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Tuesday, January 07, 2020
At 100, Jones Act Looks Old and Wrinkly
By Michael Hansen @ 3:31 PM :: 904 Views :: Jones Act

Alaska professor compares Jones Act to other forms of cabotage

by Michael Hansen, Hawaii Shippers Council, January 6, 2020

The American Shipper magazine / Freightwaves published on January 6, 2020 the opinion-editorial, “Commentary: At 100, the Jones Act has many wrinkles,” comparing the Jones Act to other forms of U.S. cabotage including for aviation and motor carriers (road trucks and passenger buses).

The author of the op-ed is Dr. Darren J Prokop, Professor of Logistics, Information Systems and Decision Sciences, College of Business and Public Policy, University of Alaska Anchorage (UAA).

Prof. Prokop makes an interesting contrast between the Jones Act cargo regulations (i.e., the coastwise laws applicable to merchandise) with the regulations applicable to the carriage of revenue passengers by water and air and road transportation.

However, several of Dr. Prokop’s points describing the Jones Act and more broadly what is formally known in American jurisprudence as the coastwise laws of the United States and generically as maritime cabotage give somewhat of a wrong impression as follows:

  • What we know today as the coastwise laws were largely in place prior to 1920 and certain cabotage restrictions date from 1789.
  • The coastwise laws explicitly require that commercial vessels be built in the U.S. to engage in domestic trade, and were not “interpreted” to “mean that the vessels must also be built by U.S.-owned shipyards.”
  • Several of the domestic shipyards constructing coastwise-eligible vessels are foreign owned.
  • There is a variety of political and cabotage statuses in the noncontiguous trade involving states, territories and insular possessions (i.e., the coastwise laws do not apply to all noncontiguous areas).
  • The Merchant Marine Act of 1920 included 39 Sections and addressed many different aspects of U.S. maritime policy other than just shipbuilding.
  • It’s problematic to refer to U.S. shipbuilding as an “infant industry” to justify the cabotage trade protections enacted in Section 27 of the Merchant Marine Act of 1920 for several reasons including the fact that the domestic build requirement for commercial vessels engaged in domestic trade dates to 1789 and from 18th Century through the American Civil War the American Colonies and subsequently the United States was a major builder of oceangoing ships including for export.

Dr. Prokop’s comparison of the Jones Act cargo regulations with the other cabotage regulations is very helpful.

Key excerpts from the American Shipper magazine:

The U.S. build and repair requirements apply only to domestic water vessels. U.S. airlines can buy airplanes from Airbus, Bombardier and Embraer, etc. U.S. motor carriers can buy Volvo trucks (or Mack trucks, which has been a Volvo subsidiary since 2000). Municipal governments offering light rail transit and bus services can buy their conveyances from Siemens and New Flyer, respectively.

Regarding domestic vessel availability, Alaska has the dubious distinction to have played a part in the largest Jones Act fine in U.S. history. In 2011, the U.S. Department of Justice (DOJ) fined Furie Operating Alaska (then known as Escopeta Oil & Gas) $15 million for using a Chinese-flagged heavy-lift vessel to haul a jack-up drilling rig from the Gulf of Mexico to Alaska’s Cook Inlet. Ironically, Escopeta was granted a Jones Act waiver in 2006 to use a foreign vessel for the haul. But the haul did not proceed until March 2011 and by then the U.S. Department of Homeland Security (DHS) declined to renew the waiver.

Alaska has a more positive cabotage story regarding foreign air cargo. Ted Stevens Anchorage International Airport (ANC) is centrally located at 9.5 hours flying time to 90% of the industrialized world. This makes it an excellent air cargo trans-shipping point. This operational advantage is accentuated by an exception to the Jones Act. ANC’s innovative air cargo transfer program allows belly-to-belly transfer of U.S. bound cargo between a foreign air carrier’s aircraft or between those of two different foreign air carriers. This would be illegal at any other airport in the contiguous U.S. Furthermore, when the foreign airplane continued to another U.S. airport it would constitute cabotage.

However you may wish to express those laws and regulations variously known as the Jones Act, coastwise laws and maritime cabotage, they do not apply to aviation. There is a separate body of U.S. laws that defines aviation cabotage. Although many of the principles are the same, there are significant differences.

More from the American Shipper magazine:

Basically, Alaskans can thank the advocacy of the late Sen. Ted Stevens, when he wrote this unique operation into a re-appropriation bill for the Federal Aviation Administration (FAA) back in the mid-1990s. Regulators now consider foreign air cargo landed at ANC and destined for the contiguous U.S. to still be “international” and therefore not a cabotage move in the spirit of the Jones Act.

Now consider tourism. Many cruise ship passengers embark on their trips to Alaska from the Port of Seattle. They will cruise up the West Coast and dock at various Alaska ports. Interestingly, these foreign cruise ship companies rarely use U.S.-flagged vessels. But how is it not cabotage if the passengers are steaming from one U.S. port to another by foreign-flagged vessels? Certainly, most of Alaska’s ocean freight is delivered from the Port of Tacoma (Washington) by TOTE Maritime and Matson, which by law must use U.S.-flagged vessels. Why the difference?Such Alaska cruises may be a cabotage move by definition but it is actually a type of cabotage move not covered by the Jones Act. Cruise ship and ferry activities in the U.S. fall under the Passenger Vessel Services Act (PVSA; 1886). As long as the domestic trip is “broken” by a visit to a foreign port along the way the cruise would be legal under the PVSA.

Canada- and Mexico-based tour bus companies certainly do not fall under the PVSA but they do enjoy a similar protection. Foreign tour buses can pick up passengers in the U.S. and take them on a roundtrip tour of Canada or Mexico, as the case may be. The key requirements are that most of the tour takes place in a foreign country (i.e., it is international commerce) and the passengers are returned to their U.S. point of origin. Picking up and dropping off passengers at different U.S. points along either leg of the tour, however, would constitute illegal cabotage.

The U.S. motor carrier sector is particularly tricky since a Canada- or Mexico-based conveyance is covered under customs laws, while their drivers are covered under separate immigration laws. These laws and regulatory interpretations do not conform to one another. For example, U.S. customs regulations allow for very limited options for foreign motor carriers to engage in cabotage. Simply put, different countries can have different laws and regulatory interpretations.

In 2020, does the Jones Act necessarily add to U.S. national security or is it just a jobs program? If this is an example of the infant industry argument, the baby is turning 100 years old this year. Economics and politics always make for strange bedfellows.

The domestic build requirement of the Jones Act / coastwise laws is actually 241 years old putting it well past it’s infancy.

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