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Running head: THE EFFECTS OF THE JONES ACT ON THE ECONOMY OF HAWAII

The Effects of the Jones Act on the Economy of Hawaii Christer Tvedt Hawaii Pacific University May 13, 2010 ECON 6000 Dr. Leroy Laney

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The Effects of the Jones Act on the Economy of Hawaii The Jones Act, or the Merchant Marine Act of 1920, which is the acts name, is the United States Federal statute, or cabotage law, that regulates trade between ports within the United States. This act was passed 90 years ago, during an era where protectionism was a dominant political idea, and when strong forces were pushing for keeping as much American trading dollars in American hands as possible. There has been little change to the Act since it was introduced and several strong forces had fought to repeal or make significant changes to the principles behind the Act for many years. This paper will focus on the background and intention of the Jones Act by an excessive examination of arguments from those who support and from those who propone the act. The foundation of both sides of the arguments will extend the acts validity in which it was created and will express the notions upon which it was built. Further, the effect that the Jones Act has had on the Hawaiian economy will be looked into and to which extent it affects the cost of living in the state. Historical Background and Purpose of the Jones Act The Jones Act is officially named The Merchant Marine Act of 1920 but the original act dates from 1898, and was, subsequently incorporated into the Act of 1920. The Merchant Marine Act was named the Jones Act after Senator Wesley Jones who sponsored it, and the name has ever since stuck around. The establishment of this act was due to concerns regarding the health of the merchant marine and the protection of U.S. seamen; this understandably enough became the reason for passing the act. The act recognized the innate dangers of working at sea, and the value of training and educating seamen. Senator Wesley Jones was strongly influenced by protectionist political views to ensure U.S superiority and dominance in domestic marine trade.

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Considerable discussion has arisen with reference to Section 34, which directs the President to give notice of abrogation of the provision of certain commercial treaties. The purpose of this section is to terminate in an orderly, courteous and diplomatic way treaties which are detrimental to our interests, and which prevents us from doing what we think ought to be done to encourage and build up our American merchant marine (Jones, 1920). The following quote exemplifies that the act, was in addition meant to bolster the growth of both domestic and foreign marine trade, and strengthen the position of the American merchant fleet, which became a significant argument for the Act after World War I. The trade of some of our island possessions is over a hundred million dollars a year. It has been largely carried in foreign ships. It ought to be carried in American ships and opportunity to only to put under the American flag more ships but ships of the highest type and most desirable for ocean commerce. The carrying of that trade should be ours. We have it if we will. If we do not take it no one is to blame but us. With the assurance given private enterprises should prepare to handle this trade. They will overlook the terrible experience that came to us at the beginning of the world war (one) as the result of such a policy. Our shipping could be done more cheaply by others, and so we had none (Jones, 1920). Essentially the Jones Act of 1920 was arguing that the U.S had to take charge of their commercial situations following world war one. Countries around Europe tightened their control on treaties that loosened their control of commercial activity in their country. We are seeking to only do what other countries are doing. France has already notified us of her intention to terminate her commercial treaty with us, and has

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given a similar notice to Great Britain, Canada, Spain Greece, and Other countries. Other countries are getting rid of treaties that may hamper them in the contest of the worlds trade. It will be little short of criminal if we do not free ourselves from those things that shackle us and prevent us from doing what we know is for our best interest. These other countries are looking after their own interest. If we do not look after ours, no one else will (Jones, 1920). For all intents and purposes the primary intention that Senator Wesley Jones sought out to accomplish with this Act was to secure a strong American merchant marine fleet for the future and also to ensure that all American trading dollars stayed in American hands. In addition the Jones Act established something to the effect of a benefit system for American seamen due to the fact that prior to its creation and concern, seamen who became injured on the job had few or no options for recovering damages or getting assistance. The Jones Act is a cabotage law, regulating the transportation of goods between two points in the same country. The Passenger Vessel Act of 1886 regulates passenger transport, in the same way that the Jones Act regulates transportation of goods, in which it states that foreign vessels found transporting passengers between places or ports in the United States, when such passengers have been taken on board in the United States, shall be liable to a fine of two hundred dollars for every passenger landed (Magee, 2002). Cabotage laws are not unique to the United States. Most industrial nations have some sort of restrictive legislation protecting their merchant marine fleet. Cabotage laws are not only confined to ocean going trade; most countries also have restrictions on their air transport. Just as Japan Airlines cannot fly from Los Angeles to Miami, foreign ships cannot ship trade between two U.S ports. The Jones Act has two parts that are of specific historical importance. The first part

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regulates the ships; they have to be American built and American owned. Repair work is also regulated and foreign shipyards can fix no more then 10 percent of the hull and superstructure of the ships. This is to prevent American ships to be refurbished at overseas shipyards with foreign made steal. Further, the law requires 75 percent of the crew on a ship must consist of American citizens. This section of The Jones Act was created to ensure a strong, well-staffed merchant marine, which could serve the U.S. in both times of peace and wartime. This purpose is summarized in the opening paragraph of the act: It is necessary for the national defense and for the proper growth of its foreign and domestic commerce that the United States shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval auxiliary in time of war or national emergency, ultimately to be owned and operated privately by citizens of the United States; and it is the declared policy of the United States to do whatever may be necessary to develop and encourage the maintenance of such a merchant marine.. (Marine Cabotage Task Force (MCTF), 2010). The second noteworthy part of the Jones Act is the far-reaching benefits that were established for seamen. It is stated that any sailor who is injured at sea is entitled to maintenance and cure. Meaning the sailors employer must pay him or her a daily stipend and provide medical care to treat the injury. In addition it gives the sailor a right to sue for damages if their injuries were caused by negligence on the part of the ships owners or other crewmembers or if they sail on unseaworthy ships. These rights are given to anyone who spends at least 30 percent of his or her time in active service on a merchant marine vessel and includes all staff onboard from the captain on down. The benefits provided by the Jones Act can be significantly higher than benefits for workers

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on land; if a skilled attorney is involved.

The Arguments Competitiveness The main argument for keeping and/or even strengthening the Jones Act is to have a law that helps the U.S merchant fleet to compete against foreign subsidies. According to the Lake Carriers Association there has also been a notion that the Jones Act is somehow a subsidy. It is true that the U.S. government provides financial incentives to American carriers in the overseas trades, but this program has never extended to Jones Act carriers. The U.S. government must underwrite the foreign-trade fleet to a degree as it competes with "Flag of Convenience" operators, companies which register their ships in countries with little or no maritime regulation and employ Third World crews willing to work for as little as $15 a day. Jones Act operators compete against companies paying the same corporate taxes, complying with safety and environmental laws, employing Americans, so no other support is necessary. No other support is necessary because the domestic market is a closed market and everybody competes on the same terms. The Jones Act prevents international flagged vessels from operating between American ports, which in turn prevents the introduction of lower paid, more crewefficient ships. However, competition on the domestic market is fierce and there are many minor companies operating within special niches around the country, as examples, on the lakes or river systems like swamp loggers etc. In addition, railroads, and in some instances trucks, are major competitors to ocean transport in some areas of the U.S. The Act also makes certain that companies comply with U.S. tax, labor, health, and safety

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requirements: requirements that force costs up. Supporters of the Jones Act argue that findings in the United States International Trade Commissions (ITC) study The Economic Effect of U.S. Import Restraints, which proclaims that there is a large economic gain from repealing the act, are flawed. According to Gardner (2009), the flaw, supporters argued, is that many U.S. laws would apply to foreign-flag vessels as if they were U.S. flag vessels by virtue of the engagement of the foreign-flag vessels in U.S. interstate commerce. The argument finishes by stating that many of these laws account for the cost difference between U.S. coastwise vessels and foreign-flag vessels. However, economic studies, which will be discussed later show that opening up the domestic market to foreign ships most likely will provide economic benefits that exceed these differences. Gardner (2009) further discuss the testimonies ITC gave on a hearing on the Jones Act in May, 1998, which lead to a logical question: But if that were the case (that U.S. laws would apply to foreign flagged ships), why is this industry fighting Jones Act reform so strenuously? First, MCTF asserted that it was not clear that U.S. law would apply under any repeal of the Jones Act and particularly the repeal as proposed in the then pending legislation. Therefore, the Jones Act was important because it assured that U.S. domestic law applied to vessels engaged in U.S. domestic commerce by virtue of requiring such vessels to be documented in the United States. Second, MCTF asserted that the Jones Act contained elements - restrictive U.S. ownership and U.S. build requirements - that are plainly not duplicated in other U.S. laws. Consequently, consideration would have to be given to whether those elements served a public policy purpose and whether changing them was fair to companies who had relied upon them. The MCTF supported preserving both requirements.

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The testimonial from ITC and the reaction form the MCTF started a discussion if the Jones Act was redundant. The question was if the Jones Act merely duplicated existing laws, (which Gardner in his 2009 research concluded that based on a legal perspective the Jones Act was not redundant) that laws would probably have to change if the Jones Act were repealed to create fairness for the law to both U.S. flag vessels and to foreign-flag vessels competing in the same trades and receiving the same benefits of U.S. commerce. It was not clear if U.S. labor, tax and immigration laws would apply to foreign-flag vessels taking part in U.S. interstate commerce (Gardner , 2009). The legal aspects of removing the Jones act are extensive, and beyond the scope of this paper. Furthermore the Lake Carriers Association argues, There are few products or services made or provided in this country that couldnt be done cheaper if foreign labor or raw materials were used, if the company could avoid taxes and regulations. To label U.S. flag vessel operators high-priced are a deliberate distortion. However during a 1996 hearing before the Subcommittee on Coast Guard and Maritime Transportation the president of the American Farm Bureau argued the importance of waterborne transportation to U.S. agriculture in transporting products. He also argued that the current laws undermined the ability of U.S. farmers to compete with foreign producers who could move their products into U.S. markets on competitive foreign vessels. U.S grain farmers have not been able to ship grain from the mid-West to the Southeast because there are no Jones Act vessels operating in the area. Southeastern poultry and pork industries have had to resort to import foreign grain on foreign-flagged and owned ships (Piggott 2002).

Job Protection The Transportation Institute (2009) adhere to the statement that the Jones Act is an

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American tradition worthy of protection. The effect of exposing the American merchant marine to international competition would be severe: If the Jones Act was repealed, the U.S. would experience a devastating loss of maritime jobs - a loss to the U.S. In addition to the economic damage that would result from the thousands of lost jobs, shipyards would stop investing in costefficient operations. Long-term shipping contracts would cease, thus the economy of scale built into those contracts would disappear. The current Jones Act fleet would begin to erode and defaults on federally guaranteed mortgages would escalate dramatically, costing the federal government millions of dollars. Total exposure of the federal government and the owners of the vessels has been estimated to be over $1 billion, thus the government has a compelling financial incentive in seeing that the Jones Act fleet is not undermined and wiped out by foreign competition. In other words, the Transportation Institutes states that the American merchant marine is not competitive and would not survive such exposure. Job protection has been a strong argument against interfering with any large industry in the U.S. It has also been a significant area of debate regarding the Jones Act. According to the MCTF (2010) there are 499,676 jobs directly or indirectly related to the Jones Act in the United States. These jobs are either on the ships, longshoremen, and shipbuilders, or in other ways related to the shipping industry. Of these 499,676 jobs, 73,787 are directly linked to the construction, repair or operation of the merchant marine, and only 45,286 jobs are on U.S. flagged vessels and only portions of these jobs are likely to be directly challenged by foreign seamen if the Jones Act would be repealed.

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(First Name Please) Ferguson stated in his report from 1994 that obviously, micro policies affecting individual industries cannot replace macro policy in determining aggregate employment. Nevertheless, the jobs argument provides a politically potent rationale for current maritime policies. Regulatory reform here, as in many other industries, can be expected both to enhance productivity and to depress demand for the workers currently employed in the industry. Looking at the consequences of a repeal of the Jones Act for the merchant marine alone will not justify any decisions for the economic wellbeing of the country.

National Security National security and military capacity is another strong point for the supporters of the Jones Act. Ferguson (1994) says, the basic public justifications for both protectionism and subsidization are "jobs" and defense. There are three military and objectives that are propounded: (1) having a commercial fleet that can support the military in emergencies, (2) having a reserve fleet for the same purpose, and (3) having a shipbuilding capability to supply new ships in wartime. According to the Transportation Institute (2009). The Jones Act fleet plays a vital role in maintaining the nation's economic security by ensuring the United States controls its essential transportation assets and the related infrastructure in both peacetime and wartime. American-owned and American-manned ships ensure the safe transport of grain down the Mississippi, ore across the Great Lakes, coal from America's heartland, and more. Without the Jones Act, America's internal network of waterways would be vulnerable to foreign shippers who don't play by the same set of safety rules or adhere to important environmental standards. America's economy relies on an efficient system of

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shipping, thus with foreign vessel operators playing a role, our natural resources and goods, and citizens are subject to the whims of ship operators who have a lot less at stake. Commercial shipping has been critically important during the wars of the last few centuries and has been a major source of income for many maritime companies. The international merchant marine knows no limits when it comes to commercial support; commercial interests purely drive it. However, according to Ferguson (1994) If the U.S.-flag fleet is fully employed during peacetime serving commercially important domestic and international trades, it is neither an entirely reliable nor a low-cost military reserve. More than 80 percent of traffic in American international liner commerce is carried by foreign companies. This number has since been upgraded to 97 percent buy the Department of Commerce (2001). During the Gulf war a vast amount of the military goods were carried on foreign vessels and the U.S. flag vessels did not deliver the level of support expected. The same was the case after hurricane Katrina. Homeland Security (2005) gave several waivers to foreign flagged vessels, as the U.S. merchant fleet could not handle the additional pressure on transportation of petroleum products. The Transportation Institute (2009) further claims that Jones Act vessel construction and repair in U.S. shipyards assures the availability of the skilled professionals and the modern facilities needed in times of war or national emergency. This supports the third military objective, which implies a plan to refight World War I or II. Three believes are required to support this logic: (1) a future war will be so long that large injections of new ships are needed, (2) that the existing reserve fleet will be inadequate and (3) that it will be impossible to obtain adequate capacity by either purchasing existing ships in the world market or get new ones built abroad (Ferguson, 1994).

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The implication would be that most of the worlds fleet and ship-building capacity would be in nonfriendly hands, which also implies that foreign governments and businesses would show an unwillingness to earn dollars. According to a study conducted in 1999 by the Bureau of Industry and Security, a part of the U.S. Department of Commerce (DOC), the U.S. commercial shipbuilding industry is generally not internationally competitive, particularly in the construction of vessels over 1,000 gross tons. Various sources report several reasons for this lack of competitiveness, including foreign government subsidies and other unfair trade practices, exchange rates, and lagging U.S. productivity. In some niches, however, the United States currently has a significant world market share based mostly on domestic sales. These niches include offshore oil platforms, yachts, fast patrol boats, and recreational vessels. The study also found that less than 2 percent of the industrys revenues came from export, and only 4 percent of the items and materials purchased by shipbuilders are of foreign origin. It is apparent that shipyards, which are currently uncompetitive with the rest of the world due to a lack of innovative development and high costs have to reinvent themselves. Several marine organizations state that the U.S. shipyards are the most advanced in both production and development of new marine technology. It is then strange that very little purchase of U.S. built vessels take place in the international market. However, domestic companies have no other choice than to get their ships built at U.S. shipyards due to the restrictions given by the Jones Act. It is necessary then to beg the question why then are foreign operated vessels not built in the U.S? In addition to the findings from the Department of Commerces study in 1999 there is one significant element not mentioned. American shipyards use American steel and American steel is the most

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expensive steel in the world (MEPS, 2010). In addition, American wages are far higher than most large shipbuilding nations, like South Korea and China, to some extent due to unions fight for substantial benefits for shipyard employees. These factors further contribute to making American shipyards uncompetitive in the international market. An example of the outrageous shipping cost in U.S. shipyards can be found in an article by Robert Little (2001): Matson Navigation signed a contract this spring to repair five ships in Shanghai, China, even though it will be fined 36 percent of its costs as a penalty for using a foreign shipyard. "It's still considerably cheaper," said Matson spokesman Jeff Hull.

The Economic Benefits From the Jones Act The MCTF states that the total economic output from the Jones Act is more than $100 billion, whereas $11 billion in taxes, $29 billion in annual wages, and it adds $46 billion per year to the value of U.S. economic output. The overall contribution of the Jones Act fleet and land based support to the U.S. economy is shown as follows: (employment in number of jobs, dollar amounts in billions of 2009 dollars)

Direct Contribution Employment 73,787 Labor Compensation $6.5 Output $36.4 Value-Added $10.5 Taxes $2.5 (Source: Transportation Institute, 2009)

Indirect and Induced Contribution 425,889 $22.6 $63.9 $35.5 $8.9

Overall Contribution 499,676 $29.1 $100.3 $45.9 $11.4

Direct contributions of the Jones Act Fleet and land based support to the U.S. economy is shown as follows:(employment in number of jobs, dollar amounts in billions of 2009 dollars)

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Shipbuilding and Repair Employment 28,501 Labor Compensation $2.3 Output $6.3 Value-Added $3.0 Taxes $0.7 (Source: Transportation Institute, 2009) The Economic Impact of the Jones Act

Water Transportation 45,286 $4.2 $30.1 $7.4 $1.8

Total Direct Contribution 73,787 $6.5 $36.4 $10.5 $2.5

There have not been many noteworthy studies on the economic impact that the Jones Act has added on the U.S economy in recent times, and this is most certainly due to lobbying between the industrys major coalition of maritime organizations and companies, such as the MCTF. In 1995, the Jones Act Reform Coalition (JARC) was formed by and among shipper interest. This coalitions purpose was to promote a repeal against the Jones Act or in the very least substantially work towards modifying the Jones Act. In response to JARCs attempts the MCTF was formed and set out a counter attack in which ultimately concluded with MCTFs success in dissolving JARC in 2000. On the MCTFs webpage they proclaim under MCTFs leadership, the American maritime industry banded together as never before and through an extensive campaign to educate the Congress, the media and the public of the importance of the cabotage laws to national and economic security prevailed. However, the ITC has done some studies since that have revealed its most recent results of the Jones Act. Their investigations update entitled The Economic Effects of Significant U.S. Import Restraints (2007) states that the estimated cost to the U.S. economy from the Jones Act ranges from $3.6 billion to $9.8 billion per year. To arrive at this estimate the ITC assumed that worldwide ocean transportation rates would apply in the U.S. coastwise trade if the Jones Act were repealed. Their estimates also suggest that the maritime transportation cost would

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fall with an average of 22 percent if the act were to be removed. According to Ferguson (1994), crews on American ships are 50 percent to 90 percent larger than those of other industrialized countries, which makes a significant difference in cost levels. According to Little (2001) ship owners say the federal government is largely to blame. For decades, Congress has slashed or eliminated the industry's subsidies and protections while imposing the costliest regulations, taxes and safety standards in the world. Foreign-flagged vessels that are manned by international crews are substantially less expensive to build and to operate. However, these vessels may not call between two American ports without visiting a foreign port of call in between. Often times this creates such an onerous economic hardship and a logistical hardship due to a tight schedule, that non-U.S. flagged ships cannot effectively serve between two U.S. ports.

Decline of the Merchant Marine The Jones Act includes over 39,000 vessels as of 2009 (MCTF, 2010). The majority of these vessels are non-propelled barges operating along the coast, on rivers or lakes in the U.S. The national defense argument fails to acknowledge the fact that only the merchant marine has declined from approximately 4,400 vessels in 1947 to 217 vessels in 2007. Only 86 of these vessels were Jones Act qualified and the rest of them are in international traffic. The following table shows the decline of privately owned U.S. flagged vessels from 2003-2008. U.S.-Flag Privately-Owned Ocean and Lakes Fleets, 2003-2008 (Vessels) Fleet 2003 2004 2005 2006 2007 2008 %Change 2003-

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U.S. Flag Tanker DH Dry Bulk Lakers Container RO-RO General

251 68 29 64 50 74 36 9

249 60 27 64 49 81 36 8

249 60 31 61 48 79 41 8

236 59 35 60 47 70 39 8

236 55 36 61 47 76 37 7 146 51 32 51 47 28 15 2 51 47 27 15 2

238 55 40 60 47 75 41 7 145 51 36 51 47 27 15 1

2008 -5.2 -19.1 37.9 -6.3 -6.0 1.4 13.9 -22.2 -11.6 -21.6 28.6 -5.6 -6.0 -3.6 0.0 -50.0

Jones Act 164 157 154 151 Tanker 65 59 56 55 DH 28 26 27 31 Dry Bulk 54 53 52 Lakers 50 49 48 Container 28 28 29 RO-RO 15 15 15 General 2 2 2 (Source: Marad/Clarkson Research, Vessel Register)

Notes: Year-end fleets. Ocean/Lakes - Vessels of 10,000 DWT or greater. DH -double-hull. Jones Act Fleet - Vessels built in the U.S. and registered under U.S.-flag; or vessels reconstructed in the U.S. and registered under U.S.-flag; or foreign-built vessels forfeited for violation of U.S. law and registered under U.S.-flag. These vessels have unrestricted coastwise trading privileges. According to the Transportation Institute (2009), the industry serving this trade was composed of as of July 2007: Type Tugs/Tugboats Tank Barges Dry Cargo Barges Ferries Number 5,356 4,467 27,162 611

A majority of the commercial activity regulated by the Jones Act is inland and river trade on nonpropelled barges, which most likely would be of little or no interest to international companies as they are such specialized operations on such a small scale that there is no economic incentive to enter this market. The market that most likely would be of interest to international companies is the

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cargo freight between major U.S. ports. This trade may be integrated in their existing trading routes and would allow a larger utilization and higher efficiency of the International fleets commercial operations.

Impact on Hawaii The restrictions of the Jones Act and similar cabotage laws like the Passenger Vessel Act have a significant impact on the state of Hawaii and its economy. The way the system works today does not permit foreign vessels coming from for example Asia to stop in Hawaii to unload goods, and then continue to the mainland. These vessels sail directly to the mainland where they are unloaded and the goods are redistributed to American flagged ships and for then to be sent back to Hawaii. According to Cliff Slater (2003) from the Honolulu Advertiser, the cost to ship a standardsize 40-foot container of apples 2,100 miles from Oakland to Honolulu via Matson (using Jones Act ships) is $4,862, or $2.31 per container/mile. To ship the same container of apples 5700 miles from Seattle to Hong Kong (using competitive ships) costs $3,800, or 68 cents per container/mile. Taking height for disproportionately higher loading and unloading cost for shorter runs, everything else being equally. It is not unreasonable to assume that Jones Act shipping is twice as expensive as competitive shipping. A comparison of spending on food suggests some of this difference. Individuals Child, 6-8 years Child, 9-11 years Male, 20-50 years Female, 20-50 years Family of 2 20-50 years Family of 4 Couple, 20-50 years U.S. Average Monthly Hawaii Average %Difference Cost Monthly Cost $123.9 $199.5 $142.4 $239.3 $168.1 $264.1 $149.3 $240.3 $349.1 $583.6 $554.9 $943.2

61% 68% 57.1% 61% 60% 61.3%

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Children, 6-8 years and 9-11 years (Source: United States Department of Agriculture, 2010) Hawaii is the only state that has no railroad or trucking alternative to sea transport. A majority, as much as 80 percent of all food, building materials, manufactured goods, and energy supplies are transported on Jones Act ships. In 2009, OKeef & Sons Bread Bakers filed a lawsuit, claiming the Jones Act to be unconstitutional and in violation of the Fifth and Fourteenth Amendments as well as the Commerce Clause of the U.S. Constitution (Parson, 2009). Hawaii cattle ranchers are also put in a difficult situation. To stay profitable, cattle has to be transported from Kawaihae to Vancouver B.C. on Canadian owned Corral Lines, for then to be trucked in to the U.S. to be fattened and sold (Zimmerman, 2009). According to Little (2001) some Hawaiian cattle fly - in 747s, herded into livestock containers at 30 cents a pound. Such instances as mentioned above are just a few of the examples found in Hawaii. There will always be a difference in price levels between the mainland and Hawaii because Hawaii is comprised of the most isolated islands in the world, and transportation of goods to these islands cost more than transportation on the mainland. However, the difference, which mostly is made up of transportation costs would be reduced by approximately 50 percent according to the studies mentioned.

Conclusion If the Jones Act were repealed today, internationally flagged vessels would not be required to pay corporate tax to the U.S as their operations are considered as a part of their country of origins business. Allowing international ships in on the domestic market would result in a loss of

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U.S tax money but would at the same time lower transportation cost and increase consumers and businesses purchasing power due to lower prices. The question becomes if this commercial activity should be more regulated than the production of running shoes by Nike, or any other imported product, where the customer has the choice if they want to buy American or imported. The additional amount spent on using the protected American merchant marine could be spent on local salaries, growth of businesses, which in the long run most likely will more than offset the jobs lost by exposing the merchant fleet to international competition. There is a saying that for innovation to be progressive it first has to be destructive. It has been the case with many large industries throughout the history. Exposing the American merchant marine to competition will force it out of its comfort zone and in to efficiency. If there is a competitive advantage in American fleet this should be utilized, if not, perhaps the resources used on protecting the fleet could be better used in other areas. It is important to understand the effect of repealing the Jones Act. Longshoremen, port workers, office workers and any other indirect contributor to the current merchant marine will most likely not be affected of a removal of this act. Most of these workers are currently holding jobs that are necessary even though international vessels enter the domestic trade network. The international shipping industry is purely driven by capitalistic motives much like any other industry in the world. If a company delivers a product, which by no means live up to the standards or qualities expected it would loose its future business with its customer. The Transportation Institutes argument is that international companies operates at such different/lower standard then the U.S. merchant marine, has no real validity. The Department of Commerces study found that 97 percent of U.S. international trade is carried on foreign-flagged vessels. These vessels and companies are obviously operating at a high enough standard to transport most of the

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imported goods to the U.S. and to operate within American waters. It can then be assumed that they will be in good enough condition to operate between U.S. ports as well. It is only through a reform or repudiation of the Jones Act the U.S. will see more economic benefits from domestic ocean trade. In the long run the U.S. merchant marine and shipyards may also be able to compete internationally.

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References Boyd, L. W. (n.d.) The Jones Act: What Does It Cost Hawai'i? Retrieved from http://homepages.uhwo.hawaii.edu/~clear/jonesact.html Chertoff, M. (2005) Homeland Security Waiver of Compliance with navigation and inspection laws. Retrieved from http://www.npga.org/files/public/Jones_Act_Waver_9-05.pdf Ferguson, A. R. (1994) Reform on Maritime Policy: Building blocks of an Integrated Program. Retrieved from http://www.cato.org/pubs/regulation/regv17n2/v17n2-3.pdf Gardner, B. E., & Papavizas, C. G. (2009) Is The Jones Act Redundant? Retrieved from http://www.winston.com/siteFiles/Publications/15%20Papavitzas_Gardner%2021.1.pdf Globalsecurity.org (n.d.) U.S. Merchant Marine / U.S. Merchant Fleet. Retrieved from http://www.globalsecurity.org Jones, W. L. (1921) The Merchant Marine Act of 1920. American Foreign Trade Relations, Vol. 9, No. 2, 89-98. Retrieved from http://books.google.com Lake Carriers Association (n.d.) The Jones Act and Other U.S. Cabotage Laws. Retrieved from http://www.lcaships.com Little, R. (2001). U.S. Merchant Fleets Sails Toward Oblivion. The Baltimore Sun. Retrieved from http://www.baltimoresun.com/ Magee, K. (2002) U.S. CABOTAGE LAWS: PROTECTIVE OR DAMAGING? Retrieved from http://www.commercialdiplomacy.org/pdf/ma_projects/magee.pdf Maritime Cabotage Task Force (2010) Annual report 2009. Retrieved from http://www.mtcf.com McClintock. M. (n.d.) Merchant Marine Act of 1920. Retrieved from http://www.enotes.com/major-acts-congress/merchant-marine-act MEPS (2010) North American Steel Prices Firm Up Despite Import Threat. Retrieved from

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http://www.meps.co.uk/ Piggott, N. E., & Goodwin, B. K. (2002) Economic Impact of a Repeal of the Jones Act for Regional Soybean Markets. Retrieved from http://www.ag-econ.ncsu.edu Parsons, W. (2009) The Jones Act in Hawaii: Ed Case and Jim O'Keefe Object to American Worker Requirments. Retrieved from http://honolulu.injuryboard.com Slater. C. (2003) Jones Act Cost Us Big Bucks. Retrieved from http://www.lava.net/cslater/JonesAc2.htm#_edn3 The hidden Costs of U.S. Shipping Laws (1996) Retrieved from http://www.limitedgovernment.org/publications/pubs/briefs/pdfs/brf3-16.pdf The Transportation Institute (2009) Jones Act/Domestic Shipping. Retrieved from http://www.trans-inst.org/jones-act.html United Stated Department of Agriculture (2010) USDA Food Plans: Cost of Food. Retrieved from http://www.cnpp.usda.gov/USDAFoodPlansCostofFood.htm United States Department of Commerce (DOC), Bureau of Industry and Security (2001) U.S. Shipbuilding and Repair. National Security Assessment of the U.S. Shipbuilding and Repair Industry. Retrieved from http://www.bis.doc.gov/defenseindustrialbaseprograms/osies/defmarketresearchrpts/shipbu ilding_and_repair.pdf Zimerman, M. (2010) Jones Act Lawsuit Will Test Control of Hawaiis Shipping Monopoly. Retrieved from Zimmerman, M. (2010) Businesses Hit Hard by Costly Jones Act Regulations. Retrieved from http://www.grassrootinstitute.org