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Why the Jones Act and PVSA need to be updated for the 21st century

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The 1920 Jones Act and its “cousin,” the 1886 Passenger Vessel Services Act, were the topics of Keli’i Akina’s latest conversation with radio host Johnny Miro.

It was broadcast this past Sunday, June 6, 2021 over the H. Hawaii Media family of radio stations on Oahu at 101.1 FM, 107.5 FM, 101.5 FM, 96.7 FM, 97.1 FM, and 103.9 FM, and online at hawaiistream.fm.

Akina explained during the 20-minute interview why both of these protectionist federal maritime laws need to be updated for the 21st century.

Noting that the Jones Act applies to merchandise and the PVSA to passengers, Akina said both interfere with market efficiency, raise prices for consumers, have limited Hawaii’s economic potential, and have failed in their missions to protect the U.S. shipbuilding industry and national security.

They discussed President Joe Biden’s recent waivers of the Jones Act, intended to compensate for the brief shutdown of the important Colonial fuel pipeline, and his approval of a congressional bill  to temporarily waive the PVSA, intended to help Alaska’s suffering tourism industry, which relies heavily on cruise ship commerce.

Asked what Hawaii can learn from the PVSA exemption for Alaska, Akina responded:

“Well, the biggest lesson is the importance of demonstrating the harm caused by these protectionist laws and assembling a broad coalition that supports reform. Having a strong statement from the Alaska Legislature and governor also helped push the bill forward in Congress. This is the kind of cooperation and action we need to achieve in order to see updating of the Jones Act for Hawaii.”

Listen to the 21-minute interview below. Or read the full transcript, also below.

6-6-21 Keli‘i Akina interviewed by Johnny Miro of H. Hawaii Media 

Johnny Miro: Good Sunday morning to you. I’m Johnny Miro. It’s time for public access programming here on the H. Hawaii Media family of radio stations on the Island of Oahu. We have 101.1 FM, 107.5 FM, 101.5 FM, 96.7 FM, 97.1 FM, 103.9 FM. Also available streaming at hawaiistream.fm. 

I’m joined once again by the president and CEO of Grassroot Institute of Hawaii, Keli’i Akina. Good morning to you, Keli’i.

Keli’i Akina: Johnny. It’s great to be with you on a beautiful Sunday morning in Hawaii and aloha to all your listeners.

Miro: Another trade wind day in Hawaii nei. Well, the Jones Act, Keli’i, has been in the news a lot lately. A lot of people think it sounds innocuous, doen’t really impact their lives. We’ll find out about that. Also, PVSA — you can explain that.

But the first question for you on this Sunday is the Jones Act. Yes, it’s been in the news lately due to the issue with the Colonial Pipeline. Can you explain what the Jones Act is to folks, and how it’s related to the pipeline shutdown?

Akina: Sure, Johnny. The Jones Act is a federal law, but first, let me tell you how it impacts us. Cows are sometimes shipped by plane rather than ships to the West Coast because of the Jones Act; or rock salt, which is used during snow and ice storms needs to be imported from Chile through the Panama Canal instead of being sourced from the United States. Every family in Hawaii pays $1,800 a year at least, adding to the cost of living because of the Jones Act. The 1920s federal law requires that ships that go between U.S. ports carrying cargo be U.S.-built, U.S.-flagged, and 75% owned by U.S. companies.

The Jones Act, as a result of these laws that were put in place in the 1920s, brings major inefficiencies. For example, the U.S. is one of the largest propane producers in the world, but there are no Jones Act-compliant ships that can bring it to Hawaii from the mainland. That’s why we have to get our propane from overseas. We can’t get it from Texas. The Jones Act raises costs across the board for businesses and consumers. It’s actually more profitable for the Gulf Coast refineries to send their fuel to Latin America than to the East Coast.

During the winter storm emergency in 2014, New Jersey had to pay an extra $700,000 for road salt shipments because they couldn’t get a Jones Act waiver. We could go on, but let me just keep this focused, that the Jones Act is a law that puts a real financial burden on everyone in Hawaii and the United States.

Miro: How is it related to the pipeline shutdown?

Akina: Well, that’s a good question. The ransomware attack temporarily shut down the 5,500-mile long Colonial Pipeline. We all know that from the news. That used to deliver, at that time, about 100 million gallons of fuel a day from Texas to New York, New Jersey and Tennessee. The shutdown caused temporary gas shortages on the East Coast along with a spike in fuel costs. Gas stations in several states, and that included Virginia, North Carolina and Washington, D.C., reported running out of gas completely. I think we recall the news reports.

Now, because this was not a supply problem, but a distribution problem, the immediate question was whether the fuel could be delivered to the East Coast by some other method, presumably ocean tankers, and that’s where the Jones Act comes into play, because the Jones Act would require any fuel taken from Texas to the East Coast to do so on a Jones Act ship.

Miro: I see, OK. Well following the attack on the pipeline, I guess, the Biden administration granted two waivers of the Jones Act. Why is that?

Akina: Right. In the past, Jones Act waivers have been granted in times of emergency, like the waiver that was granted to Puerto Rico after Hurricane Maria, or the Gulf Coast after Hurricane Harvey. Technically, the act can only be waived in the interest of national defense or to avoid an immediate adverse effect on military operations. But the concept of national defense can be a broad one when the situation calls for it.

When the pipeline shutdown occurred, there were fewer than 60 Jones Act-compliant tankers, and just because the tankers exist doesn’t mean that they’re actually available at the moment to address the emergency. So the Biden administration granted two limited waivers that allowed Cisco and Valero Energy to use foreign-flagged vessels to move fuel from their Texas refineries to the East Coast. Now, the fact that we needed a waiver to handle these shipping emergencies points to a fundamental flaw in the Jones Act.

Miro: Sounds like it. Well, it’s fundamentally about the supply of fuel to the East Coast, so how does the Jones Act affect Hawaii?

Akina: Well, because so many things need to be shipped to Hawaii, the Jones Act has a much bigger cost for Hawaii residents than it does for those on the mainland. Grassroot Institute published a study that quantified the cost of the Jones Act to Hawaii, and here’s what we found in that research: Jones Act overall costs Hawaii $1.2 billion annually. That includes 9,100 fewer jobs because of the Jones Act and $148 million in unrealized tax revenue.

The Jones Act adds $389 to the cost of housing for every average family. It adds $147 to the annual price of groceries; that’s food and beverage. And because of the Jones Act, Hawaii spends an additional $4.3 million to $9.7 million on cars sold in the state than it would if they could be shipped from domestic ports using market-rate services.

Due to the Jones Act, Hawaii spends between $19 million and $65 million more on gasoline. The Jones Act costs Hawaii’s retail industry an average of $54.3 million a year and 624 lost jobs, and it adds between $54.4 million to $255.9 million annually to the cost of real estate and construction. Are you getting the picture, Johnny, that the Jones Act has a pervasive effect on virtually every industry in Hawaii?

Miro: Indeed, indeed. We’re speaking with Keli’i Akina, president and CEO of Grassroot Institute of Hawaii. Another question: You are advocating, obviously, for a change in the Jones Act. What kind of reform would you like to see?

Akina: Well, a lot of people tend to talk about the Jones Act only in extreme terms, either repeal the Jones Act or just leave it alone exactly as it is. But I think there’s a much more rational approach in the middle. What we advocate at the Grassroot Institute is updating the Jones Act for the 21st century. Keep in mind, this law is more than 100 years old. It was made for a different era and so much has changed, from our economy to the way we do warfare. It’s not that we have to throw the Jones Act out completely; what we have to do is bring it up to date.

Modifying one part of it, the United States-built requirement — the requirement that all ships be built in the U.S. so that it would be possible to purchase ships from our allies — would help alleviate some of the economic costs of the Jones Act, but it wouldn’t endanger national security and it would not risk American jobs. I think there is a way to update the Jones Act for the 21st century that serves everyone.

Miro: How would updating the Jones Act affect Hawaii?

Akina: Well, there’s a lot of speculation and debate about what could change if the Jones Act was reformed. Because of the Jones Act, everything from housing and food, to insurance and medical services costs more. We calculate that the Jones Act adds $1 to the average family’s housing costs, 40 cents to their food bills, and 14 cents to their electricity bills every single day, and a Hawaii family spends about $5 a day to support the Jones Act. Over time, that really adds up.

Here’s what our research shows: that just modifying the United States-build requirement, in other words, saying that we could use ships that were built by our allies, would end up saving Hawaii $530 million a year, at [the] very least. It would add 3,860 jobs, and it would generate $30.8 million in state and local tax revenues. So it’s a good thing for everyone if we can at least update the Jones Act.

Miro: Well, there are proponents, Jones Act proponents are saying that we need the act to protect American jobs and national security. How would you respond?

Akina: Well, those are real concerns, and our response is very simple. We can update the Jones Act without touching American jobs in a negative way, or touching national security. In fact, a rational update will actually increase available jobs. Basically, the only thing that we’re suggesting we change is where we buy our ships. We can still man them with the United States crews, flag them with the United States flag, operate regulations like OSHA on them, they can still be owned by American companies. There’s nothing that harms national security that will come about simply by being able to buy our ships from our allies, because we can still operate them in the same way that the Jones Act has operated them for a long time.

Beyond that, we should acknowledge, however, the Jones Act in its current form has actually failed to protect national security or jobs. The fact that we need waivers, for example, to get through a fuel crisis or a national disaster indicates that the Jones Act is inherently flawed. There are fundamentally better and more effective ways to address the national security issue, such as through special government programs or subsidies that ensure a large pool of qualified mariners.

Miro: We’re speaking once again with Keli’i Akina, president and CEO of Grassroot Institute of Hawaii. Grassroot Institute of Hawaii, it’s grassrootinstitute.org if you’d like information and some of the releases that they have there, just like the one we’re discussing this morning, the Jones Act. Now, are there currently any proposals in Congress, Keli’i, to reform the Jones Act?

Akina: I’m pleased to say that there are. In fact, there’s at least one Hawaii legislator up in Congress who’s very much an advocate of Jones Act reform, and that’s Congressman Ed Case. He’s, in fact, introduced three bills to reform the Jones Act. The first bill that he’s introduced, it’s called the Noncontiguous Shipping Relief Act. It would exempt all noncontiguous U.S. locations, including Hawaii, from the Jones Act, and he has a couple more bills as well. Our hat goes off to Ed Case for his efforts.

On the other side of the aisle in Congress, Sen. Mike Lee, a Republican from Utah, has offered several different Jones Act reform bills as well. One called the Protecting Access to American Products Act, and another one he’s introduced recently along with Rep. Tom McClintock of California called the Open America’s Waters Act. We’re eager to read the actual text of that bill which has just been introduced. We’re not quite sure of what all the content is, but we’re pretty confident that it at least contains what we’re proposing, which is a modification of the United States-build requirement allowing ships that serve its ports in the United States with merchandise between those ports to be built by our allies.

Miro: I guess that there is another maritime law that you’ve written lately that you’ve called The Jones Act for Cruise Ships. Can you explain what that law is?

Akina: Right. It’s got a heavy name, the Passenger Vessel Services Act, the PVSA. It’s even older than the Jones Act. It was passed in 1886, making it about 135 years old. This law, which is very similar to the Jones Act — in fact, one way to think about it is Jones Act deals with cargo, the PVSA, Passenger Vessel Services Act, deals with people. This PVSA applies to ships carrying passengers rather than goods.

Its requirements are, as I said, very similar to the Jones Act. It requires that any ship under the jurisdiction be U.S.-flagged, U.S.-built, and mostly owned by and crewed by Americans. Like the Jones Act, the PVSA was intended to protect U.S. maritime jobs, but it’s also failed, and even more spectacularly. The last large ocean cruise liner built in a U.S. shipyard was in 1958. That’s because of the onerousness of this law.

Currently, there’s only one PVSA-compliant large cruise ship here in Hawaii, the Pride of America, which was actually largely foreign-built through an exemption pushed through by Sen. Inouye. It’s the only one allowed to sail in Hawaii’s waters.

Miro: How has the PVSA affected the cruises in the U.S. and in Hawaii?

Akina: Under the PVSA, only ships flagged and built in the U.S., and mostly owned and crewed by Americans may transport passengers from one U.S. port to another. Foreign cruise liners are allowed to pick up passengers at a Hawaii port and cruise in Hawaii waters, but their passengers may not go ashore until they’re returned to the ports from which they started unless their ships also stopped at a faraway foreign port such as Ensenada, Mexico, or Fanning Island out in the middle of the Pacific. That’s 1,000 miles away from where we are in Hawaii.

That’s really a great burden that a ship under the PVSA needs to go to a foreign port before it can come back to an American port. A cruise liner attempting to make such a voyage in violation of the PVSA requirement can be fined up to $798 per passenger. Now, this foreign port requirement is devastating to cruised-based tourism in Hawaii. It’s one of the reasons there are so few luxury cruise liners seen in our waters.

Miro: Would reforming the PVSA help Hawaii’s tourism industry?

Akina: Yes, absolutely. Removing the PVSA’s build requirement, that its ships be built in the United States, would lower the upfront capital costs and conceivably encourage many more companies to enter the market, and that would bolster cruising into Hawaii and bring down the cost of cruising as well. But to really open up the cruising industry in Hawaii, we would need a broader reform of the PVSA. This could help create a new avenue of tourism and speed our state’s economic recovery. There are good reasons to consider it.

Well, important to remember also is that the PVSA was enacted in a very different era. That was before air travel and before Hawaii was a state. The rationale for the law is long passed, and now it serves mainly to throttle the cruise industry between American ports, something that disproportionately affects Hawaii when we compare living here to the mainland.

Let me quote UH Emeritus Professor of Economics James Mak. He concluded about the PVSA more than 10 years ago as the following, “The current and antiquated law imposes costs on a lot of people but confers few, if any, national benefits.”

Miro: We’re speaking with the president and CEO of Grassroot Institute of Hawaii, Keli’i Akina. Of course, the 49th state is probably feeling the effects of this. The Grassroot Institute, I guess, recently got involved in a campaign to create a PVSA exemption for Alaska. Why does Alaska need the exemption?

Akina: Well, Alaska is not as affected by the PVSA because ships can fulfill the foreign stop requirement at a Canadian port. That’s not that far away from Alaska. That has helped build the cruise industry in Alaska, and cruises now make up a substantial proportion of the state’s tourism. Alaska hosted more than 2.26 million visitors in 2019, of which 1.34 million arrived by cruise ship, [accounting] for 90% of the visitors of Southeast Alaska. The Resource Development Council for Alaska estimates that before the COVID-19 crisis, one in 10 Alaska residents worked in tourism, thanks to visitor spending totaling more than $2.2 billion a year.

The pandemic came and the lockdown came, and that was devastating to Alaska’s cruise industry. Cruises were suspended for months, and even after the CDC began lifting its restrictions on cruising, Canada continued to prohibit cruise ships that carry more than 100 passengers from landing at any of its ports and intends to keep doing so until at least February 2022. That has really impacted Alaska. In order to help the tourism industry recover, Alaska needed an exemption to the PVSA that would allow foreign cruise ships to skip the foreign-port requirement.

Miro: As a Hawaii organization, you submitted testimony to the Alaskan senate. Why?

Akina: Well, our situations are similar, and we can understand the difficulties of trying to revive a suffering tourism industry. Like Hawaii, Alaska is a noncontiguous state that bears a disproportionate burden of laws like the PVSA and Jones Act. As we said in our testimony, Hawaii and Alaska have a history of working together to push for less costly federal shipping regulations.

Back in the 1960s and ’70s, bipartisan lawmakers from both states tried to reform the protectionist Jones Act, but to no avail. It’s more important to show lawmakers that there is a coordinated effort to reform these laws and that they don’t just affect one state or one region. We believe that Hawaii may benefit from the fixing of the PVSA, or the waiver that occurred for Alaska.

Miro: Well, what was the result of that effort?

Akina: Well, the Alaska Resolution, which we supported, urged Congress to exempt the state from the PVSA’s foreign-port requirement as a means to solve the problem posed by Canada, and not surprisingly, it was approved by the Alaska Legislature and signed by the governor. Then in Congress, both Republicans and Democrats worked together to pass it. It was called the Alaska Tourism Restoration Act, which temporarily allows ships to travel directly between Washington State and Alaska, without having to stop in Canada. Recently, President Biden signed the bill, a big victory and an acknowledgment that PVSA hurts the American industry, and we applaud that move.

Miro: Well, what can Hawaii learn from Alaska’s PVSA exemption?

Akina: Well, the biggest lesson is the importance of demonstrating the harm caused by these protectionist laws, and assembling a broad coalition that supports reform. Having a strong statement from the Alaska Legislature and governor also helped push the bill forward in Congress. This is the kind of cooperation and action we need to achieve in order to see updating of the Jones Act for Hawaii.

Miro: Anything else you’d like to add, Keli’i, as we wrap things up here on a Sunday morning?

Akina: Well, Johnny, I’m optimistic. Even though we’ve lived under the yoke of the Jones Act for 100 years, people are learning about it and learning about the impact it has on our pocketbooks and on our industry and on tourism in Hawaii. And if we can update the Jones Act and the PVSA for the 21st century, we can do something good for all people.

What I’m really pleased about is that this is not a partisan issue. We’ve got Democrats and Republicans working together to bring about change, and I’m confident that we’ll see change come about. That’s why we’re committed to working on good research in the area and good communication, and anyone who wants to learn more about this can visit us at our website grassrootinstitute.org.

Miro: That’s grassrootinstitute.org. We’ve been speaking once again with the president and CEO of Grassroot Institute of Hawaii, Keli’i Akina, another enlightening conversation. Mahalo for joining us this morning, and look forward to speaking with you once again very soon.

Akina: Johnny, thank you. Much aloha.

 

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