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Working for a better economy, better governance and a better society

Grassroot Institute of Hawaii research associate Jonathan Helton gave institute President Keli’i Akina the lowdown on the federal government’s 1886 Passenger Vessel Services Act during the latest episode of “Hawaii Together” on the ThinkTech Hawaii network.

As Helton explained in both his interview with Akina and his new report for the institute, “Cruising in Hawaii,” the PVSA is a lot like the Jones Act, only it applies to people, not cargo.

Like the Jones Act, it is harmful to Hawaii’s economy and should be either repealed or reformed.

Listen to this highly informative interview and learn about the history and economic implications of this blatantly protectionist federal maritime law.

Or you can simply read the complete transcript of the conversation below. Please also read Helton’s report, “Cruising in Hawaii.”

10-26-20

Jonathan Helton 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. 

Well, ocean cruising here in Hawaii should be a natural part of our tourism industry, but did you know that a federal law has held it back for more than a century? That’s according to a new policy report from the Grassroot Institute of Hawaii. The report examines the 1886 Passenger Vessel Services Act and its effect on the economy. Now, in many ways, it’s similar to the Jones Act, which deals with cargo, but the PVSA deals with people and cruise ships.

To talk about that today, I have one of our research associates at the Grassroot Institute, Jonathan Helton, who put together the recent report published by the institute. Jonathan, welcome to the program. Aloha.

Jonathan Helton: Thank you. I’m glad to be here.

Akina: Well, you’ve done great work, and I thank you for that. You along with a bunch of other bright young minds are fueling a lot of our research at the institute, and I wanted to feature you today. Can you tell me a little bit about what you do at the Grassroot Institute and why you are involved?

Helton: Sure. Starting off with why I’m involved: In high school, I was debating about transportation policy. We ran across the Jones Act as one of the big issues in transportation policy, and even after high school I kept researching it. I got here to college and eventually I got in contact with you guys about writing some articles and stuff about maritime policy. I’ve been here about two years. I have been working on Jones Act-related projects and now the PVSA project.

Akina: There’s so much that you could be involved in. Why do you choose to be involved in an institute that commits itself to individual liberty, free markets and limited accountable government?

Helton: Well, I think especially for the Jones Act issue, it’s a matter of what’s promoting good public policy. We’ve got a law that obviously hasn’t worked. It’s been on the books for so long. I think it’s good for the economy at large if we update that law, and that applies to a lot of other policies you guys are working on as well.

Akina: Well, we’re going to talk about the Passenger Vessel Services Act, which is similar in some ways to the Jones Act, but slightly different. First, I want us to bring our audience along. Could you just very succinctly describe the Jones Act, which we’ve been talking about, and which we’ve discussed quite a bit on this program?

Helton: Sure. The Jones Act was passed in 1920, 100 years ago, and it has four basic elements. The first is that any ship moving cargo between two U.S. ports has to be built in the United States. The second is that it has to be crewed by U.S. citizens. The third is it has to be flagged in the United States. The fourth is that it has to be owned by a U.S. company. The Passenger Vessel Services Act is very similar.

Akina: Well Jonathan, let me ask you, what has the impact of these rules on our ships that are used in the Jones Act trade been on Hawaii?

Helton: The Jones Act, according to one of the more recent studies, costs Hawaii millions of dollars annually and prevents the creation of thousands of jobs.

Akina: It has an economic impact on the whole economy and obviously, then, an impact on the lifestyles of our people, the cost of living. Well, now you said the Passenger Vessel Services Act was similar to the Jones Act. Let me ask you a general question: What kind of transportation does the PVSA apply to?

Helton: As the name implies, it relates to transportation of people. We’re talking cruise ships, ferries; anything that’s moving people from point A to point B across the water is pretty much covered by the PVSA.

Akina: OK. Now that’s in contrast to the Jones Act, which covers the movement of cargo between two U.S. ports.

Helton: Absolutely.

Akina: Now, I have to tell you this. I have rarely read anything in the general media about the Passenger Vessel Services Act, which we will call PVSA. What motivated you to dive into this, research it and get published with us?

Helton: I think it was summer of 2019, we were looking into some maritime-related issues, and PVSA popped up on our radar. There have been a couple of op-eds published over the years, but as you’ve said, there’s not really been a lot of analysis of this law. We found a couple of op-eds, and then one study done in 2009 by some people at the University of Hawaii. We decided to run with it from there, do some additional research. We found there was actually a little bit more than we thought, and we decided to turn it into a policy report discussing the law’s history and its impact. 

Akina: All right. Well, let’s dive into the PVSA itself. First of all, highlight how it differs from the Jones Act, and give us a little bit of the history of the PVSA here in Hawaii.

Helton: Sure. I’ll start with how it differs from the Jones Act. In some ways, the PVSA is less restrictive than the Jones Act, but at the same time, it’s a lot more confusing. 

There’s really two differences between the PVSA and the Jones Act. The first is a closed-loop cruise. What a closed-loop cruise is, is a cruise ship will, for example, leave Los Angeles, visit Hawaii, and then return to Los Angeles. But to return to Los Angeles, in order to not violate the PVSA, it has to stop at a foreign port. This would be a port like Vancouver or Ensenada, Mexico. It’s called a closed-loop cruise because it begins and ends at the same U.S. port. That’s the first big difference.

The second is a distant-port exemption. I’ll give you an example of some cruises that have happened in Hawaii before. A couple of years ago, there were some cruise lines that would commonly offer cruises in Hawaii that would allow their visitors to visit the Hawaiian Islands, but they would have to make a stop at Fanning Island. Fanning Island is an island that’s about 1,000 miles south of Hawaii and isn’t U.S. territory.

The cruise lines could escape the PVSA by visiting this distant foreign port. You see this today with cruises that will leave from the West Coast, stop by Hawaii and then continue on to Australia or Asia. Under the Jones Act, it’s a lot stricter, and ships would have to unload their cargo at every foreign port before returning to the U.S. port. They couldn’t move cargo, for example, in the same way that the PVSA moves passengers.

Akina: I want you to recap what you’ve said about Fanning Island. You’re talking about a closed loop in terms of travel from one coast back again to that coast, and yet one way of getting around it and being able to use a ship, given the PVSA rules, is to stop at this international site, the Fanning Island.

Helton: Yes, that’s the distanT-port exemption. You visit somewhere that’s not in North America, and you can escape this PVSA restriction. Lots of cruise ships would just take the 1,000 miles sail south, and then they would return to visit the Hawaiian Islands to escape the PVSA restrictions.

Akina: What are the implications of having to get around the PVSA by stopping at Fanning island? How does it impact the ships and the passengers?

Helton: For the passengers, it might not be too much of a burden on them, but it really hurts Hawaii’s state economy because if the ship is spending one day, two days, three days sailing to Fanning Island and then back, that’s money that the tourists could have been spending in Hawaii’s shops and towns and cities. The same way if you’re cruising to the West Coast as well. If a cruise ship decides to take the extra couple of days to visit somewhere like Ensenada, Mexico, both Hawaii and the West Coast are losing out on revenue. It’s been spent in other countries.

Akina: Stopping at such a port has become impractical at times, so Hawaii has been exempted from it on occasion, particularly in World War I, and recently as well. Do you want to talk a little bit about that?

Helton: Sure. There’s a couple of fun exemptions we found for the PVSA. In World War I, there was a lack of ships, and ships were being conscripted into the U.S. Army. So some legislators suggested that Hawaii be exempted from the Passenger Vessels Services Act in order for goods and people to actually get to Hawaii from the mainland. There was an exemption that ran from 1917 to 1920 that allowed foreign cruise ships to move people in between the mainland and Hawaii.

Akina: Well, recently because of the coronavirus, we’ve seen a virtual shutdown of cruise ships coming to Hawaii and leaving, but prior to that, the market was quite active. Do you want to describe what it was like in terms of the cruise liner market here in the Hawaii waters?

Helton: Absolutely. There were obviously the West Coast-to-Hawaii cruises that would then have to make the stops at Mexico or Canada in order to qualify for the PVSA. There were also the cruises that were going between Asia and the United States, and they would sometimes stop off at Hawaii. Then one of the other big ones was the Pride of America, the only ship that can actually cruise within Hawaii waters without having to visit a foreign port on its itinerary.

Akina: Well, tell me a little bit more about that, the Pride of America. That seems extraordinary that there’s one and only one ship that can be exempt from the PVSA rules. How is it that that’s the case? Do you see the opportunity for other ships to have that exemption as well?

Helton: The Pride of America was one of the big issues that was on our radar when we first started researching this. I’ll give you a little bit of the history. 

In the early 2000s, there were a couple of companies that decided that they wanted to try to invest in the Hawaii market and build PVSA-compliant cruise ships that could service some Hawaii routes. They tried two, and they had a shipyard in the southern USA contract to build a ship to service the Hawaii market.

The shipyard couldn’t actually complete this ship, and this ship had to be transported over to Europe to be finished. Once the ship was finished in Europe, it didn’t qualify as a U.S.-built ship; therefore, it wasn’t going to be able to offer cruises in Hawaii waters. Some senators from Hawaii and elsewhere got together and they were able to sponsor an exemption for the company, which was Norwegian Cruise Line, to allow the ship to operate in Hawaii waters. Norwegian Cruise Line not only got this ship, but they got two others, the Pride of Hawaii and the Pride of Aloha, to also operate in Hawaii … waters. This was maybe 2005 when all of these ships were actually active in Hawaii-only itineraries.

Akina: Well, how many U.S.-owned cruise line companies are there? How many of them serve Hawaii?

Helton: Today, there’s actually a surprisingly large number of U.S. cruise line companies, but the difference here is that most of these current cruise line companies don’t have PVSA-qualified cruise ships. Think, Disney, for example. That’s a U.S. company, but Disney doesn’t operate any ships on routes that would have to fall under the PVSA. 

In general, apart from the Pride of America company and the company that operates them, there are only a few U.S. cruise line companies that have PVSA ships. Most of these operate on routes in the Mississippi River or maybe in the Pacific Northwest. Some of them visit Alaska. These are all smaller vessels and smaller cruise lines than what we think of when we think of going on a cruise, for example, in the Caribbean.

Akina: You’re saying that the PVSA limits the extent to which U.S. companies can operate cruises in Hawaii or even up and down along the West Coast, or to and from other domestic ports in the mainland, like Seattle or Alaska. Is that right?

Helton: Absolutely. One of the big deterrents is that building a cruise ship in the United States would just be extremely expensive. There hasn’t been an ocean-going cruise ship — like what we think of normally when you think of cruise ships — there hasn’t been one of those constructed since the 1960s in the United States. As I said, there was the one in the early 2000s that they tried to build, but despite federal subsidies, they weren’t actually able to complete it. That’s simply a barrier to entry to any company that would want to enter the U.S. cruise market.

Akina: Well, let’s go back to what you’re saying about Disney. I understand that they hope to start cruises in Hawaii waters as early as 2022, once the coronavirus restrictions are fully lifted. They would be launching from Vancouver, Canada, and stop in Honolulu before returning. Is that because they use foreign-built ships?

Helton: Yes, that’s correct. Now, Disney actually expressed interest in the late 1990s in building a PVSA ship, but there weren’t any U.S. shipyards that wanted to build it. They simply didn’t have the know-how because they hadn’t built such a ship, as I said, since the ’50s or the ’60s. Yes, Disney, using foreign ships, is going to have to depart from Canada or Mexico, if it’s going to offer cruises in Hawaii waters.

Akina: Disney certainly hopes to be able to return to Hawaii and make it one of its key stops. In terms of the economic impact of the PVSA, what have we been able to tell overall?

Helton: The economic impact has been varied in some instances, but I’ll bring up the example of Puerto Rico. Puerto Rico got an exemption from the PVSA in the mid-80s. It saw its cruise tourism industry boom. Several million dollars in revenue, massive amounts of visitors from the U.S. mainland who don’t have to have a PVSA ship to cruise to [Puerto Rico]. They’re able to use all of the foreign ships that are available … to cruise to Puerto Rico, and they were able to visit it from there without having to take detours to foreign locations.

Akina: Well, we’ve received a question from a viewer right now, as we’re broadcasting live streaming on the internet, and it has to do with how we would fix the PVSA. I’m going to ask you that question a little later on, after we take a break, but thank you Jonathan for informing us about the PVSA. My guest, Jonathan Helton, a research associate at the Grassroot Institute. We’ll be right back. I’m Keli’i Akina on ThinkTech Hawaii’s “Hawaii Together.” Don’t go away.

[Intermission]

Akina: Aloha and welcome back to “Hawaii Together” on the ThinkTech Hawaii broadcast network. Grassroot Institute has just published a research report on the Passenger Vessel Services Act, and I hope you can get ahold of that. It’s on our website, www.grassrootinstitute.org. That’s “grassroot,” singular, “institute.org.” 

[The PVSA is] a little bit complex, but Jonathan Helton, one of our research associates who put the report together, is explaining it. We’ve been talking about some of the interesting history of it.

In particular, Jonathan, I want to go to something that is related to the Disney ships, but a separate matter. Tell me about a little bit of the history with Pride of Hawaii and how it actually became the last ocean-going U.S. cruise ship. There’s a little bit in there that dives into politics, I understand. There was a role played by our U.S. Sen. Daniel Inouye, and he was even opposed at the time to the Jones Act in the late ’60s and early ’70s. Tell us a little bit about that.

Helton: Sure. Let’s first look at Sen. Inouye’s opposition to the Jones Act. 

Shortly after Hawaii’s statehood, Alaska was also opposed to the Jones Act as well. So congressional representatives from Alaska and Hawaii got together to try to sponsor some resolutions and bills to reform the Jones Act. These ultimately fell through. It didn’t attract enough interest in Congress to get them reformed. But fast forward a few years to 2003, and Sen. Inouye is attempting to exempt some of these ships, specifically the ships that they failed to construct in the U.S. shipyard. He’s trying to pass an exemption for this ship to be allowed to operate in Hawaii waters. He successfully works this exemption through Congress, and Congress actually grants the company, Norwegian Cruise Line, the ability to have three ships in the Hawaii trade.

Akina: That’s very fascinating because people believe that the Jones Act is an issue that is divided on partisan lines. But it’s very interesting that Sen. Inouye and other Democrats were actually opposed to the Jones Act and found ways to exempt Hawaii ships from it. That ultimately impacted the PVSA.

Helton: Absolutely. Even today, the two main Jones Act reform proponents we have [are] Rep. [Ed] Case from Hawaii, who’s a Democrat, and then Sen. [Mike] Lee, from Utah who’s a Republican. This is definitely a bipartisan issue. We actually were able to contact Sen. Case regarding the PVSA. He said he hasn’t looked into it much, but that he would definitely be interested in looking at the PVSA as an item.

Akina: Well, it’s definitely a bipartisan issue. Now, the PVSA has not only affected ocean cruising out in the big ocean, Atlantic and Pacific, but also the river cruises that take place in the United States. Tell us a bit about that.

Helton: Sure. One of the big stories when it comes to the PVSA and river cruising is Viking Cruise Lines. In maybe, I think it was 2015, Viking expressed interest in offering cruises in the United States and on the Mississippi River. One of the challenges that Viking ran into is having to buy ships from U.S. shipyards to operate on these routes. Because normally with Vikings routes in Europe, it’s going to buy ships from European shipyards. It couldn’t do that. It would have to buy significantly more expensive ships from U.S. shipyards. As of today, Viking has actually made some contracts with U.S. shipyards to go ahead and offer cruises in the United States. I believe that’s starting in 2022. For a couple of years, Viking wasn’t sure if it was going to be able to, because of the capital cost that they’d have to pay upfront to get the ships that it could have gotten from Europe for maybe three times less.

Akina: I understand that in doing your research you reached out to scholars such as Dr. James Mak at the University of Hawaii. Back in 2009, he did some research and ultimately concluded that we should abolish the PVSA. What did you learn from professor Mak?

Helton: Professor Mak’s study was probably one of the most detailed analyses of the PVSA that’s been done so far. He looked at what happened when Norwegian Cruise Line removed two of its ships from the Hawaii trip. Because remember, there were three, now we only have the one, Pride of America. When it introduced those three ships to the Hawaii market, prices [to cruise on] … these ships fell, and the number of tourists that were visiting Hawaii on these routes went up significantly.

Citing various reasons, Norwegian Cruise Lines decided to remove those two other ships from the market. The result was then increased cost, and now we only have the final U.S.-flagged ocean-going cruise ship, the Pride of America operating in Hawaii.

Akina: What do you think would be the major benefit to Hawaii from reforming the PVSA?

Helton: I think the biggest benefit is that, if we either repealed the PVSA entirely or reformed it so that U.S. companies could buy foreign-built cruise ships, we would see a lot more companies either offering routes that were entirely in Hawaii — that would be under repeal scenario — or, if it were reformed, we would be able to see U.S. companies — there are several, as we’ve talked about — that might decide to buy a PVSA-qualified ship,  if they were able to get it abroad. Then they could offer routes directly from Hawaii to the West Coast. They would be able to cut out those confusing stops at Vancouver or Ensenada or Fanning Island. There would be more time for the tourists to spend in Hawaii, which is going to bring more revenue to state coffers.

Akina: We could experience significant economic gain not necessarily from repealing the PVSA, but reforming it in terms, particularly, of where we get our ships produced and allowing our companies to buy them from our allies overseas?

Helton: Definitely. Interestingly, that’s actually something that members of the river cruise industry had suggested. Unlike the Jones Act, where a lot of the industry members want to block foreign-built ships, there are members of the U.S. river cruise industry, such as American Steamboat Co., that have in the past expressed concern about the cost of buying a ship in the United States, buying a cruise ship from a U.S. shipyard. It’s simply so expensive that they’d rather risk the additional competition and have the ability to buy their cruise ships from somewhere like Europe, and have them in the trade simply because it’s less expensive.

I think we’d see the same thing happen in Hawaii. We’d have companies that were able to come in and pay a much lower cost of upfront capital to be able to enter the market.

Akina: Politically, where does most of the support for the PVSA come from? Who’s really arguing that it should remain in place?

Helton: There are proponents of the PVSA that are also proponents of the Jones Act. For example, the Transportation Institute is one of the organizations that supports both laws on the premise that they support maritime security. There are several proponents who profess similar ideas, but there’s only one U.S. ocean-going cruise ship left. There’s not really much of an industry to protect from competition at this point. But some of the other supporters of the PVSA are actually supporters you’d not expect.

For example, Canada really benefits from the PVSA because cruises to Alaska from Seattle have to stop off at somewhere like Vancouver before they can continue on for their routes, to fall under the PVSA. Canada actually benefits from PVSA. Some have suggested that in the past, Canada has actually lobbied to leave the law in place so that their cruise hubs get additional revenue, as opposed to that revenue going to a U.S. city.

Akina: Reform of the PVSA would be in the interest of American companies and consumers?

Helton: Definitely.

Akina: Now, during the past several years, have there been attempts to repeal the PVSA?

Helton: Sure. In the early 2000s, when there was a bunch of interest in reforming the Jones Act, there was also interest in reforming the PVSA. Now, there were several bills. Some of them would have repealed it entirely. One of them that I found interesting would have allowed companies to buy foreign cruise ships with the promise that they would then, after being in the market for a while, also buy U.S.-built cruise ships. It would be a middle-of-the-road approach where it allowed companies to have a lower cost of capital now, but then they’d have to promote the U.S. shipbuilding industry by buying one later.

Unfortunately, none of those efforts really got anywhere, although in 2017, I believe it was, there was some interest from one of the federal agencies in looking at how to stimulate the passenger vessel market, the cruise market in the United States, and that faced some backlash. Ultimately, there hasn’t been anything recent that would have repealed the PVSA.

Akina: Where does that issue stand in Congress right now, both in terms of where it is amongst our congressional delegates from Hawaii and beyond in Congress in general?

Helton: We reached out to several of the members of the congressional delegation from Hawaii. The only one who expressed any interest in maybe looking at the law or revisiting it to perhaps reform it was Rep. Case. Sen. [Brian] Schatz expressed his support for the PVSA. The other ones didn’t get back with us. That’s really the main interest in repealing or reforming the PVSA. It’s a bipartisan issue like the Jones Act could be. I know Rep. Case and Sen. Lee have several bills in Congress that will reform the Jones Act. So far, neither of them have proposed bills that would amend the PVSA.

Akina: What do you think motivates members of Congress who are advocates for the PVSA?

Helton: Frankly, I don’t think there are a ton of supporters. If there are supporters, these people support the PVSA for the same reason they support the Jones Act, the premise of a healthy maritime industry that would boost national security

. Frankly, I don’t think that many of the members of Congress really know what the PVSA is. They don’t know that there’s only one bluewater cruise ship left in America and that cruise ship wasn’t even built in America. They don’t know that we haven’t built a cruise ship in the United States in over 60 years. They don’t know that the riverboat companies, the cruise companies that operate on the Mississippi, … would actually like to see reforms to the PVSA. 

That’s one of the benefits of this report, … we’re getting the word out about the state of the cruise industry in the United States and how it’s ripe for reform.

Akina: That’s very interesting, because one might think that at the root of the advocacy to retain the PVSA, you would have a whole bunch of special interests operating on congresspersons, but what I’m detecting from what you say is that, that may not be the case. It may be that this just flies under the radar because nobody knows about it, and nobody will know about it until they read your report.

Helton: Right. I think that’s pretty much accurate. There’s not been much organized support for the PVSA, absent from it being lumped in with the Jones Act as U.S. cabotage law.

Akina: Well, short of a total repeal, which may not be practical for any ancient federal law — by ancient I mean about a century old — what do you think is the most feasible change we can propose to the PVSA that might have a chance in Congress?

Helton: I think that the best idea right now is to advance a build-requirement reform similar to what we’ve argued should be done for the Jones Act. Allow U.S. companies to buy foreign-built ships, the same as they do for foreign-built airplanes or foreign-built trucks. These would be significantly less expensive, especially in the case of the cruise liner market, since we just don’t have the know-how to build them in the United States anymore.

Akina: Thank you, Jonathan. You’ve done a great job on the report, and it is available at the Grassroot Institute website, grassrootinstitute.org. I appreciate your work. I want to ask you to give a closing comment. Tell us what you would say to a congressperson if you’re trying to help them understand the importance of changing the PVSA.

Helton: I would point out the tremendous cruise potential that especially Hawaii has, and Alaska has. I would say, “Hey, did you know that there’s only one U.S. cruise ship left?” They probably wouldn’t know that. Then I’d point them to the fact that it’s just so expensive to buy a ship here, that no one wants to. If we want to bring revenue to these port-side states and port-side cities, it would be really helpful if we reform the market so that people could buy foreign-built ships, for example.

Akina: Well, Jonathan, thank you very much for your work again, and thank you for being on the program today, I appreciate it. Aloha to you.

Helton: Thank you for having me on.

Akina: Well, I hope you all enjoyed your time with Jonathan Helton, research associate at the Grassroot Institute. If you are interested in researching with the Grassroot Institute, let us know. We’re constantly looking for bright minds who care deeply about principles of liberty, economic freedom and maintaining a limited, accountable government. Those are important values to us at the Grassroot Institute. I hope you found this program helpful. Until next time, I’m Keli’i Akina, wishing you much aloha.