Will the regulatory state strangle waterborne shipping in the U.S.?

by Michael Hansen, Hawaii Shippers Council, May 8, 2017

The Mercatus Center at George Mason University published on May 2, 2017, an academic report, “The Jones Act and the Growth of Regulatory Barriers in the US Shipping Industry,” written by Nita Ghei, the senior policy research editor for the Mercatus Center at George Mason University.

Ms. Ghei takes an interesting approach by using a specialized computer program to track the increase in U.S. federal laws and regulations mentioning keywords denoting waterborne shipping and applicable restriction.

The paper was written for the Mercatus Center’s Program on the American Economy and Globalization (PAEG)’s Policy Research Seminar on Researchers’ and Stakeholders’ Views on the Jones Act,” held on April 13, 2017, at the Sheraton Mau, Kaanapali Beach. Ms. Ghei presented a summary of her paper at the seminar.

Ms. Ghei’s analysis found that U.S. federal laws and regulations impacting waterborne shipping increased approximately 200% from 1970 to 2014.

Of course, because of the very broad nature of the screens, not all of the increase in laws and regulations would be considered related to the Jones Act and other maritime cabotage provisions formally known in American jurisprudence as the “coastwise laws of the U.S.” And, in fact, most of the increase probably has to do with customs entry and national security concerns, especially as most of the coastwise laws have been in place since the last federal Merchant Marine Act was enacted in 1970. However, it does show the impact of regulation on marine transportation.

Nita Ghei

Nita Ghei is the senior policy research editor for the Mercatus Center at George Mason University. Prior to coming to Mercatus, Nita Ghei was at the Cato Institute. Previously, she was on the faculty of George Mason University School of Law and Northwestern University Law School, following a clerkship at the Maryland Court of Appeals (the state’s highest court). Before going to law school, Nita was a member of the editorial board at the Economics Times in New Delhi, after working at the World Bank in Washington, DC. Born in India, Nita received her Ph.D. in Economics from the University of Maryland, College Park, and her J.D. from George Mason School of Law. She graduated from Delhi University with a B.A. (Honors) degree in Economics. Nita writes a weekly column for the Washington Times, and has published op-eds in Newsweek, the Philadelphia Inquirer, the Star-Ledger, the Daily Caller, and other news outlets. Her scholarly articles have been cited in the Harvard Law Review and other journals.

Key excerpts:

One way to estimate regulatory restrictions is provided by RegData—a text analysis computer program capable of scanning extensive legal text—developed by researchers at the Mercatus Center at George Mason University. RegData allows identification of regulations relevant to the shipping industry by connecting relevant keywords with restriction counts. Restrictions are words and phrases like “shall,” “must,” “may not,” “prohibited,” and “required” that signal legal constraints and obligations. The chart plots the number of restrictions reduced to an index normalized to equal 100 in 1994, the year when the North American Free Trade Agreement (NAFTA) went into effect and the treaty of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) was signed.

Restrictions on the shipping industry have grown from just over 27,000 words and phrases in 1970 to over 761,000 by 2014. The number of restrictions grew from just over 300 to almost 8,000 in the same time period, an increase of over 2,400 percent. The growth has been uneven, with greater spurts in certain time periods. The ratification of trade treaties that lowered barriers to trade overall seems to be positively associated with increases in restrictions on the shipping industry, with significant jumps at the end of the Tokyo Round of the GATT in 1979 (over 30 percent) and in 1994 at the time of ratification of NAFTA and the end of the Uruguay Round of the GATT (in the range of 15 percent). These findings are consistent with efforts by US trade negotiators to protect the Jones Act from being included in multilateral trade agreements.

These regulations provide the domestic shipping industry with significant protection from foreign competition—but that is not all this regulation accomplishes. The burden of complying with the bewildering array of regulations also keeps new market entrants from competing with existing firms. This decreases the incentive for existing firms to innovate to lower costs, hampering the US shipping industry’s ability to remain competitive in global markets.

Furthermore, there is little evidence to suggest that the Jones Act and similar burdensome legislation enhance national security — which is an express goal of protecting the domestic shipbuilding industry. US shipbuilders are notorious for not just high costs generally, but also for long delays and huge cost overruns on naval ships.

The Jones Act, and the vast array of regulations to enforce the statute, increase waterborne transportation costs, resulting in higher costs for American consumers and lost opportunities for American businesses—all with questionable success in achieving the law’s goal of improving national security.

Read: The Jones Act and the Growth of Regulatory Barriers in the US Shipping Industry