HSC-611: “Follows the views of Cabotage Law", Sin Comillas, January 30, 2014
- HSC-612: Shipowners defend cabotage laws, El Nuevo Dia, February 3, 2014
- HSC-613: The Law of Cabotage, by Jose J. Villamil, Sin Comillas, February 3, 2014