The Jones Act Killed PR.

This is an article from Ojel L. Rodriguez Burgos and Ricardo Diaz. Get informed.

The 1920 Merchant Marine act better known as the Jones Act (federal statute 46 USC section 883) is a protectionist measure that regulates the domestic coastwise trade of the United States. The term “coastwise trade” has been given various interpretations by the courts, but it essentially means any voyage by water that begins at any point in the United States and delivering a type of commercial cargo to any other point in the United States1. The act mandates that any goods transported by water between ports must adhere to the following regulations2:
1. US built ship.

  1. US aggedship.

  2. 75% of the crew must be US citizens.

The Jones Act undermines the competitiveness of the Puerto Rican economy, given the strict regulations in order to transport goods within US ports. The highly touted and discussed Krueger Report commissioned by the government of Puerto Rico argued that the Puerto Rican economy badly needs structural reforms. One of the main reforms that the report recommended was a much needed reduction in transportation costs linked to the Jones Act3, given that almost 43% of Puerto Rico’s imports come from the United States4. The high shipping costs that are attributed to the Jones Acts are due to a number of factors. First, the ships that comply with Jones Act regulations have higher operating and maintenance costs5. In 2012 the New York Federal Reserve published a report that showed that it costs $3,063 to ship a twenty-foot container of household and commercial goods from the East Coast of the United States to Puerto Rico, while the same shipment costs $1,504 if it was shipped to nearby Santo Domingo (Dominican Republic) and $1,687 if it went to Kingston (Jamaica)—destinations that are not subject to Jones Act restrictions6. The US Department of Transportation Maritime Administration also analyzed the difference in operation costs of a US versus a foreign flagged ship. The report highlighted that, on average, a US flagged ship costs $20,053 to operate per day compared to a foreign agged ship at $7,454 per day, a difference of almost $12,0007.
Many in the maritime industry who have lobbied against an exemption to the Jones Act for Puerto Rico point to a 2013 U.S. Government Accountability Office report on the effects of the Jones Act. The report, which was vague in its conclusions, actually specifies how the act hinders business formation on the island: “Some companies operating in Puerto Rico told us that they may not purchase goods from U.S. sources because of higher transportation costs on Jones Act vessels compared to foreign flagged vessels.”8 The maritime lobby based on the island also produced a report highlighting that, although the act increased the cost of shipping approximately $48.5 million, the benefits of the Jones Act to the island were around $120 million9. Though, to reach this counterintuitive conclusion, the report failed to take into account the hidden costs of business that never took place because of the inability to procure shipping due to the lack of availability of Jones Act eligible ships. Although recent studies highlight the economic consequences of the act, other more comprehensive studies provide a better perspective on the effects of the act on the island’s economy. A 2003 report calculated the overall effect of the act on the Puerto Rican economy at $400 million10. A separate but more recent study also showed the overall economic effect to be around $400 million11. Even as far back as 1965, a master’s thesis study conducted by a PhD candidate at the University of Puerto Rico said that the act cost the Puerto Rican economy around $48 million (in 1965 dollars).12With a population of around 3.5 million residents, according to Pew Research,13the Jones Act costs every resident approximately $114.00 per year.

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