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U.S. Rep. Ed Case talks Jones Act with Keli’i Akina

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Jones Act reform was the main topic of conversation between Keli’i Akina and U.S. Rep. Ed Case on the Oct. 1, 2019, episode of Akina’s “Hawaii Together” program on ThinkTech Hawaii.

On the eve of the act turning 100 years old, Case shared his views that the act is pure protectionism that increases costs for Hawaii consumers, and has failed in its mission to ensure national security and protect America’s shipbuilding capacity.

He also talked about what it’s like to be Hawaii’s only congressional delegate that support Jones Act reform, despite it being well documented that the law raises the cost of living for Hawaii residents.

Watch the fascinating conversation. A full transcript is below.

10-1-2019 U.S. Rep. Ed Case interviewed by Keli’i Akina on “Hawaii Together”

Keli’i Akina: Aloha, everyone, and welcome to “Hawaii Together” on the ThinkTech Hawaii broadcast network. I’m Keli’i Akina, president of the Grassroot Institute. 

2020 marks the 100th anniversary of the Merchant Marine Act of 1920, better known as the Jones Act. Now, this set of laws governs all cargo shipped between any two U.S. ports. After a century of the Jones Act having served the United States, there’s now vigorous debate over whether it’s time to modify or repeal the Jones Act, or simply leave it as it is without any changes.

My guest today has certainly weighed in on this issue. U.S. Congressman Ed Case, representing the 1st District of Hawaii, was elected to his current term in 2018, and prior to that, he served as representative for the 2nd U.S. Congressional District of Hawaii between 2002 and 2007. We previously hosted him here at the Grassroot Institute in a debate I moderated between congressional candidates. We now welcome him back as a member of Hawaii’s congressional delegation.

As an advisory to our viewers, we’re first going to talk about the Jones Act, and then as time permits, we’ll ask other questions of the congressman of importance to Hawaii and the nation. Would you please welcome with me, Ed Case. Congressman, aloha.

Ed Case: Good to be back with you. Been on the show here before, but good to be home.

Akina: Well, this is your home definitely. We’ve got beautiful Waikiki Beach, which you’re no stranger to. You’ve worked there as well for many years. Thank you so much for being on the program today.

Case: No problem.

Akina: We’re going to talk about a topic that makes people glaze over in their eyes with confusion as to what it actually means. Jones Act, this esoteric sounding law — what is it? What would you say to the average constituent or even to your fellow congressman describing exactly, what is the Jones Act?

Case: The Jones Act is an almost 100-year-old federal law that basically says that if you’re going to ship anything between two U.S. ports, you must use U.S. shipping, built in the United States, crewed by United States folks.

That sounds, perhaps to some, like a really good idea, but the fact of the matter is that the Jones Act has a disproportionate impact on island states, island jurisdictions such as ours, because we only have one way to get our stuff here, and that’s by shipping. There’s no competition from airlines, no competition from buses, trains, anything else. The Jones Act says, “You got to do it this way.”

Akina: The Jones Act covers shipping between two American ports. As you mentioned, it requires that ships that are used for that are built in the United States?

Case: Yes, correct. For example, here in Hawaii, we got almost all of our goods, almost anything that’s in the store, comes in by ship, and it comes from California to Honolulu by shipping. It doesn’t come in by airplanes. It doesn’t come in, obviously, by freight trains or anything like that.

Akina: So while the Jones Act affects all of the United States, as you mentioned, it will inordinately affect places like Hawaii.

Case: Absolutely. That’s the major issue that I’ve got with the Jones Act, because let’s say you’re taking a cargo of wheat from Minnesota to New Orleans on the Mississippi River. Now, that’s a Jones Act location because it’s Mississippi to — I’m sorry. I said Mississippi. What I really meant was Minnesota to New Orleans, down the Mississippi River, and that’s one port to another port, American port, that’s got to use Jones Act ships for that.

If you don’t like the charges being charged for the Jones Act ship, then you can get on a train, you can get on a truck. You got a lot of other ways to get that down there. There’s a competition going on. But here, we don’t have that.

Akina: Well, let’s step back for a minute, and go back to the days when Sen. Wesley Jones put this law into effect. What was he thinking as he looked at the future? What was the real purpose of the Jones Act, and how has it served us in the last 100 years?

Case: Well, you’re going to get a debate over that, but I’ll tell you in my perspective. The real purpose was protectionism, to artificially protect the U.S. industry so they didn’t have to compete with anybody overseas. That was what was happening at the time in whole industries. The reason given for the Jones Act, when it was passed — one of the reasons — was the U.S. domestic shipping industry, because we felt that we always have the option of transiting goods between U.S. ports with U.S. ships.

Also, there was a military aspect to it, where there was some sentiment after the first World War that we didn’t have enough capability to take our military around the world. So [we needed to] maintain that shipbuilding capability in our country. Again, for me, it was protectionism, and it still is protectionism.

Akina: You’ve mentioned some of the main reasons given for the Jones Act, but you highlight protectionism as being the real underlying motive.

Case: Yes. Why wouldn’t you want a federal law to say that you don’t have to compete with the rest of the world on your shipping?

Akina: Well, that’s a very good question. Take the automotive industry, for example. When it was under a high level of protectionism, we saw what happened in terms of the quality of American cars, in terms of the ability of Detroit and other places to sustain jobs and so forth. You think a comparable thing has happened in the shipbuilding industry of the United States?

Case: I think the motivations were similar. I think that businesses love competition, or want to be able to compete, unless they get a federal law or some other circumstances under which they can get a monopoly going. Of course, that’s good for the business, but not good for all of the folks that depend on it. When your lifeline is off of shipping, you do not want a monopoly to develop so that your prices are not subject to market forces. That’s what has happened with the Jones Act.

Akina: During your first term in Congress, you began to talk about the Jones Act publicly and you introduced some legislation. And before we talk about that, what motivated you, how did talking about the Jones Act come to your plate? Did constituents raise that as a concern of theirs?

Case: Well, first of all, it wasn’t the first time I talked about it. I actually started talking about the Jones Act when I was a quiet junior state legislator. We’re talking about the 1990s. I simply asked the question in the Legislature, “What is the impact of the Jones Act on Hawaii?” I felt like a ton of bricks had fallen on me because the sky fell apart, and everybody was so upset that we actually had to debate this, including the folks that were most benefiting from the Jones Act, being Matson, primarily.

I thought, well, if they’re going to come down on me that hard way, where they don’t even want to have a discussion, then where there’s smoke there’s some fire. That’s when I started to focus on the Jones Act. 

When I got Congress in ’02 to ’07, as you mentioned at the outset of the show, I represented the 2nd Congressional District, and that had almost all of the agriculture in Hawaii in that district.

The bottom line for Hawaii agriculture is that the only way to really make it into a materially contributing part of our economy is to be able to export it, and the markets are on the mainland, and that’s Jones Act shipping, going from here, back to the mainland. They weren’t able to get their product there because the prices were too high. These were like empty ships going back.

Akina: You said you’ve been talking about the Jones Act since your days in the Hawaii state Legislature. Were you surprised at some of the backlash that you got when you began to discuss it?

Case: Well initially, I was surprised, but then once I understood a little bit more, I understood that they had the sweetest deal going. They had a monopoly, and they were going to protect it at all costs. They were quite lavish in terms of their campaign contributions and their influence in the Legislature and with politicians, and so nobody really wanted to talk about it.

Akina: Well, one of the reasons that Matson and others who defend the Jones Act put it forth is that according to them, it allows our shipping lanes to remain open, especially during difficult times like hurricanes and so forth, and especially because of the fact that we’re so isolated, the most isolated archipelago in the world. What do you think about that argument?

Case: Well, first of all, that is not proved out by the facts. When Puerto Rico had a major hurricane there, they actually had to exempt Puerto Rico from the Jones Act in order to get adequate shipping from the mainland and other places to Puerto Rico for humanitarian purposes, No. 1. 

No. 2, the bottom line is, in the last 100 years, essentially the shipbuilding and the ship operation industry has become internationalized so that we have a very, very small shipbuilding industry in this country and very, very small number of the total ships out there, transiting cargo around the world.

We’re really at an anachronism in this way. So what the Jones Act is basically doing for Hawaii is it is artificially reducing the supply of shipping, and with that, of course, comes increased demand, and with that comes increased prices.

Akina: Well, you’re bringing up my favorite subject as an undergraduate in college, economics. The one thing, however, I remember, although it was a long time ago and there’s a lot that I’ve forgotten: supply and demand, and when the supply shrinks, but the demand remains constant, the price goes through the roof. Have you seen that?

Case: That’s happened. Well, I think there have been various attempts to quantify that, and as I recall, the Grassroots Institute is also trying, again, to get a really good handle on a tight study that can actually show a price linkage to the Jones Act. But the studies have projected somewhere in the range of 20% attributable to the Jones Act. 

One way you can tell that, [in] a very, very artificial way of going about this is, imagine that you go into the grocery store here in Hawaii and you buy anything on that shelf, and then go up to California and buy the same thing on that shelf in California. That difference has virtually nothing to do with anything other than the cost of shipping that unit from the mainland to Hawaii.

Akina: You’re right. I think people realize intuitively that the costs are high, in part, because of shipping, and we’re talking about everything from goods in the store to the most important commodity, which is housing.

Case: Well, let’s talk about some of — Exactly. I was about to say that because sometimes people focus only on how much something costs in the grocery store, but let’s look at the fact that almost all of our housing supplies come from the mainland. If we talk about the high cost of housing, well, imagine that you add 10% [or] 20% to your products that go into housing right off the top. You think that’s not going to make for a more expensive house? Of course, it is.

Akina: Well, some say that this is the price of paradise, that in order for us to have paradise the way it is, we need the Jones Act specifically, and for our sense of national security, that in times of war, we need to be able to mobilize our merchant Marine fleet in order to protect us. What are your thoughts about that argument?

Case: I think it’s not borne out by the facts anymore. For example, take that argument. First of all, our military operates military Sealift ships, which it has at its disposal, and those are built overseas. Our military gets that at [one quarter of] the cost of building ships for our military — somewhere in that range — one-quarter of what it costs for us to build it here, No, 1. 

No. 2 …

Akina: Let me just step in for a moment, then we can go back to what you were about to say. You’re saying that our United States military actually buys ships from overseas, from our allies, presumably.

Case: Correct.

Akina: Whereas under the Jones Act, our businesses are not allowed to do the same thing with their commercial fleet?

Case: Well, yes, that’s correct, except that they get around it by being able to buy three manufactured parts of those ships overseas and then bringing them here and assembling them here. They kind of get the best of both worlds. No. 1. No. 2, take a look take a look, for example: in 1950, we had 400 Jones Act ocean-going vessels. Today, we have 99. Obviously, a couple of generations ago, we had many, many shipyards. Today, we have essentially three shipyards.

So whether we like it or not, what has happened is that the world has run by us in terms of manufacturing ships, becoming quite adept at operating those ships out there in the international sea lanes. Why should we not benefit from that? Why should we be subjected to the high cost, especially in an island state like Hawaii? Again, if the mainland wants to do it, I’m less concerned about that. I’m concerned about Hawaii. You talked about the price of paradise? I don’t accept the price of paradise just off the top of my head.

I’m just sorry, everybody says the price of paradise. There’s lots of things we can do here in Hawaii to deal with the price of paradise. Yes, it is going to be more expensive in many areas, but doesn’t mean we have to extort money from the folks that live here because of an excuse like the Jones Act.

Akina: Well, I don’t need to tell you how important the unions are here in Hawaii, and how prominent they are in terms of political power. One of the arguments put forth by defenders of the Jones Act: If we modify it, if we change it, we will end up in massive losses of union jobs. What is your thought about that?

Case: Well, I don’t agree with that. First of all, the Jones Act requires that ships be built in the U.S., manned by U.S. crews, and subject to U.S. laws, and that’s as it should be. There is no reason whatsoever why we cannot require foreign ships transiting between U.S. ports to be subject to U.S. law. They should be. They should be subject to environmental law, labor law, certainly subject to whatever collective bargaining agreements are entered into by the workers on those ships. That’s No. 1.

No. 2, I would make this point. Every single one of those folks that are out there working in Hawaii, the hundreds of thousands of folks that are working in Hawaii and their families, including the 20% that are unionized in a way, all pays for Jones Act shipping. A very, very small number of workers, it’s probably 3,000 Jones Act seamen across the entire country, are really, from my perspective harming — not them themselves but the Jones Act, and the implication of the Jones Act to Hawaii — are harming hundreds of thousands of workers, unionized or not. They’re the ones that are suffering as well. Their jobs are at risk because prices are too high.

Akina: We’re going to go take a break, and when we come back, I want to ask you about some of the legislation that you put in in the past and plan to put in your current term in Congress, and we’ll hear a little bit more about your views on the Jones Act. My guest today, Congressman Ed Case, is talking with me about the Jones Act don’t go away. When we come back we’ll also move on to a few other topics of importance to Hawaii and the United States. I’m Keli’i Akina on ThinkTech Hawaii’s “Hawaii Together.” We’ll be right back.

[Intermission]

Akina: Welcome back to “Hawaii Together” on the ThinkTech Hawaii broadcast network. I’m Keli’i Akina, president of the Grassroot Institute. Hawaii is the most isolated archipelago on the earth. Of all the states in the United States, we’re the one that is most dependent upon shipping and shipped goods of every kind for our daily lives, for our economy and for all things, even for our own sense of security in this world.

Rep. Ed Case, however, has raised questions about a 100-year-old shipping law known as the Jones Act, and we’re going to continue our conversation on that. 

Congressman, in your first term you introduced some legislation for revising the Jones Act. Can you tell us a little bit about that and what you may have planned for this current term.

Case: Well, I actually introduced three bills. The first bill said that the Jones Act should not apply at all to any noncontiguous part of our country …

Akina: That’ll be like Hawaii, Puerto Rico …

Case: Anything other than the mainland, it wouldn’t apply, so we’re talking not just about Hawaii but Guam, Saipan, Virgin Islands, Samoa, Puerto Rico, Alaska. These are the areas of our country as to which the Jones Act has a disproportionate effect, which is what we’ve already talked about. 

Then No. 2, I said, “OK fine, if these other jurisdictions don’t want to do that, then I’m going to just try to exempt Hawaii itself.”

No. 3, I said, “OK fine, if you don’t want to exempt the Jones Act for westbound shipping from California to Hawaii for some reason, then at least exempt the Jones Act or take the Jones Act out of the shipping back to the mainland.” 

There I was trying to get at my agricultural producers, who had no real avenue to get their product to market, and I said, “Hey you’re sending back empty ships but you’re still charging Jones Act prices. Fine, if it goes from here back to the mainland, then let the Jones Act go for that.”

The answer was absolutely no. The reason was because they viewed it as a slippery slope. The Jones Act business as to the noncontiguous parts of our country is minuscule compared to the rest of the country. The Jones Act lobby in Washington, which is a very powerful one, basically views any exemptions to the Jones Act as a slippery slope. They’re not willing to simply say, “Yes, we understand Hawaii’s problem, we’ll go with you on that one.”

Akina: Well, it’s obvious that you represent Hawaii, and you are concerned about the problems of Hawaii, but why have you focused primarily on Hawaii in the noncontiguous regions, rather than looking at a national solution to the Jones Act?

Case: Well, I think there’s many problems with the Jones Act on a national basis, but I was just trying to pick my fight. My fight is for Hawaii and the noncontiguous areas. If there’s a broader movement out there for Jones Act reform — and I think the Jones Act at 100 years needs a little bit of discussion; it’s not the same world that was 100 years ago — I’m fine being part of that. But you’re correct, my focus is on the folks that I represent here who are paying, unnecessarily, some of the highest prices in the entire country. That doesn’t have to be that way.

Akina: What kind of legislation can we expect coming out of your office during this time?

Case: Well, I’m going back to the idea of exempting Hawaii out, but I’m taking it another angle this time as well. What I’m putting together is a proposal that says, “Look, the international cost of shipping is out there, and it’s pretty well established.” Actually, you find indexes out there that have, “How much does it cost to take a cargo from here to there?” It’s all in how much space you have on an ocean-going vessel.

These are well established, like the consumer price index. There are standard prices that are paid. I’m saying basically, “OK, if you’re going to keep the Jones Act in place, then you cannot charge more than X% above that international rate. Well, yes, we’ll take the Jones Act as a given, but you can’t gouge because you have a monopoly because of the Jones Act.”

Akina: Now, you are the only major political figure in Hawaii, or from Hawaii, who has spoken out in a big way with the Jones Act reform. How do you account for that?

Case: I’m not going to prejudge my colleagues in Congress — not past, present, or future. There have been others [politicians], as you being one very good example, who agrees with me on the Jones Act. Other politicians from Hawaii simply take at, I think, more face value some of the arguments that I think used to be advanced for the Jones Act, for example, military readiness or maintenance of domestic shipbuilding capacity. I don’t think the facts support it anymore, as we’ve already talked about, but I think that that’s their orientation.

I think that they are also, I would assume, comfortable with the Jones Act ships continuing to come here at higher prices and are less comfortable with the idea that, if you didn’t have Jones Act requirements, that the international shipping would pick up the slack and you’d have real competition.

Akina: To what extent do you think their arguments are really based upon reason or perhaps to what extent would other politicians be in the pocket of Jones Act lobbyists?

Case: Well, I’m not going to speak about them, but I’ll tell you one thing. Some of my most powerful political opponents throughout my career have come from this particular issue. These are folks that don’t like me talking like I’m talking on your show. They don’t want the public to think about the consequences of the Jones Act or the high prices. They don’t want to have to consider that maybe the arguments don’t exist anymore, and their remedy is to keep people like me out of office. And when I get into office, to keep me from continuing in office.

Akina: You’re a champion for Hawaii and the noncontiguous regions such as Puerto Rico. You have allies in Congress. Do you expect to be able to get consensus for your attempt to help Hawaii in the noncontiguous regions?

Case: I think I do have allies in Congress. The Jones Act does impact negatively other parts of our country. There are whole industries, for example, and especially in the Midwest, who would love to get their products to market at a cheaper level than what the Jones Act allows them to do. You can take this from a number of different slices. You’ve got folks out there simply don’t believe this regulation; they don’t believe in protectionism in general. Then of course there are folks that represent areas like Guam and the CNMI, or the Marianas, that are my allies in Congress.

Akina: Do you think you’ll get bipartisan support for your effort?

Case: I would guess so, yes. But again, I haven’t put this out to my colleagues yet so I don’t know what support is there.

Akina: You have one colleague, Rep. Garamendi, who is floating a bill now to include LNG in Jones Act ships. Right now, we don’t have any ships that can actually carry LNG under the Jones Act. What do you think about his efforts?

Case: I think it’s trying to fix a problem the wrong way, is what I think. He’s a good friend of mine, and he’s an ally of mine in many other areas. But on this particular one, I’ll have to respectfully disagree. 

One of the things you discover about the Jones Act as you take a look at it, is there are whole categories of ships out there that we’re not producing in our shipyards. LNG carriers are one; there are some tankers, some very specialized oil related barges that have to function under exemptions for the Jones Acts. That should tell you that there’s something wrong with it in general.

Akina: Let’s move on to some questions that have to deal with other issues. You’ve brought some legislation forward that [prevents] internet platforms from being used to defeat laws in Hawaii that have been formed recently against Airbnb and other platforms such as that. What are your thoughts here?

Case: I do believe that the proliferation of illegal vacation rentals is hurting us in many categories. It’s hurting us by the noncompliance of most of these operations with tax laws and labor laws and other laws that are imposed on hotels right now and are not being imposed by them, or if they are they, they are not paying for them, No. 1. No. 2, I think this is directly jacking up the cost of housing because, after all, if I can sell my house as a hotel, it would be worth more than if I sold my house as a residence.

What does that do? It increases the cost of housing, it takes inventory out of local people being able to buy those houses and/or rent them. Again, this falls in the category of, “Hey, you were sitting around chalking this up to the price of paradise? Well, it’s our fault for letting these vacation rentals get out of hand on an illegal basis.” 

We’ve got good laws now, and they’re being enforced here, but the internet platforms are claiming that our laws don’t apply to them because they’re not liable if they knowingly post illegal content on their sites. And there’s a federal law that they are hiding behind, the federal law says that, and I say no, I don’t agree with it.

Akina: Here at the local level, we see the divide often times between those who are promoting personal property rights on one hand and equality of community life on the other hand. How do you find the balance between the two?

Case: Well, we have balanced those very successfully throughout many decades. Some people might not agree with that balance, but we’ve had strong planning and zoning laws in Hawaii throughout our statehood and before. In fact, we are really quite revolutionary in our laws. 

Clearly, that gets in the way of some people making a lot of profit. By the way, when we’re talking about illegal vacation rentals, the old line about how this is just about so and so that is a senior person and just needs to rent out his or her home — that is by far the exception to the rule.

The real rule here is second homes owned by people that are operating them for profit, and many, many times they own a lot of these homes. That’s what’s jacking up the cost of housing, because those are out of market; they’re being operated as hotels. I think that most people in Hawaii understand that, and they agree with the direction that we are going now.

Akina: Hawaii has become a place that people have to leave, unfortunately, because of the cost of living. We’ve got highest per capita rate of brain drain, people who just leave the state because they can’t afford it. What are your thoughts about this migration of population out of our beautiful paradise?

Case: Well, back to my earlier point, I think a lot of this is self-inflicted by us, assuming that we are always going to have to have a very high price of paradise, as you put it. Yes, to some extent that might be true, but there’s many, many things we can do to help our own situation as opposed to just taking it for granted, No. 1. 

No. 2, it always comes back to — and we’ve talked already — about shipping prices is contributing to that. We’ve talked about housing prices contributing to that, and I could go on to other prices.

Akina: Well, I want to thank you for being with us. I just realized we could go on talking for another half hour or longer. You’re going to be available to the people of Hawaii in some forums that are upcoming. In fact, we can put that onto the screen right now. Do you want to say a couple of things about your Talk Story?

Case: Well, I think it’s just a really, really critical time for me to stay in touch with the folks I represent. I have always run my Talk Stories where it’s me personal, there’s nobody censoring questions. You can see on the screen there, that’s one of my Talk Stories. I’m just here talking with the folks that I represent. We’re running six more during my current period back home starting this Wednesday, Thursday, Friday, Saturday. Two on Saturday and then on Monday, we’re doing an electronic Talk Story for those folks that couldn’t come personally. Information is at case.house.gov, case.house.gov, and that’ll tell you everything you want.

Akina: Very good. Well, Congressman Case, thank you so much for spending time today. Always good to talk with you.

Case: Thanks for having me on.

Akina: My guest today, U.S. Congressman Ed Case, talking about the Jones Act. If you want to see more, tune in in two weeks on ThinkTech Hawaii’s “Hawaii Together.” Until then, I’m Keli’i Aknina. Aloha.

 

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