The Journal of Commerce / December 5, 2014
By Larry Luxner
WASHINGTON — Sen. John McCain, R-Ariz., lashed out at the Jones Act during a Friday panel at the Heritage Foundation, saying the 94-year-old maritime law is an anachronism that hurts U.S. farmers and manufacturers at the expense of foreign rivals.
“Laws like this had some rationale in the 1920s, but today they only serve to raise shipping costs. It’s not rocket science,” said McCain, citing a 2002 study by the U.S. International Trade Commission which suggests that abolishing the Jones Act would cut shipping costs by 22 percent while pumping $656 million into the U.S. economy. “I imagine a repeal of the Jones Act today would be closer to $1 billion.”
“The expiration date on the Jones Act is long overdue,” said Charles Drevna, president of American Fuel & Petrochemical Manufacturers. “On the defense side, we sell fighter jets to foreign nations. We buy components of ships and planes from foreign defense contractors. We even use Russian rocket engines. So whatever sense the Jones Act may have made decades ago for national defense purposes no longer applies. Ultimately, the American consumers pay.”
Gary Clyde Hufbauer, a senior fellow at the Peterson Institute for International Economics argued that the Jones Act, along with the U.S. sugar, dairy and peanut industries, hinders Washington’s ability to negotiate trade deals with other countries. “With global free trade in services, we could increase our exports by about $300 billion,” he told the Heritage audience of about 100 people. “But as long as we have the Jones Act and these other sacred cows in place, it’ll be really hard, if not impossible, to get other countries to liberalize to the extent we would like.”
Under the Jones Act — also known as the Merchant Marine Act of 1920 — all vessels used for domestic shipping must be built in the United States, owned by U.S. citizens and be at least 75 percent crewed by U.S. citizens. Enacted mainly to protect ships moving across the Great Lakes, the law effectively drives up transport costs between the U.S. mainland and non-contiguous locations such as Alaska, Hawaii and Puerto Rico.
Detractors, pointing to a 2012 report from the Federal Reserve Bank of New York, say shipping a 20-foot container of household and commercial goods from the East Coast to San Juan, Puerto Rico, on a Jones Act ship costs $3,063 — more than double the $1,504 it costs to send the same goods to the nearby Dominican Republic.
McCain, who unsuccessfully ran for president in 2008, said U.S. maritime policy also hurts our humanitarian efforts in times overseas food shortages or natural disasters. That’s because of the Cargo Preference Act of 1954, which requires that at least 50 percent of all U.S. government-purchased food commodities be transported on U.S.-owned vessels.
Prior to 2012, that share had been 75 percent, but a Coast Guard reauthorization bill backed by U.S.-flag interests and labor unions and overwhelmingly approved Dec. 3 by a 413-3 vote in the House bumps it back to 75 percent. It now goes to the Senate for approval.
Rep. John Garamendi, D-Calif., said in a statement that the bill, among other things, “bolsters enhanced enforcement of U.S. cargo preference requirements that support good-paying jobs for U.S. seafarers.” But two U.S. senators, Bob Corker, R-Tenn., and Chris Coons, D-Del., said that they oppose the legislation, according to Roll Call, a publication covering U.S. national politics. McCain opposes the cargo preference requirements, too.
“How do you justify having 30 percent of the value of whatever we’re trying to deliver eaten up because of some arcane, ancient law that restricts how we deliver that humanitarian aid to wherever it’s needed?” McCain demanded. “It’s contradictory to the values of the United States.”
Even so, McCain acknowledge that repeal of the Jones Act “is not going to happen” anytime soon.