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Running head: THE EFFECTS OF THE JONES ACT ON THE ECONOMY OF HAWAII

The Effects of the Jones Act on the Economy of Hawaii

Christer Tvedt

Hawai’i Pacific University

May 13, 2010

ECON 6000

Dr. Leroy Laney

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The Effects of the Jones Act on the Economy of Hawaii

The Jones Act, or the Merchant Marine Act of 1920, which is the act’s name, is the

United States Federal statute, or “cabotage law,” that regulates trade between ports within the

United States. This act was passed 90 years ago, during an era where protectionism was a

dominant political idea, and when strong forces were pushing for keeping as much American

trading dollars in American hands as possible. There has been little change to the Act since it

was introduced and several strong forces had fought to repeal or make significant changes to the

principles behind the Act for many years.

This paper will focus on the background and intention of the Jones Act by an excessive

examination of arguments from those who support and from those who propone the act. The

foundation of both sides of the arguments will extend the act’s validity in which it was created

and will express the notions upon which it was built. Further, the effect that the Jones Act has

had on the Hawaiian economy will be looked into and to which extent it affects the cost of living

in the state.

Historical Background and Purpose of the Jones Act

The Jones Act is officially named The Merchant Marine Act of 1920 but the original act

dates from 1898, and was, subsequently incorporated into the Act of 1920. The Merchant Marine

Act was named the Jones Act after Senator Wesley Jones who sponsored it, and the name has

ever since stuck around. The establishment of this act was due to concerns regarding the health

of the merchant marine and the protection of U.S. seamen; this understandably enough became

the reason for passing the act. The act recognized the innate dangers of working at sea, and the

value of training and educating seamen. Senator Wesley Jones was strongly influenced by

protectionist political views to ensure U.S superiority and dominance in domestic marine trade.

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“Considerable discussion has arisen with reference to Section 34, which directs

the President to give notice of abrogation of the provision of certain commercial

treaties. The purpose of this section is to terminate in an orderly, courteous and

diplomatic way treaties which are detrimental to our interests, and which prevents

us from doing what we think ought to be done to encourage and build up our

American merchant marine” (Jones, 1920).

The following quote exemplifies that the act, was in addition meant to bolster the growth of both

domestic and foreign marine trade, and strengthen the position of the American merchant fleet,

which became a significant argument for the Act after World War I.

“The trade of some of our island possessions is over a hundred million dollars a

year. It has been largely carried in foreign ships. It ought to be carried in

American ships and opportunity to only to put under the American flag more

ships but ships of the highest type and most desirable for ocean commerce. The

carrying of that trade should be ours. We have it if we will. If we do not take it no

one is to blame but us. With the assurance given private enterprises should

prepare to handle this trade. They will overlook the terrible experience that came

to us at the beginning of the world war (one) as the result of such a policy. Our

shipping could be done more cheaply by others, and so we had none” (Jones,

1920).

Essentially the Jones Act of 1920 was arguing that the U.S had to take charge of their

commercial situations following world war one. Countries around Europe tightened their control

on treaties that loosened their control of commercial activity in their country.

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“We are seeking to only do what other countries are doing. France has already

notified us of her intention to terminate her commercial treaty with us, and has

given a similar notice to Great Britain, Canada, Spain Greece, and Other

countries. Other countries are getting rid of treaties that may hamper them in the

contest of the world’s trade. It will be little short of criminal if we do not free

ourselves from those things that shackle us and prevent us from doing what we

know is for our best interest. These other countries are looking after their own

interest. If we do not look after ours, no one else will” (Jones, 1920).

For all intents and purposes the primary intention that Senator Wesley Jones sought out to

accomplish with this Act was to secure a strong American merchant marine fleet for the future

and also to ensure that all American trading dollars stayed in American hands. In addition the

Jones Act established something to the effect of a benefit system for American seamen due to the

fact that prior to its creation and concern, seamen who became injured on the job had few or no

options for recovering damages or getting assistance.

The Jones Act is a cabotage law, regulating the transportation of goods between two

points in the same country. The Passenger Vessel Act of 1886 regulates passenger transport, in

the same way that the Jones Act regulates transportation of goods, in which it states that “foreign

vessels found transporting passengers between places or ports in the United States, when such

passengers have been taken on board in the United States, shall be liable to a fine of two hundred

dollars for every passenger landed” (Magee, 2002). Cabotage laws are not unique to the United

States. Most industrial nations have some sort of restrictive legislation protecting their merchant

marine fleet. Cabotage laws are not only confined to ocean going trade; most countries also have

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restrictions on their air transport. Just as Japan Airlines cannot fly from Los Angeles to Miami,

foreign ships cannot ship trade between two U.S ports.

The Jones Act has two parts that are of specific historical importance. The first part

regulates the ships; they have to be American built and American owned. Repair work is also

regulated and foreign shipyards can fix no more then 10 percent of the hull and superstructure of

the ships. This is to prevent American ships to be refurbished at overseas shipyards with foreign

made steal. Further, the law requires 75 percent of the crew on a ship must consist of American

citizens. This section of The Jones Act was created to ensure a strong, well-staffed merchant

marine, which could serve the U.S. in both times of peace and wartime. This purpose is

summarized in the opening paragraph of the act:

“It is necessary for the national defense and for the proper growth of its foreign

and domestic commerce that the United States shall have a merchant marine of

the best equipped and most suitable types of vessels sufficient to carry the greater

portion of its commerce and serve as a naval auxiliary in time of war or national

emergency, ultimately to be owned and operated privately by citizens of the

United States; and it is the declared policy of the United States to do whatever

may be necessary to develop and encourage the maintenance of such a merchant

marine….. (Marine Cabotage Task Force (MCTF), 2010).”

The second noteworthy part of the Jones Act is the far-reaching benefits that were

established for seamen. It is stated that any sailor who is injured at sea is entitled to maintenance

and cure. Meaning the sailor’s employer must pay him or her a daily stipend and provide medical

care to treat the injury. In addition it gives the sailor a right to sue for damages if their injuries

were caused by negligence on the part of the ship’s owners or other crewmembers or if they sail

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on un-seaworthy ships. These rights are given to anyone who spends at least 30 percent of his or

her time in active service on a merchant marine vessel and includes all staff onboard from the

captain on down. The benefits provided by the Jones Act can be significantly higher than

benefits for workers on land; if a skilled attorney is involved.

The Arguments

Competitiveness

The main argument for keeping and/or even strengthening the Jones Act is to have a law

that helps the U.S merchant fleet to compete against foreign subsidies. According to the Lake

Carrier’s Association there has also been a notion that the Jones Act is somehow a subsidy.

“It is true that the U.S. government provides financial incentives to American

carriers in the overseas trades, but this program has never extended to Jones Act

carriers. The U.S. government must underwrite the foreign-trade fleet to a degree

as it competes with "Flag of Convenience" operators, companies which register

their ships in countries with little or no maritime regulation and employ Third

World crews willing to work for as little as $15 a day. Jones Act operators

compete against companies paying the same corporate taxes, complying with

safety and environmental laws, employing Americans, so no other support is

necessary.”

No other support is necessary because the domestic market is a closed market and everybody

competes on the same terms. The Jones Act prevents international flagged vessels from

operating between American ports, which in turn prevents the introduction of lower paid, more

crew-efficient ships. However, competition on the domestic market is fierce and there are many

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minor companies operating within special niches around the country, as examples, on the lakes

or river systems like swamp loggers etc. In addition, railroads, and in some instances trucks, are

major competitors to ocean transport in some areas of the U.S.

The Act also makes certain that companies comply with U.S. tax, labor, health, and

safety requirements: requirements that force costs up. Supporters of the Jones Act argue that

findings in the United States International Trade Commission’s (ITC) study “The Economic

Effect of U.S. Import Restraints,” which proclaims that there is a large economic gain from

repealing the act, are flawed. According to Gardner (2009), “the flaw, supporters argued, is that

many U.S. laws would apply to foreign-flag vessels as if they were U.S. flag vessels by virtue of

the engagement of the foreign-flag vessels in U.S. interstate commerce.” The argument finishes

by stating that many of these laws account for the cost difference between U.S. coastwise vessels

and foreign-flag vessels. However, economic studies, which will be discussed later show that

opening up the domestic market to foreign ships most likely will provide economic benefits that

exceed these differences.

Gardner (2009) further discuss the testimonies ITC gave on a hearing on the Jones Act in

May, 1998, which lead to a logical question:

“But if that were the case (that U.S. laws would apply to foreign flagged ships),

why is this industry fighting Jones Act reform so strenuously? First, MCTF

asserted that it was not clear that U.S. law would apply under any repeal of the

Jones Act and particularly the repeal as proposed in the then pending legislation.

Therefore, the Jones Act was important because it assured that U.S. domestic law

applied to vessels engaged in U.S. domestic commerce by virtue of requiring such

vessels to be documented in the United States. Second, MCTF asserted that the

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Jones Act contained elements - restrictive U.S. ownership and U.S. build

requirements - that are plainly not duplicated in other U.S. laws. Consequently,

consideration would have to be given to whether those elements served a public

policy purpose and whether changing them was fair to companies who had relied

upon them. The MCTF supported preserving both requirements.”

The testimonial from ITC and the reaction form the MCTF started a discussion if the Jones Act

was redundant. The question was if the Jones Act merely duplicated existing laws, (which

Gardner in his 2009 research concluded that based on a legal perspective the Jones Act was not

redundant) that laws would probably have to change if the Jones Act were repealed to create

fairness for the law to both U.S. flag vessels and to foreign-flag vessels competing in the same

trades and receiving the same benefits of U.S. commerce. “It was not clear if U.S. labor, tax and

immigration laws would apply to foreign-flag vessels taking part in U.S. interstate commerce”

(Gardner , 2009). The legal aspects of removing the Jones act are extensive, and beyond the

scope of this paper.

Furthermore the Lake Carrier’s Association argues, “There are few products or services

made or provided in this country that couldn’t be done cheaper if foreign labor or raw materials

were used, if the company could avoid taxes and regulations. To label U.S. flag vessel operators

“high-priced” are a deliberate distortion.”

However during a 1996 hearing before the Subcommittee on Coast Guard and Maritime

Transportation the president of the American Farm Bureau argued the importance of waterborne

transportation to U.S. agriculture in transporting products. He also argued that the current laws

undermined the ability of U.S. farmers to compete with foreign producers who could move their

products into U.S. markets on competitive foreign vessels. U.S grain farmers have not been able

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to ship grain from the mid-West to the Southeast because there are no Jones Act vessels

operating in the area. Southeastern poultry and pork industries have had to resort to import

foreign grain on foreign-flagged and owned ships (Piggott 2002).

Job Protection

The Transportation Institute (2009) adhere to the statement that the Jones Act is an

American tradition worthy of protection. The effect of exposing the American merchant marine

to international competition would be severe:

“If the Jones Act was repealed, the U.S. would experience a devastating loss of

maritime jobs - a loss to the U.S. In addition to the economic damage that would

result from the thousands of lost jobs, shipyards would stop investing in cost-

efficient operations. Long-term shipping contracts would cease, thus the economy

of scale built into those contracts would disappear. The current Jones Act fleet

would begin to erode and defaults on federally guaranteed mortgages would

escalate dramatically, costing the federal government millions of dollars. Total

exposure of the federal government and the owners of the vessels has been

estimated to be over $1 billion, thus the government has a compelling financial

incentive in seeing that the Jones Act fleet is not undermined and wiped out by

foreign competition.”

In other words, the Transportation Institutes states that the American merchant marine is not

competitive and would not survive such exposure.

Job protection has been a strong argument against interfering with any large industry in

the U.S. It has also been a significant area of debate regarding the Jones Act. According to the

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MCTF (2010) there are 499,676 jobs directly or indirectly related to the Jones Act in the United

States. These jobs are either on the ships, longshoremen, and shipbuilders, or in other ways

related to the shipping industry. Of these 499,676 jobs, 73,787 are directly linked to the

construction, repair or operation of the merchant marine, and only 45,286 jobs are on U.S.

flagged vessels and only portions of these jobs are likely to be directly challenged by foreign

seamen if the Jones Act would be repealed.

(First Name Please) Ferguson stated in his report from 1994 that “obviously, micro

policies affecting individual industries cannot replace macro policy in determining aggregate

employment. Nevertheless, the jobs argument provides a politically potent rationale for current

maritime policies. Regulatory reform here, as in many other industries, can be expected both to

enhance productivity and to depress demand for the workers currently employed in the industry.”

Looking at the consequences of a repeal of the Jones Act for the merchant marine alone will not

justify any decisions for the economic wellbeing of the country.

National Security

National security and military capacity is another strong point for the supporters of the

Jones Act. Ferguson (1994) says, “the basic public justifications for both protectionism and

subsidization are "jobs" and defense.” There are three military and objectives that are

propounded: (1) having a commercial fleet that can support the military in emergencies, (2)

having a reserve fleet for the same purpose, and (3) having a shipbuilding capability to supply

new ships in wartime. According to the Transportation Institute (2009).

“The Jones Act fleet plays a vital role in maintaining the nation's economic

security by ensuring the United States controls its essential transportation assets

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and the related infrastructure in both peacetime and wartime. American-owned

and American-manned ships ensure the safe transport of grain down the

Mississippi, ore across the Great Lakes, coal from America's heartland, and more.

Without the Jones Act, America's internal network of waterways would be

vulnerable to foreign shippers who don't play by the same set of safety rules or

adhere to important environmental standards. America's economy relies on an

efficient system of shipping, thus with foreign vessel operators playing a role, our

natural resources and goods, and citizens are subject to the whims of ship

operators who have a lot less at stake.”

Commercial shipping has been critically important during the wars of the last few

centuries and has been a major source of income for many maritime companies. The

international merchant marine knows no limits when it comes to commercial support;

commercial interests purely drive it. However, according to Ferguson (1994) “If the U.S.-flag

fleet is fully employed during peacetime serving commercially important domestic and

international trades, it is neither an entirely reliable nor a low-cost military reserve. More than 80

percent of traffic in American international liner commerce is carried by foreign companies.”

This number has since been upgraded to 97 percent buy the Department of Commerce (2001).

During the Gulf war a vast amount of the military goods were carried on foreign vessels

and the U.S. flag vessels did not deliver the level of support expected. The same was the case

after hurricane Katrina. Homeland Security (2005) gave several waivers to foreign flagged

vessels, as the U.S. merchant fleet could not handle the additional pressure on transportation of

petroleum products.

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The Transportation Institute (2009) further claims that “Jones Act vessel construction and

repair in U.S. shipyards assures the availability of the skilled professionals and the modern

facilities needed in times of war or national emergency.” This supports the third military

objective, which implies a plan to refight World War I or II. Three believes are required to

support this logic: (1) a future war will be so long that large injections of new ships are needed,

(2) that the existing reserve fleet will be inadequate and (3) that it will be impossible to obtain

adequate capacity by either purchasing existing ships in the world market or get new ones built

abroad (Ferguson, 1994). The implication would be that most of the worlds fleet and ship-

building capacity would be in non-friendly hands, which also implies that foreign governments

and businesses would show an unwillingness to earn dollars.

According to a study conducted in 1999 by the Bureau of Industry and Security, a part of

the U.S. Department of Commerce (DOC), “the U.S. commercial shipbuilding industry is

generally not internationally competitive, particularly in the construction of vessels over 1,000

gross tons. Various sources report several reasons for this lack of competitiveness, including

foreign government subsidies and other unfair trade practices, exchange rates, and lagging U.S.

productivity. In some niches, however, the United States currently has a significant world market

share based mostly on domestic sales. These niches include offshore oil platforms, yachts, fast

patrol boats, and recreational vessels.” The study also found that less than 2 percent of the

industry’s revenues came from export, and only 4 percent of the items and materials purchased

by shipbuilders are of foreign origin.

It is apparent that shipyards, which are currently uncompetitive with the rest of the world

due to a lack of innovative development and high costs have to reinvent themselves. Several

marine organizations state that the U.S. shipyards are the most advanced in both production and

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development of new marine technology. It is then strange that very little purchase of U.S. built

vessels take place in the international market. However, domestic companies have no other

choice than to get their ships built at U.S. shipyards due to the restrictions given by the Jones

Act. It is necessary then to beg the question why then are foreign operated vessels not built in the

U.S? In addition to the findings from the Department of Commerce’s study in 1999 there is one

significant element not mentioned. American shipyards use American steel and American steel is

the most expensive steel in the world (MEPS, 2010). In addition, American wages are far higher

than most large shipbuilding nations, like South Korea and China, to some extent due to unions’

fight for substantial benefits for shipyard employees. These factors further contribute to making

American shipyards uncompetitive in the international market. An example of the outrageous

shipping cost in U.S. shipyards can be found in an article by Robert Little (2001): “Matson

Navigation signed a contract this spring to repair five ships in Shanghai, China, even though it

will be fined 36 percent of its costs as a penalty for using a foreign shipyard. "It's still

considerably cheaper," said Matson spokesman Jeff Hull.”

The Economic Benefits From the Jones Act

The MCTF states that the total economic output from the Jones Act is more than $100

billion, whereas $11 billion in taxes, $29 billion in annual wages, and it adds $46 billion per year

to the value of U.S. economic output. The overall contribution of the Jones Act fleet and land

based support to the U.S. economy is shown as follows: (employment in number of jobs, dollar

amounts in billions of 2009 dollars)

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Direct Contribution Indirect and Induced Contribution

Overall Contribution

Employment 73,787 425,889 499,676

Labor Compensation $6.5 $22.6 $29.1

Output $36.4 $63.9 $100.3

Value-Added $10.5 $35.5 $45.9

Taxes $2.5 $8.9 $11.4

(Source: Transportation Institute, 2009)

Direct contributions of the Jones Act Fleet and land based support to the U.S. economy is shown

as follows:(employment in number of jobs, dollar amounts in billions of 2009 dollars)

Shipbuilding and Repair

Water Transportation Total Direct Contribution

Employment 28,501 45,286 73,787

Labor Compensation $2.3 $4.2 $6.5

Output $6.3 $30.1 $36.4

Value-Added $3.0 $7.4 $10.5

Taxes $0.7 $1.8 $2.5

(Source: Transportation Institute, 2009)

The Economic Impact of the Jones Act

There have not been many noteworthy studies on the economic impact that the Jones

Act has added on the U.S economy in recent times, and this is most certainly due to lobbying

between the industry’s major coalition of maritime organizations and companies, such as the

MCTF. In 1995, the Jones Act Reform Coalition (JARC) was formed by and among shipper

interest. This coalition’s purpose was to promote a repeal against the Jones Act or in the very

least substantially work towards modifying the Jones Act. In response to JARC’s attempts the

MCTF was formed and set out a counter attack in which ultimately concluded with MCTF’s

success in dissolving JARC in 2000.

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On the MCTF’s webpage they proclaim “under MCTF’s leadership, the American

maritime industry banded together as never before and through an extensive campaign to educate

the Congress, the media and the public of the importance of the cabotage laws to national and

economic security prevailed.” However, the ITC has done some studies since that have revealed

its most recent results of the Jones Act. Their investigations update entitled “The Economic

Effects of Significant U.S. Import Restraints” (2007) states that the estimated cost to the U.S.

economy from the Jones Act ranges from $3.6 billion to $9.8 billion per year. To arrive at this

estimate the ITC assumed that worldwide ocean transportation rates would apply in the U.S.

coastwise trade if the Jones Act were repealed. Their estimates also suggest that the maritime

transportation cost would fall with an average of 22 percent if the act were to be removed.

According to Ferguson (1994), “crews on American ships are 50 percent to 90 percent

larger than those of other industrialized countries,” which makes a significant difference in cost

levels. According to Little (2001) “ship owners say the federal government is largely to blame.

For decades, Congress has slashed or eliminated the industry's subsidies and protections while

imposing the costliest regulations, taxes and safety standards in the world.” Foreign-flagged

vessels that are manned by international crews are substantially less expensive to build and to

operate. However, these vessels may not call between two American ports without visiting a

foreign port of call in between. Often times this creates such an onerous economic hardship and a

logistical hardship due to a tight schedule, that non-U.S. flagged ships cannot effectively serve

between two U.S. ports.

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Decline of the Merchant Marine

The Jones Act includes over 39,000 vessels as of 2009 (MCTF, 2010). The majority of

these vessels are non-propelled barges operating along the coast, on rivers or lakes in the U.S.

The national defense argument fails to acknowledge the fact that only the merchant marine has

declined from approximately 4,400 vessels in 1947 to 217 vessels in 2007. Only 86 of these

vessels were Jones Act qualified and the rest of them are in international traffic. The following

table shows the decline of privately owned U.S. flagged vessels from 2003-2008.

U.S.-Flag Privately-Owned Ocean and Lakes Fleets, 2003-2008(Vessels)

%ChangeFleet 2003 2004 2005 2006 2007 2008 2003-

2008U.S. Flag 251 249 249 236 236 238 -5.2Tanker 68 60 60 59 55 55 -19.1 DH 29 27 31 35 36 40 37.9Dry Bulk 64 64 61 60 61 60 -6.3 Lakers 50 49 48 47 47 47 -6.0Container 74 81 79 70 76 75 1.4RO-RO 36 36 41 39 37 41 13.9General 9 8 8 8 7 7 -22.2

Jones Act 164 157 154 151 146 145 -11.6Tanker 65 59 56 55 51 51 -21.6 DH 28 26 27 31 32 36 28.6Dry Bulk 54 53 52 51 51 51 -5.6 Lakers 50 49 48 47 47 47 -6.0Container 28 28 29 28 27 27 -3.6RO-RO 15 15 15 15 15 15 0.0General 2 2 2 2 2 1 -50.0 (Source: Marad/Clarkson Research, Vessel Register)

Notes: Year-end fleets. Ocean/Lakes - Vessels of 10,000 DWT or greater. DH -double-hull.

Jones Act Fleet - Vessels built in the U.S. and registered under U.S.-flag; or vessels

reconstructed in the U.S. and registered under U.S.-flag; or foreign-built vessels forfeited for

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violation of U.S. law and registered under U.S.-flag.  These vessels have unrestricted coastwise

trading privileges.

According to the Transportation Institute (2009), the industry serving this trade was

composed of as of July 2007:

Type NumberTugs/Tugboats 5,356Tank Barges 4,467Dry Cargo Barges 27,162Ferries 611

A majority of the commercial activity regulated by the Jones Act is inland and river trade on

non-propelled barges, which most likely would be of little or no interest to international

companies as they are such specialized operations on such a small scale that there is no economic

incentive to enter this market. The market that most likely would be of interest to international

companies is the cargo freight between major U.S. ports. This trade may be integrated in their

existing trading routes and would allow a larger utilization and higher efficiency of the

International fleets commercial operations.

Impact on Hawaii

The restrictions of the Jones Act and similar cabotage laws like the Passenger Vessel Act

have a significant impact on the state of Hawaii and its economy. The way the system works

today does not permit foreign vessels coming from for example Asia to stop in Hawaii to unload

goods, and then continue to the mainland. These vessels sail directly to the mainland where they

are unloaded and the goods are redistributed to American flagged ships and for then to be sent

back to Hawaii.

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According to Cliff Slater (2003) from the Honolulu Advertiser, “the cost to ship a

standard-size 40-foot container of apples 2,100 miles from Oakland to Honolulu via Matson

(using Jones Act ships) is $4,862, or $2.31 per container/mile. To ship the same container of

apples 5700 miles from Seattle to Hong Kong (using competitive ships) costs $3,800, or 68 cents

per container/mile.” Taking height for disproportionately higher loading and unloading cost for

shorter runs, everything else being equally. It is not unreasonable to assume that Jones Act

shipping is twice as expensive as competitive shipping. A comparison of spending on food

suggests some of this difference.

Individuals U.S. Average Monthly Cost

Hawaii Average Monthly Cost

%Difference

Child, 6-8 years $123.9 $199.5 61%Child, 9-11 years $142.4 $239.3 68%Male, 20-50 years $168.1 $264.1 57.1%Female, 20-50 years $149.3 $240.3 61%Family of 220-50 years $349.1 $554.9 60%Family of 4Couple, 20-50 years Children, 6-8 years and 9-11 years

$583.6 $943.2 61.3%

(Source: United States Department of Agriculture, 2010)

Hawaii is the only state that has no railroad or trucking alternative to sea transport. A

majority, as much as 80 percent of all food, building materials, manufactured goods, and energy

supplies are transported on Jones Act ships.

In 2009, O’Keef & Sons Bread Bakers filed a lawsuit, claiming the Jones Act to be

unconstitutional and “in violation of the Fifth and Fourteenth Amendments as well as the

Commerce Clause of the U.S. Constitution” (Parson, 2009).

Hawaii cattle ranchers are also put in a difficult situation. To stay profitable, cattle has to

be transported from Kawaihae to Vancouver B.C. on Canadian owned Corral Lines, for then to

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be trucked in to the U.S. to be fattened and sold (Zimmerman, 2009). According to Little (2001)

some Hawaiian cattle fly - in 747s, herded into livestock containers at 30 cents a pound. Such

instances as mentioned above are just a few of the examples found in Hawaii.

There will always be a difference in price levels between the mainland and Hawaii

because Hawaii is comprised of the most isolated islands in the world, and transportation of

goods to these islands cost more than transportation on the mainland. However, the difference,

which mostly is made up of transportation costs would be reduced by approximately 50 percent

according to the studies mentioned.

Conclusion

If the Jones Act were repealed today, internationally flagged vessels would not be

required to pay corporate tax to the U.S as their operations are considered as a part of their

country of origin’s business. Allowing international ships in on the domestic market would result

in a loss of U.S tax money but would at the same time lower transportation cost and increase

consumers and businesses purchasing power due to lower prices. The question becomes if this

commercial activity should be more regulated than the production of running shoes by Nike, or

any other imported product, where the customer has the choice if they want to buy American or

imported.

The additional amount spent on using the protected American merchant marine could be

spent on local salaries, growth of businesses, which in the long run most likely will more than

offset the jobs lost by exposing the merchant fleet to international competition.

There is a saying that for innovation to be progressive it first has to be destructive. It has

been the case with many large industries throughout the history. Exposing the American

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merchant marine to competition will force it out of its comfort zone and in to efficiency. If there

is a competitive advantage in American fleet this should be utilized, if not, perhaps the resources

used on protecting the fleet could be better used in other areas.

It is important to understand the effect of repealing the Jones Act. Longshoremen, port

workers, office workers and any other indirect contributor to the current merchant marine will

most likely not be affected of a removal of this act. Most of these workers are currently holding

jobs that are necessary even though international vessels enter the domestic trade network.

The international shipping industry is purely driven by capitalistic motives much like any

other industry in the world. If a company delivers a product, which by no means live up to the

standards or qualities expected it would loose its future business with its customer. The

Transportation Institute’s argument is that international companies operates at such

different/lower standard then the U.S. merchant marine, has no real validity. The Department of

Commerce’s study found that 97 percent of U.S. international trade is carried on foreign-flagged

vessels. These vessels and companies are obviously operating at a high enough standard to

transport most of the imported goods to the U.S. and to operate within American waters. It can

then be assumed that they will be in good enough condition to operate between U.S. ports as

well.

It is only through a reform or repudiation of the Jones Act the U.S. will see more

economic benefits from domestic ocean trade. In the long run the U.S. merchant marine and

shipyards may also be able to compete internationally.

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References

Boyd, L. W. (n.d.) The Jones Act: What Does It Cost Hawai'i? Retrieved from

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