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  August 29th, 2016 | Written by

Will Lifting Jones Act Save Puerto Rico?

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  • It costs double to ship a 20-foot container from the east coast to Puerto Rico vs. the Dominican Republic.
  • A congressional measure that would allow foreign vessels to operate between Puerto Rico and U.S. mainland.
  • American Maritime Partnership chair: "The Jones Act is not a cause for the island's financial woes.”

In 2012, the Federal Reserve Bank of New York reported on the impact of the Jones Act on Puerto Rico, calling it a likely factor in the high cost of shipping to Puerto Rico, and a reason why port business there is down.

The Jones Act, which dates back to the 1920s, requires waterborne cargo between two points in the United States (as well as some territories) to be transported on ships that are built, owned, and crewed by Americans.

“It costs an estimated $3,063 to ship a twenty-foot container of household and commercial goods from the East Coast of the United States to Puerto Rico; the same shipment costs $1,504 to nearby Santo Domingo (Dominican Republic) and $1,687 to Kingston (Jamaica)—destinations that are not subject to Jones Act restrictions,” the report claimed.

Nothing changed as a result, but four years later the subject is back in the Puerto Rico headlines now that U.S. Representative Gary Palmer (R-Alabama) has proposed a measure to exempt the island from the Jones Act.

The Palmer amendment to H.R. 5278, the Puerto Rico Oversight Management and Economic Stability Act (PROMESA), if passed, would allow foreign vessels to replace American ships and crews in the operation between the island and U.S. mainland. Palmer believes this would aid Puerto Rico’s struggling economy.

The Puerto Rico crisis is mostly one of Puerto Rico’s own making, but Congress is not blameless,” said Palmer in a statement on his website. “We do need to act, but in a way that frees Puerto Rico from economy stifling regulations to the maximum extent possible to allow them to rebuild their economy.”

An exemption, Palmer argues, would encourage business development. For instance, Puerto Rico’s power companies would be able to replace foreign-sourced oil with cheaper, cleaner, U.S.-sourced natural gas. And manufacturers in Puerto Rico would also no longer be at a cost disadvantage relative to Asia and other Latin American countries when shipping goods to the U.S.

That argument is popular among residents of Puerto Rico, as well as advocacy organizations like The Libre Initiative, a non-profit that “advances the values of economic freedom to empower the U.S. Hispanic community so it can thrive and contribute to a more prosperous America.”

Dan Garza, Executive Director for Libre, wrote a piece for the website Morning Consult that echoes many of Palmer’s concerns: “Puerto Ricans simply can’t have their goods delivered by trains or trucks. Rather, they rely on ships to bring most products to the island. As a result, any product that needs to be shipped to the island on a U.S. ship comes at a higher cost.”

The Jones Act is a typical case of the government picking winners and losers, and Puerto Rico is one of the hardest-hit losers of all,” Garza concludes. “If Puerto Rico is ever to regain its footing and enjoy a thriving economy, the first step the federal government must take is to drop the Jones Act.”

An Uphill Battle

Despite these urgings any changes are improbable, in part because nothing much at all is getting done in Congress at the moment, and in part because those with an opposing view on the issue wield significant influence on national policy.

Start with Matthew Paxton, President of the Shipbuilders Council of America, who expressed doubt that a change would have any positive impact. “Exempting Puerto Rico from the Jones Act would do nothing to address the island’s debt crisis and would actually jeopardize the more than $1 billion the U.S. maritime industry has invested in the Puerto Rican shipping trade, as well as the thousands of good-paying jobs on the island,” Paxton said in a statement.

He also chided Palmer for introducing the legislation, given Alabama’s prominent role in the shipyard industry—12,800 jobs and $953 million in GDP to the U.S. economy. “We are disappointed that Rep. Palmer seems to be more focused on political maneuvering than on protecting our nation’s domestic and economic security,” Paxton said.

Similar sentiments were expressed by the Transportation Trades Department, AFL-CIO. “Exempting Puerto Rico from the Jones Act not only threatens our military sealift capabilities and thousands of domestic seafaring and shipbuilding jobs, but potentially further damages Puerto Rico’s already fragile economy,” said the organization’s president, Edward Wytkind, in a released statement. “This amendment could increase shipping rates for Puerto Rico, erode an important, dedicated Northbound route for exports and undermine ‘just in time’ delivery methods for goods traveling in both directions.”

Rep. Duncan Hunter, Chairman of the House Coast Guard and Maritime Transportation Subcommittee, is another opponent of any change, and expressed concern over potential “dire consequences” of exposing ports and waterways to “foreign seafarers.” That viewpoint would certainly be supported by the American shipping firms such as Crowley Maritime, that have enjoyed the luxury of reduced international competition for nearly 100 years.

But the most fervent protest to Palmer’s suggestion emerged from the American Maritime Partnership, one of the most prominent coalitions of the domestic maritime industry. The organization released a point-by-point rebuttal of every argument made by Palmer and others in favor of the status quo.

“The Jones Act is not a cause for the island’s financial woes,” said AMP Chairman Tom Allegretti. “While other industries have fled the island, the domestic maritime industry has made significant capital investments to service the economy and support thousands of family-wage jobs for Puerto Ricans.”

Given the shipping industry’s overwhelming support of The Jones Act, coupled with wide-ranging, bipartisan support in Congress, any alteration is unlikely to be ratified anytime soon.