As federal policy makers examine possible solutions to Puerto Rico’s entrenched fiscal challenges, attention has turned to the Jones Act, a little-known federal shipping law that requires all goods transported by water between U.S. ports be carried by ships built in the United States, owned and registered in the United States, and crewed by U.S. citizens.
Also known as the Merchant Marine Act of 1920, the Jones Act was designed at least in part to protect the U.S. shipbuilding industry from foreign competition, on the theory that shipbuilding is an essential part of U.S. security. It was deemed important to the government to have a strong shipping industry and experienced seamen in case future wars needed the capacity to build and staff ships quickly in response to defense needs.
The “Krueger Report,” a study commissioned by Puerto Rico Governor Garcia Padilla and authored by former officials of the International Monetary Fund (IMF) and World Bank, recommends exempting Puerto Rico from the Jones Act. The Governor’s recently released plan to strengthen the territory’s public finances and restore economic growth similarly contains a proposal to “[a]sk Congress to repeal Jones Act’s application to the commonwealth in order to reduce maritime transport costs to the island.”
Yet opposition to the proposal to carve out Puerto Rico from the Jones Act is growing.
The Navy League recently sent a letter to the House Armed Forces committee arguing that the Jones Act continues to be important for national defense. “Any weakening of the Jones Act would weaken national and economic security,” they stated. Quoting Air Force General Paul J. Selva, the Navy League explained that “without the contribution that the Jones Act brings to the support of our industry, there is a direct threat to national security.”
The Navy League letter also cited a 2013 study by the Government Accountability office that recognized, “the military strategy of the United States relies on the use of commercial U.S.-flag ships and crews and the availability of a shipyard industrial base to support national defense needs.”
The American Maritime Partnership (AMP) wrote its own letter to the Armed Services Committee, also quoting the GAO’s findings on the impact of the Jones Act on national security. “According to DOD officials,” wrote GAO, “to the extent that Jones Act markets [like Puerto Rico] are unable to sustain a viable reserve fleet, DOD would have to incur substantial additional costs to maintain and recapitalize a reserve fleet of its own.”
The letter also referenced section 3503 of the National Defense Authorization Act of 2015, which includes the “unquestioned” national security benefits of the domestic maritime industry and offered strong support for the Jones Act.
The AMP letter also referenced claims that the Jones Act increases the cost of goods in Puerto Rico and refuted them as “unsubstantiated and contrary to the findings” of the 2013 study. The letter explains that ” the GAO found that there were far too many factors impacting the cost of transportation in Puerto Rico to identify a specific cost attributable to the Jones Act, if any,” and notes further that “[t]he agency said it is even more complicated —’difficult, if not impossible’ — to quantify any purported cost of the Jones Act on the price of consumer goods on the island.”
The American Maritime Partnership cited GAO in its prediction that if the Jones Act were ever repealed for Puerto Rico, the shipping rates for foreign shipping companies operating between the U.S. mainland and the Commonwealth could well increase because those foreign shipping companies would suddenly be subject to American tax, employment, immigration, and other U.S. laws.
The group also noted that two thirds of the ships bringing freight to Puerto Rico are foreign ships from foreign ports.
The American Maritime Partnership ended its letter with a caution that including an exemption in any legislative package intending to help Puerto Rico in the current fiscal crisis would only decrease the odds of passage of such a package as “Congress understands the important benefits of the Jones Act and historically has been opposed to legislation that would outsource American jobs and undermine national, economic, and homeland security.”