Puerto Rico needs to repeal the outdated Jones Act

Puerto Rico needs to repeal the outdated Jones Act
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The debate over the Merchant Marine Act of 1920 (Jones Act) has been revived as devastating hurricanes stormed through the Caribbean and public figures like Sen. John McCainJohn Sidney McCainThe Memo: Trump’s media game puts press on back foot Meghan McCain shreds Giuliani for calling Biden a 'mentally deficient idiot' Mueller warns of Russian midterm attack, while Trump attacks Mueller MORE (R-Ariz.) have introduced legislation for its partial or total repeal.

The Jones Act is an almost century-old legislation that defends the national monopoly of the Merchant Maine by requiring all maritime transport between domestic ports to be flagged, built, and manned by the United States. 

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The United States Congress should repeal the outdated Jones Act of 1920 because it is hindering economic development and free markets in Puerto Rico, Florida, Hawaii, and Alaska, while promoting a monopoly in national trade.

 

Earlier this summer, the Trump administration immediately granted temporary waivers from the Jones Act to Florida and Texas surrounding hurricanes Harvey and Irma.  

Yet, in Puerto Rico the Trump administration granted a just ten-day waiver of the Jones Act only after mounting pressure. In the words of the President, Puerto Rico is an island in the middle of a “big ocean,” yet “a lot of people that work in the [U.S.] shipping industry…don’t want the Jones Act lifted.” 

The United States Merchant Marine and its political lobby benefit from the Jones Act because its means that they do not have to compete with the lower costs and more efficient services offered by other shipping giants, such as Maersk.

The fact is that the Jones Act is both a regulatory burden and huge subsidy that keeps the shipping industry in the United States from becoming truly competitive because they already have a captive domestic market.

Theoretically, given its strategic regional position, Puerto Rico should have access to imported goods at a more favorable rate than some parts of the mainland United States because of the numerous trade routes that traverse the Caribbean.  

However, it is estimated that consumers in Puerto Rico pay approximately twice what other Caribbean islands pay for imports due to the restrictions imposed by the Jones Act. This is particularly alarming in the aftermath of a major natural disaster that has devastated Puerto Rico's agriculture and power grid since the island will rely substantially on imports during the short and medium term. 

Furthermore, Puerto Rico's reality is aggravated by the larger context of the Commonwealth’s economic situation. 

The Caribbean is a major trade and commerce zone in the western hemisphere. This region serves as the bridge between North and South America as well as the central point of passage for interoceanic trade through the Panama Canal.  

Given this strategic importance, after World War I the United States government legislated that any maritime vessel transporting goods between two domestic ports must be U.S. flagged, U.S. built, and at least 75 percent U.S.-owned and staffed. In the context of the early 20th century, this nationwide provision, which applies to jurisdictions like Hawaii and Puerto Rico, was meant to sustain a domestic maritime industry and, in part, protect domestic ports against the threat of other maritime powers. 

Upon its creation, the Jones Act was seen as a provision for national security as German U-boats roamed the Atlantic Ocean, particularly around the Caribbean. In 1920, the United States shipbuilding industry was still nascent and the Jones Act would boost domestic manufacturing of boats, while simultaneously adding a layer of protection to intra-U.S. trade by making sure national crews transported goods within the country.

However, almost a century later, the Jones Act has outlived its main purpose. Today, the United States is an unchallenged maritime super-power and technological advances allow domestic ports to be protected even when foreign vessels are docked. Meanwhile, the Jones Act continues to provide cover to what has become an expensive and uncompetitive merchant marine industry subsidized by U.S. citizens. 

The Jones Act and the industry that it has protected for almost a century seem to be one of the few sectors of the national economy that President TrumpDonald John TrumpSunday Shows preview: Lawmakers, Trump allies discuss Russia probe, migrant family separation Seth McFarlane: Fox News makes me 'embarrassed' to work for this company  'Art of the Deal' co-author: Trump would act like Kim Jong Un if he had the same powers MORE is not willing to deregulate. In the new age of economic nationalism, a global market and free trade measure as in the repeal of the Jones Act has not gained much traction in Washington.

The permanence of the Jones Act will hinder Puerto Rico’s competitiveness as the island seeks to reshape its economic model. This will in turn prolong the humanitarian recovery and prompt even more Puerto Ricans to move to the U.S. mainland.

Nevertheless, should congressional Democrats and Republicans do the right thing and come together on this issue, they can dismantle the antiquated Jones Act both because it will help Puerto Rico and because it is a free-market, monopoly-busting approach to maritime shipping.

Glenn Ojeda Vega is a Latin America Fellow at Young Professionals in Foreign Policy (YPFP). He is also an emerging markets consultant in Latin America.