Momentum for Jones Act Reform Reaches Faraway Shores
News Release from Office of Sen Sam Slom, April 13, 2015
HONOLULU, PUERTO RICO & GUAM—Today legislators from Hawaii, Guam and Puerto Rico came together for a videoconference forum to discuss legislative developments on the Jones Act for their respective jurisdictions. Hosted by Puerto Rico this year, this multijurisdictional videoconference forum to reform the Jones Act was called: "Cabotage Laws: Wall to Economic Development." Hawaii legislators Senator Sam Slom, Representative Gene Ward and Shippers Council President Mike Hansen represented Hawaii. Senator Clarence Nishihara also made a brief appearance on camera for Puerto Rico's presentation of their investigative committee report.
Representatives from Puerto Rico included Senate President Eduardo Bhatia, Senator Rossana López León and José A. Pérez Vélez, Esq., Executive Director of the Committee on Civil Rights, Democratic Participation & Social Economy for the Senate of Puerto Rico. They talked at length about Puerto Rico's Senate Resolution Number 237, which was introduced last year to facilitate a comprehensive study of the effects of the Jones Act on the Puerto Rican economy. An executive summary (see copy below this press release) prepared by Senator Rossana López León on the Committee Report on Resolution 237 stated that Puerto Rico seeks a complete exemption to the entire Jones Act, but that in the alternative, relief from the domestic build requirement would benefit the people of Puerto Rico as well.
Guam's Senator Rory J. Respicio noted Guam's complete dependence on ocean shipping, and emphasized the "lost relevance" of the antiquated Jones Act, and its role in hindering the growth of the local economy.
President of Hawaii Shippers Council Mike Hansen talked on the extraordinary cost of constructing a new ship in the United States, in compliance with the Jones Act domestic build requirement, characterizing it as "five times the cost of construction in Asia, where 90% of ships are built."
Hawaii Senate Minority Leader Senator Sam Slom, who has advocated for Jones Act reform for decades, acknowledged disagreement over the Jones Act's effect on costs but highlighted the economic indicators uniformly affected in Hawaii, Guam and Puerto Rico: competition and cost of living. He also mentioned the Jones Act reform page on the Senate Minority website and a petition to be started by the Senate Minority for use in all jurisdictions to garner support.
House of Representatives Minority Leader Emeritus Rep. Gene Ward made the point that when the Jones Act was enacted 95 years ago, it served its purpose and was relevant to national security. In 2015 however, the effect of the law is to punish the noncontiguous trades with oppressive shipping costs. Rep. Ward's suggestion was to continue the public awareness vital to successful reform of the Jones Act by publishing white papers on common misconceptions about what could happen if an exemption is granted, namely that reform would threaten national security, or labor unions.
For more information on the Jones Act, http://hawaii-senateminority.com/jones-act.html.
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CABOTAJE MURALLA AL DESARROLLO ECONÓMICO
(Cabotage Wall to Economic Development)
The Senate of Puerto Rico’s Multi-Jurisdictional Jones Act Reform Videoconference
Presentation of Michael N Hansen, President, Hawaii Shippers’ Council
MULTI-JURISDICTIONAL APPROACH TO JONES ACT REFORM
Good Evening President Bhatia, Senators and distinguished guests.
Thank you for the opportunity to speak to you in Puerto Rico and all those watching this videoconference, wherever they may be.
We are meeting to discuss reform of the national cabotage laws of the United States, which notably, include the Jones Act. The changes we are seeking to the cabotage laws are those to benefit what are known as the noncontiguous jurisdictions, namely, Puerto Rico, Hawaii, Guam and Alaska.
The four noncontiguous jurisdictions of the United States embraced by the national cabotage laws are the most disproportionally impacted by those laws.
These four jurisdictions are completely dependent upon ocean shipping for interstate surface transportation. There are not the alternative modes that are readily available on the 48 contiguous states including railroads, road truck, inland barge and pipeline.
The effect of this dependency can be seen in the deployment of the oceangoing Jones Act fleet of cargo ships, where approximately half of the 92 ships in the fleet are employed in the noncontiguous trades.
All four jurisdictions are highly dependent on imported consumable goods – 80 % or more is typically brought in – and of that over 98% will arrive by sea.
The cabotage laws of the United States require that the vessels used in the coastwise trades protected from foreign competition must be U.S.-built, -flag, -owned, -crewed and -managed.
The primary cost driver for the Jones Act shipping industry is the extraordinarily high cost of new ship construction in the United States which is mandated by the domestic build requirement.
The cost of ship construction in the United States is now well documented to be five times the cost of building a comparable ship in Asia where over 90% of the world’s large oceangoing ships are built today.
The internationally-respected London-based consultants, Drewry Maritime Research, clearly stated these issues on April 12, 2015.
“The recent news that Matson has ordered two … [containerships] … in the US for approximately $209 million each underlines the possibility that US flag protectionism is an increasingly expensive luxury. . . . comparable sized vessels could be built in Asia today for less than a fifth of that price.”
“. . . the stipulation that US flagged ships can only be manned by crew that are eligible to work domestically in the US must be a growing burden, although it is a small part of the equation.”
“. . . shipping lines therefore appear ready to order extremely expensive ships in the US mainly to have access to protected transport between its mainland and island states, territories and commonwealths such as Hawaii and Puerto Rico . . . where there is little to no competition from other transport modes.”
In response to this situation, The Hawaii Shippers’ Council, which represents merchant cargo owners, put forward a noncontiguous trades Jones Act reform proposal in late 2010. Essentially it proposes to exempt the noncontiguous trades from the domestic build requirement of the Jones Act for large oceangoing ships.
The strategy to achieve this goal is encouraging political action locally in each of the four jurisdictions to support federal legislation granting a ship build exemption for the trades. This has included supporting resolutions in the respective legislatures calling for noncontiguous trades reform.
The Legislature of Guam adopted in April 2014 a calling on their Delegate to Congress to introduce federal legislation exempting the noncontiguous jurisdictions of Alaska, Hawaii and Puerto Rico from the U.S. build requirement of the Jones Act.
Resolutions have been introduced in the Hawaii State Legislature in three consecutive sessions beginning in 2013. Although the resolutions introduced in 2015 were not heard in committee, the number of cosponsors is increasing each year.
A resolution was introduced in the current 2015 session of the Alaska State Legislature for the first time, and we are awaiting advice as to what action will be taken.
The Senate of the Legislative Assembly of Puerto Rico held extensive hearings during January and February 2014, and has released the report of their investigations today. The report calls for Jones Act reform in conjunction with Alaska, Guam and Hawaii.
The Hawaii Shippers’ Council believes this multi-jurisdictional approach is necessary for the noncontiguous jurisdictions to achieve Jones Act reform with respect to their respective trades.
First, there must be grassroots support in the four jurisdictions, which can be expressed through their legislatures in the form of resolutions.
Second, the grassroots and local legislative support for reform must be translated into support from the members of the four Congressional delegations.
Third, support in the Congress needs to be expanded past just the four congressional delegations in order to pass reform legislation.
The multi-jurisdictional approach is a more politically viable strategy, as opposed to each jurisdiction going it alone.
It also creates a larger more attractive market for U.S. shipowners who would acquire foreign built ships for registration under the U.S. and employment in the noncontiguous trades.
And, as it standardizes the treatment of all the noncontiguous trades, it will be more attractive to the federal regulators.
We look forward to continuing to work with all our partners in this endeavor to obtain Jones Act relief for the noncontiguous jurisdictions.
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File Ref: HSC-752 (MNH presentation to PR Sen JA videoconference 04-13-2015)
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EXECUTIVE SUMMARY of the Committee Report Senate Resolution No. 237
To direct 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 on the report of the Government Accountability Office (GAO) of March 14, 2013.
Presented by Senator Rossana López León
The Jones Act of 1920 mandates that any goods shipped between any coastwise state, territories and possessions of the United States must be transported on a U.S.-built, U.S.-flagged, and at least 75 percent U.S.-crewed vessel.
FINDINGS: COSTS CONCERNING THE IMPOSITION OF THE JONES ACT OF 1920
· According to a non-formal analysis, one of the consequences of the imposition of the Jones Act of 1920 in the cost of the transportation of goods, is that the average cost of food (one meal a day) per family of four is more than five hundred dollars ($500.00) a year;
· According to the “Report on the Competitiveness of Puerto Rico’s Economy” done by the Federal Reserve Bank of New York on 2012: “It cost an estimated $3,063 to ship a twenty-foot container of household and commercial goods from the East Coast of the Unites States to Puerto Rico; the same shipment cost $1,504 to nearby Santo Domingo (Dominican Republic) and $1,687 to Kingston (Jamaica)-destinations that are not subject to Jones Act restrictions.”;
· On June 25, 2010, Ambassador Terry Miller and Dr. James Carafano stated in the study “The Jones Act: Loss at Sea”, that:
The history of the U.S. merchant marine since passage of the Jones Act has been a story of decline, interrupted only by a massive shipbuilding boom during World War II. In 1920, U.S.-flagged ships carried 52 percent of the nation's seaborne trade. By 1939, U.S.-flagged shipping tonnage had declined by 25 percent and American ships carried only 22 percent of our seaborne trade.
After WWII, the number of U.S.-flagged ships declined rapidly to 1,072 by 1955. By 2005, that number declined to 249. As of December 2007, the U.S. ocean-going merchant fleet consisted of 89 ships engaged in international trade and 100 ships in the ocean-going Jones Act trade.
THE JONES ACT AND NATIONAL SECURITY
· One of the explanations for the enactment of the Jones Act of 1920, was that it would maintain a merchant fleet that could be used in time of crisis to serve U. S. interests and sustain the industrial base for U.S. shipbuilding;
· The Puerto Rico National Guard submitted to the Committee documentation that contrasts the national security justification, which once served as a rationalization for the enactment of the Merchant Marine Act. As shown below, the Jones Act sanctioned vessels used in conflict have decreased through the years:
1950 - 1953
1965 - 1973
1990 - 1991
“Operation Enduring Freedom”/ “Operation Iraqi Freedom”
2001 – present
· Also, it is of public knowledge that the U. S. Department of Defense has frequently leased foreign vessels to execute military operations;
· The Jones Act of 1920 imposes a burden in food security for the United States citizens that live in Puerto Rico. Undoubtedly, there are efficient methods of maritime transportation that will enable Puerto Ricans to receive fresh goods. Unfortunately, these methods cannot be used because of the imposition of the Jones Act of 1920. For example, a merchant that sells and transports his/her products to Puerto Rico, will not be able to continue his/her journey to North American ports unless he/she uses a Jones Act transport.
· Some argue that the exemption of the Jones Act could negatively impact the jobs of American workers in the Coastwise Trade and Shipbuilding Industry;
· Moreover, Mr. Michael Hansen representing the Hawaii Shipping Council stated in public hearings held in the Senate of Puerto Rico that: “Well the employment will not decrease, but the employment certainly could increase if there is additional shipping activity.”;
· On June 25, 2010, U.S. Ambassador Terry Miller and Dr. James Carafano stated in the study “The Jones Act: Loss at Sea”, that:
So much for jobs saved. The last serious review of the Jones Act (from a series of congressional hearings in the 1990s) revealed that more than 40,000 American merchant seamen and 40,000 longshoremen have lost their jobs despite Jones Act protectionism. Over the first 76 years of the act, more than 60 U.S. shipyards had gone out of business, eliminating 200,000 jobs. If the intent of the Jones Act was to save U.S. jobs, it failed.
· Also, Ambassador Miller and Dr. Carafano conducted a study for the U.S. International Trade Commission during the Clinton Administration, concerning the effect on job loss if the Jones Act of 1920 is derogated. The study stated that: “Repeal of the Jones Act would affect about 2,450 workers in the coastwise shipping trade. In the shipbuilding industry? Repeal would cost 36 jobs.”Undoubtedly, the loss of jobs is significantly less in comparison to the negative effects that the imposition of the Jones Act of 1920 has in the economic development of the United States and its territories.
· The Jones Act of 1920 is a legislation that sponsors oligopoly. Only four companies offer maritime transportation between Puerto Rico and the United States. These companies have been accused and found guilty by the United States Court for felonies regarding the collusion of prices and have been obliged to pay the federal government millions of dollars for their wrongful and unlawful behavior; moreover because of said crimes various executives from these companies are incarcerated.
THE JONES ACT OF 1920 AND THE STATES
· The Government Accountability Office (GAO) issued a report titled “PUERTO RICO: Characteristics of the Island’s Maritime Trade and Potential Effects of Modifying the Jones Act.” This report stated that there is a shortage of Jones Act LNG’s vessels. This situation limits the possibility of obtaining better gas prices, not only in our jurisdiction but in the rest of the non-contagious and contagious states. The United States is not prepared and does not have the modern technology needed to construct and operate LNG’s vessels.
· To empower economic, social and political groups in Puerto Rico in order for them to ask the United States Government an exemption from the Jones Act of 1920;
· The Government of Puerto Rico must adopt public policies directed to actively and permanently remove the imposition of the Jones Act of 1920 in Puerto Rico;
· If the total exemption of the Jones Act of 1920 is not possible, the Puerto Rican Government most negotiate with the federal authorities, specifically with the Department of Homeland Security the possibility of establishing certain waivers to the Jones Act of 1920:
- Eliminate the United States built ship requirement.
- Allow the participation of foreign ships in the maritime transportation market.
· The Senate and the Executive Branch of Puerto Rico will actively be part of the discussion and of formally asking for the exemption of the Jones Act of 1920;
· The creation of a Permanent Joint Committee in the Legislature of Puerto Rico, which will be responsible of all matters concerning the elimination of the imposition of the Jones Act of 1920 in Puerto Rico;
· The Puerto Rico Legislative Assembly must adopt public policies directed to actively and permanently remove the imposition of the Jones Act of 1920 in Puerto Rico;
· The Senate of Puerto Rico must approve a Resolution to support the initiatives of Hawaii, Alaska and Guam regarding the imposition of the Jones Act of 1920;
· This Senatorial Report will be sent to the Decolonization Committee of the United Nations and to the American States Organization;
· This Senatorial Report will be sent to all state and territorial legislative organization in order for them to approve Resolutions supporting the derogation of the Jones Act of 1920;
· This Senatorial Report will be sent to the President and to the Congress of the United States;
· To direct the Attorney General of Puerto Rico to initiate a legal claim in the United States Court in order to challenge the application of the Jones Act of 1920; and
· To direct the Department of Consumer Affairs of Puerto Rico to analyze the possibility of establishing a top marginal tariff rate to the Jones Act of 1920 shipping companies dealing in Puerto Rico’s market.
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File Ref: HSC-749 (PR Sen JA Ex Summary II RS 237)