The Other Jones Act

March 13, 2014

Confusingly, there are two federal laws which sailors know generically as the “Jones Act.” One is the statutory creation of a remedy for sailors injured through the negligence of the ship. There are actually three separate remedies for injured sailors, only one of which is created by the Jones Act, but many sailors generically refer to any injury case as a “Jones Act case.”

The same enactment also requires that all waterborne shipping between U.S. ports be carried out by ships built in the United States, and owned and operated by U.S. citizens. The law similarly requires that any documented fishing vessel must be U.S. built, and owned and operated by Americans. (As I explained in a recent column, smaller fishing boats may be state registered and avoid federal documentation, and hence can be and frequently are foreign built, as witness the ubiquitous “Novi.”)

The Jones Act was enacted in 1920, in a reaction to the shipping shortage which hampered the United States in World War One. The concern was that without protectionist legislation, the U.S. would not, in the next war, have a sufficiently large cadre of trained mariners, and a large enough merchant fleet, to look after itself and its allies.

As is so often the case with legislation intended to protect a particular industry, the Jones Act has created distortions. Protected from competition, the U.S. shipbuilding industry is accused of growing inefficient. One study showed that the cost to build a ship in the U.S. is about twelve times higher than in Japan, which competes globally for ship building contracts, and which has labor costs which are somewhat higher than in the U.S. Not surprisingly, very few cargo ships are U.S. built, despite demand for ships to carry freight between U.S. ports.
For those routes in which ships must be used between U.S. ports, such as Hawaii and Puerto Rico, some estimates are than shipping costs 50% more than it would in the absence of the Jones Act.

The Maritime Administration’s “Marine Highway”, an initiative to use coastwise shipping to relieve landside congestion and reduce air emissions, requires the use of expensive U.S. built ships, a major impediment to the success of the Marine Highway. Because U.S. built ships are so expensive to replace, owners tend to keep them in service a long time: U.S. built cargo ships average about 29 years in age, compared with about 11 years for foreign built. Cruise ships calling in the U.S. virtually never transit from one U.S. port to another, but bounce oddly between U.S. and Canadian or other foreign ports.

A ship cannot be considered U.S. built unless at least 50% of all machinery (by cost) was U.S.-sourced. That generally means no use of foreign engines for ships which would engage in U.S. coastwise shipping or commercial fishing. Similarly, if a U.S. built ship is converted to another purpose in an overseas yard, or undergoes a major refit, the ship is no longer Jones Act qualified.

So the Jones Act has a damaging effect on world trade – plenty of foreign builders would like to supply ships and repair services to U.S. ships, and plenty of foreign manufacturers would like to supply engines.

In an increasingly globalized world, the Jones Act is under pretty constant attack. Senator McCain of (landlocked) Arizona introduced a failed bill which would have repealed the Jones Act. The Jones Act is directly contrary to the General Agreement on Tariffs and Trade of 1994 (GATT 1994), a treaty to which the U.S. is a party. However, the U.S. has an exemption: GATT 1994 does not apply to “measures taken by a Member under specific mandatory legislation, enacted by that Member before it became a contracting party to GATT 1947, that prohibits the use, sale or lease of foreign-built or foreign-reconstructed vessels in commercial applications between points in national waters or the waters of an exclusive economic zone.”

That means the Jones Act. Under the terms of the exemption the Jones Act cannot be tightened, and its defenders frequently seek to increase its protectionist aspects. Such bills actually imperil the legality of the Jones Act under GATT 1994.

I’m no fan of the Jones Act. I believe world trade makes the U.S. safer – trading partners rarely war on each other – and more prosperous. But I have plenty of friends, and I’m sure there are plenty of readers, who think I’m dead wrong.

Permit me to plug a friend’s book, Matt McCleery’s excellent Viking Raid. Matt is active in the world of shipping finance, and his novel, set in the shipyards of Korea, the banks of London, and the shipping centers of the world, is both a really good read with wonderful characters, and an education in the world of buying, selling and operating ships. I liked it very much. It is available on Amazon.





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