View Point

Friday, December 5, 1997

To fix economy,
junk the Jones Act

Restrictive law raises prices
of all goods shipped to Hawaii and that's
nearly everything on store shelves

By Gene Ward

HAWAII'S infamous cost of living has been so high for so long that many feel there's nothing that can be done. The governor convened a task force to deal with our economic problems, but little has been mentioned about the reform of a law -- the Jones Act -- that hurts all of us living in Hawaii.

The Jones Act is the common name for Section 27 of the Merchant Marine Act of 1920, a federal law. It requires that cargo shipped between any two U.S. ports must be carried on U.S. ships built, flagged, owned and operated by U.S. citizens. Other ships can't compete for this business.

These restrictions significantly raise the cost of doing business and increase costs for consumers. In Hawaii, we are especially hurt since most of our merchandise comes from mainland destinations and depends on shipping.

According to a 1991 study by the U.S. International Trade Commission, the Jones Act costs consumers as much as $10.4 billion per year in higher prices.

Independent consultants in Hawaii estimate that Hawaii residents pay an additional $1 billion per year in higher prices because of the Jones Act. This amounts to approximately $3,000 for every household in Hawaii.

Rob Quartel, a former member of the Federal Maritime Commission and president of the Washington-based Jones Act Reform Coalition, stated recently that "a typical four-person Hawaii family requires a budget 40 percent higher than its counterpart in a typical mainland city."

Quartel explained that while transpacific shipping costs are some of the lowest in the world -- especially from the U.S. to Asia -- freight rates between the mainland and Hawaii are some of the highest.

In Hawaii, for example, shipping prices are so expensive because of the Jones Act, that Hawaii cattle ranchers find it less expensive to send their cattle to the mainland via Boeing 747s.

As Congressman Nick Smith wrote in May, "It doesn't have to be this way. There are 164 cattle carriers floating around the world's oceans that would love to be of service to the Hawaiian cattlemen but are barred from serving them because of the Jones Act."

That same month, the president of the 110-member Hawaiian Cattlemen's Council Inc. noted that "as much as 60 percent in costs could be saved utilizing competitive livestock carriers transporting whole herds at one time. The Jones Act costs consumers and small businesses in Hawaii approximately a billion dollars per year."

On the mainland, problems resulting from the Jones Act include U.S.-flag rates that are up to 400 percent higher than foreign-flag rates. It's now cheaper to haul clay from Brazil to Maine than from Georgia to Maine, and steel from South America to Puerto Rico than from Baltimore, to name just two examples.

Only three countries -- Brazil, Indonesia and Peru -- have maritime laws that are as extensive and restrictive as those of the Jones Act. Brazil, which wishes to play a major maritime role in South America, is easing its laws. Great Britain, one of the greatest maritime trading nations in the world, has no restrictions whatsoever.

The Jones Act does not protect U.S. interests. Our ship-building industry is dying. More than 50 U.S. ship-building yards closed between 1980-87 while protected by the Jones Act. Of the 50,000 jobs remaining in the U.S. ship-building industry, nearly all are in military and defense construction, not Jones Act-related building.

Similarly, the U.S. merchant fleet has dropped from a high of more than 2,500 self-propelled, deep-draft ships in 1945 to an active fleet of 291 commercial ocean-going ships today, of which only 130 are Jones Act-qualified (the remainder are restricted to the foreign trade).

Once one of the largest and most prestigious merchant marine fleets in the world, the U.S. fleet now ranks among the oldest -- failing even to make the top 10 list of world merchant marine powers based on absolute numbers.

From a national defense standpoint, the current Jones Act fleet has very few of the roll-on, roll-off vessels used by the military. During the Gulf War -- the largest movement of goods and materials since the Vietnam War -- President Bush suspended the Jones Act because it was deemed to be an impediment to the movement of critical military resources.

So what needs to be done?

In each of the last three years, bills to reform the Jones Act have been introduced in Congress. This year, the Coastal Shipping Competition Act (CSCA) has been introduced in hopes of reducing shipping costs for businesses and product costs for consumers.

Among the provisions of this bill, CSCA would:

Remove the Jones Act's anti-competitive restrictions, while harmonizing existing U.S. law with international maritime standards to which the U.S. is a signatory.

Eliminate the U.S.-built requirement but retain (with a limited exception) the requirement for an American crew.

Require that a foreign ship that would be allowed in the domestic trade must be from a country that has a reciprocal agreement with the U.S. This would allow U.S. carriers to operate in the coastal trade of that nation.

Amend Coast Guard rules for all vessels, U.S. and foreign, in the coastal trades to meet recognized international safety, manning, and marine construction standards. Other currently applicable environmental standards and tax provisions under U.S. law will continue to apply to all vessels operating on a regular basis in U.S. domestic trades.

If Hawaii is serious about tackling the economic and cost-of-living problems currently facing Hawaii's families and businesses, the reform of the Jones Act must be near the top of its list.

Gene Ward is a Republican state representative.
The opinions in View Point columns are the authors' and are
not necessarily shared by the Star-Bulletin.

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