Would a Jones Act Exemption Help Puerto Rico?

Puerto Rico needs a lot of things right now, from continued rebuilding of hurricane-struck areas to equality under Medicaid and a strong plan for economic recovery.

Does Puerto Rico need to be exempt from the Jones Act?

What is the Jones Act?

Also known as the Merchant Marines Act of 1920, the Jones Act applies to ships carrying commercial goods from one part of the United States to another. While the phrase “part of” might not always apply to Puerto Rico, for the purposes of the Jones Act, it does.

A ship carrying commercial goods from Florida to Puerto Rico, for example, is subject to the Jones Act.

Here’s what the Jones Act says about ships carrying goods from one U.S. port to another:

• They must fly under the U.S. flag.
• They must have been built in the United States.
• They must belong to a U.S. company.
• The crew must be U.S. citizens or permanent residents.

The Jones Act also includes regulations that increased the accountability of shipping companies for sailors’ injuries and a variety of other things, but the points above are the ones that apply to Puerto Rico.

What is the point of the Jones Act?

On the surface, the Jones Act looks like a protectionist law that protects the U.S. shipping industry from foreign competition, but the goal was more than job security for American sailors and shippers. The government worried that in peacetime the U.S. wouldn’t be able to keep an active, skilled sailing force. If another war broke out — which it did — there might not be enough trained sailors to meet the needs of the Navy in war time.

By helping U.S. shipping companies and U.S. seamen maintain a strong presence during peacetime, the government figured, they’d be more likely to have qualified sailors to call upon when there was a military need.

The Navy League and similar organizations claim that the Jones Act continues to ensure that longshoremen, U.S. commercial vessels, and other resources needed by the military will be available when they are needed.

The Coast Guard were, observers report, one of the most valuable organizations in the wake of Hurricane Maria. Without the Jones Act, they might not have offered the same level of usefulness or availability.

Against the Jones Act

Those asking for a waiver of the Jones Act in Puerto Rico after the hurricanes were relying on a very simple fact: restrictions like those in the Jones Act limit the kind and number of ships that can bring goods to Puerto Rico.

If French ships are available to carry water filters and generators from Texas to Puerto Rico in an emergency situation, should they not be able to do so?

Even before the disaster, though, there were people who believed that the Jones Act was a limiting factor for the economy of Puerto Rico. Their point grew from this idea that the Jones Act meant fewer ships could bring commercial cargo to Puerto Rico. With fewer ships allowed to carry goods, they reasoned, there would be less competition and goods would cost more.

The Jones Act was waived for Puerto Rico for 10 days after the hurricanes. Three ships reached Puerto Rico under that waiver. The Department of Homeland Security says that future requests from ships that are not eligible under the Jones Act will be considered “on a case by case basis.”

Is the Jones Act really bad for Puerto Rico?

A study by the Government Accountability Office (GAO) looked at this question. They found, first, that 2/3 of goods arriving in Puerto Rico came in under foreign flags. While discussions of the Jones Act often phrase it as something like, “The Jones Act, which requires everybody in Puerto Rico to buy goods from an American-made ship with an American crew, limits business owners and jacks up prices,” this is not true.

The Jones Act applies only to ships going from one place in the U.S. to another. A Mexican ship traveling from Texas to Puerto Rico will be affected. A Mexican ship traveling from Mexico is not affected by the Jones Act.

The GAO found that the majority of ships bringing commercial cargo to Puerto Rico are not affected by the Jones Act.

The remaining 1/3 of commercial cargo ships are affected by the Jones Act. But does this actually raise costs? We can imagine a manufacturer in North Carolina getting ready to ship goods to Puerto Rico. They could hire a U.S. shipping company with American-made boats and an American crew, or they could hire a shipping company with cheaper foreign-made boats and a cheap foreign crew. The Jones Act requires that they hire the American-made company, and they pass their higher costs along to the consumers in Puerto Rico.

In real life, the factors affecting the costs of the goods sent to Puerto Rico include many things, and the potential savings on foreign-made boats are not high on the list. Consumers in Puerto Rico probably have the option of buying foreign-made goods (including goods made by U.S. multinational companies in countries like Mexico) most of the time.

However, some proposals for exemptions from the Jones Act have suggested exempting shipping companies going to Puerto Rico from the U.S.-built ship requirement. This appears to be the element of the Act that would be most likely to reduce costs. Those cost reductions might be passed on to consumers in Puerto Rico… but that would be at the discretion of the companies, which might choose to keep the savings in the form of added profit.

The GAO report

The GAO confirmed what common sense tells us: there is no evidence that the Jones Act is bad for Puerto Rico’s economy.

The GAO interviewed major players in shipping from the U.S. to Puerto Rico, including both retailers and shipping companies. They reported that shipping charges are not a significant part of their pricing strategies and do not affect the prices of consumer goods.

Instead, it seems likely that the Jones Act ensures that commercial goods are sent from the U.S. to Puerto Rico more regularly than they would be without the Jones Act. Backhaul (shipping in vessels returning to the States after delivering goods, typically at a reduced rate) opportunities help companies in Puerto Rico reduce their transport costs for goods being sold to people on the mainland.

The GAO report also reminded readers that cabotage laws like the Jones Act exist in most countries and for other kinds of transport besides ships.

Unity for Puerto Rico

Uniting in support of Puerto Rico may be an excellent goal, but the Jones Act might not be the most important focus.