Ship law protects Americans from unfair foreign competition
A second U.S. flag cruise ship is leaving Hawaii, focusing attention on a pending federal rule that would enforce existing laws intended to protect U.S. ships from unfair competition. Some claim it is not worth it, if it means a reduction in foreign ship port calls. But the state's own data suggests just the opposite, showing that a single U.S. flag cruise ship generates 3.5 times the economic benefits of the entire foreign flag cruise fleet in Hawaii.
Any rule that helps preserve such significant economic benefits for Hawaii deserves a closer look. What is really at issue is the most fundamental of principles: Those doing business in the United states must follow our laws. Laws that ensure workers get a fair wage and work reasonable hours; laws that govern safety and national security; immigration laws; and laws that require those enjoying the benefits of the American economy to pay their share of federal, state and local taxes. These laws apply to all businesses in the United States, whether it is Honda building cars in Ohio or Hilo Hattie selling aloha shirts in Honolulu.
The same is true of ships. Our cabotage laws require ship owners, when they operate domestic voyages within the United States, to follow the same laws as everyone else doing business here. The way our government enforces these laws is to require ships be documented under the U.S. flag, not unlike the way states keep track of cars and trucks.
Once a company decides to license a ship here, it becomes subject to our laws. As every American business person knows, compliance with our laws costs more. It is no wonder, then, that foreign ship owners strive mightily to avoid operating domestically, finding ways to sell Americans domestic "Hawaii cruises" all without "doing business in the United States." These cruises begin and end in the United States, and call entirely at Hawaii ports except for a single Mexican "service call" for as little as an hour in the middle of the night with no passengers getting off the ship. Through this simple device they avoid not just the cabotage laws, but a host of laws with which everyone else who does business here must comply. Simply put, they have found a way to operate inside our waters, but outside our laws.
Customs and Border Protection concluded that this was an evasion of the law and proposed increasing the required "foreign content" of these cruises. Customs is right to call the foreign lines on this behavior. Customs identified the lower cost foreign competition that has sailed through this loophole as an "imminent threat" to the U.S. flag cruise fleet. Frankly, given how much the foreign lines benefit, requiring them to spend a few more hours in foreign ports is letting them off easy. No one would think of allowing Hawaiian Telecom to claim it was not doing business in the United States by routing its calls through Mexico for an hour every few weeks and in so doing avoid all federal taxes, labor laws, immigration laws and the like. The result should be no different here.
In 2003, Congress expressly recognized the national security and public policy reasons for supporting U.S. cruise ships. By developing a pool of qualified seafarers and supporting a maritime industrial base (these ships must be repaired in U.S. yards), the U.S. flag cruise fleet helps maintain the country's preparedness for a national emergency. Since 2003, round-trip foreign cruises to Hawaii using the loophole have increased an astonishing 430 percent. This dramatic increase in lower-cost foreign competition not only threatens U.S.-flag cruise shipping, but it could well sink Congress' national security objectives as well. Customs is right to be concerned.
Customs' proposal has generated many comments, including those of our governor. However, press reports indicate that Customs is moving toward a significantly modified rule that removes the controversial 48-hour port requirement. Instead, the modified rule would simply require round-trip, foreign-flag cruises from domestic ports to have sufficient foreign content in order to be exempt from U.S. taxation, immigration, labor and employment laws when competing against U.S. flag ships. Because it would apply only where large U.S. flag cruise ships are operating, prior law would control if current U.S. operations were to cease for whatever reason.
Hawaii state data estimates the economic impact of withdrawing all of the foreign cruise ships to be $155 million in economic impact, $44 million in earnings impact and 1,447 jobs. But the rule applies only to certain round-trip cruises, which one major foreign line said were only 43 percent of its Hawaii cruises. Foreign operators can modify their port calls to comply with the new rule or find other itineraries. So, assuming even half of these foreign ships leave Hawaii if the modified rule were to be adopted, these economic effects would be cut in half.
Is it worth adopting a modified rule to help the remaining U.S. flag ship? The state says the removal of the two U.S. flag cruise ships already means losses of $965 million annually and more than 9,000 jobs. Aside from the sound policy justifications, with annual cruise spending for a single U.S. flag ship estimated at $542 million in economic impact, $155 million in earnings impact and more than 5,000 jobs -- producing benefits that are 350 percent greater than all of the foreign ships combined -- the answer is a resounding yes.
Neil Dietz is secretary-treasurer of the Hawaii Ports Maritime Council of the AFL-CIO.