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The Grassroot Institute of Hawaii this week responded to a request by the U.S. Office of Management and Budget for public input about the controversial Jones Act, the century-old body of federal maritime regulations that restricts competition in ocean cargo shipping and imposes higher costs on businesses, consumers and the economy.

The comments, presented below, were submitted by its president, Keli’i Akina, Ph.D.

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July 16, 2018

VIA Federal Rulemaking Portal at http://www.regulations.gov

Shannon Joyce
Desk Officer for Federal Maritime Commission
Office of Information and Regulatory Affairs
725 17th Street, NW
Washington, DC 20503

RE: Maritime Regulatory Reform RFI

Dear Ms. Joyce,

When it comes to looking for ways to decrease the regulatory burden on businesses while increasing efficiency and helping the economy, there is one set of maritime regulations and laws that costs consumers and businesses millions of dollars every year.

Even a simple update to the most archaic portions of this century-old statute could reap benefits nationwide.

I am referring to the Jones Act, also known as the Merchant Marine Act of 1920.

The Jones Act requires that goods shipped between U.S. ports be carried on vessels built and flagged in the U.S. that are crewed predominantly by Americans.

This means higher shipping costs for American business owners and consumers, since the Jones Act bars foreign competition between U.S. ports while forcing U.S. ocean cargo carriers to buy more expensive U.S.-built ships and use more expensive American crews.

In U.S. states and territories that are highly dependent on shipping, such as Hawaii, the heightened costs of the Jones Act can be a huge barrier to small businesses. The premium paid to operate in Hawaii’s near-monopoly shipping market might be easier for larger corporations to cope with, but smaller companies not so much.

Stories of Jones Act difficulties for Hawaii businesses abound. For example, The French Gourmet, a 1997 SBA “Exporter of the Year” was forced to close its doors in 2012. The owner said the company’s shipping costs had nearly tripled in three years, making it infeasible to continue operating. Because the Jones Act limited the company’s shipping options, there was no way for them to continue.

Efforts to quantify its economic impact on states and territories that are basically held hostage by the Jones Act — such as Puerto Rico, Alaska and Hawaii — have put the figure at between $5
billion and $15 billion annually. But the Jones Act is a problem for all states that rely upon imports and exports carried by ship between U.S. ports.

Because of the Jones Act, it is cheaper for American livestock farmers to buy grain overseas than from U.S. suppliers. Companies on the East Coast cannot afford to get lumber from the
Pacific Northwest. And transporting oil from Texas to New England is approximately three times more expensive than shipping it to Europe.

What we seek is to bring the Jones Act in line with the 21st century — and thereby eliminate a burden on small business, consumers and the economy.

The most efficient way to update the Act would be to amend Section 46 USC 12112 and repeal the requirement that a vessel be (1) U.S.-owned under Section 46 USC 12103 and (2) U.S.-built.

Also repealed would be provisions under this section that create exemptions to the build requirement for vessels captured in war, forfeited for a breach of U.S. law, and wrecked on a U.S. coast under section 46 USC 12107. (Removing the build requirement makes these exemptions superfluous.)

Paragraph (a) of Section 12112 would be replaced with an authorization for the U.S. Coast Guard to issue coastwise endorsements to vessels that qualify in terms of safety and security.

This change would require a few conforming amendments, including:

>> Removing the wrecked vessel provision from 46 USC 3703a (c) (1) (C).

>> Liberalizing a foreign-build exemption in Section 46 USC 12120 regarding liquefied gas carriers in the Puerto Rico trade.

>> Eliminating Section 46 USC 12112 requirements from Section 46 USC 12121 relating to small passenger vessels.

>> Deleting Section 46 USC 12132 in order to eliminate the foreign-ownership, foreign-registry and foreign-rebuilding causes for loss of coastwise privileges.

Removing the U.S. build requirements of the Jones Act might affect the U.S. ownership requirement, but that provision would still exist in Section 46 USC 12103 and could be clarified further via legislation and regulatory action.

An act of Congress would be required to take decisive action on the Jones Act, but the Act also has deep roots in the regulatory world that would need action from multiple federal agencies. For example, the U.S. Department of Homeland Security and U.S. Coast Guard handle documentation and authorization of the vessels in question, while U.S. Customs and Border Protection, in addition to issuing rulings and regulations on the Act, has created a special office to deal with Jones Act issues: the Jones Act Division of Enforcement.

The Jones Act has outlived its usefulness in national defense and now operates primarily as a protectionist scheme that benefits the shipping industry at the expense of businesses and consumers. It is time we brought it up to date.

Thank you for your time and consideration.

The Grassroot Institute of Hawaii would be happy to provide additional information and assistance on issues related to the Jones Act and its economic effects.

Sincerely,

Keli‘i Akina, Ph.D.
President, Grassroot Institute of Hawaii