For over a year – in this web site, in Latino Rebels, on ABC TV, C-SPAN, Al Jazeera TV, New York 1, and NPR Radio – I have been arguing for terminating the Jones Act (aka the Cabotage Law) in Puerto Rico. In other words, the island must no longer be prohibited from developing its own shipping industry.
The New York Times agreed with me. As a main policy recommendation in their editorial “Puerto Rico Needs Debt Relief,” the Times editorial board declared:
“Lawmakers should allow non-American ships to carry goods between the island and the mainland, which is prohibited by the Jones Act of 1920 to protect the domestic shipping industry. That will lower shipping costs to Puerto Rico, including those for oil and natural gas, an important consideration for an island economy.”
The desperate need for Jones Act reform was affirmed in the recent Krueger Report, written by three IMF economists and cited by Governor Garcia Padilla in a television speech to all of Puerto Rico:
“All islands, remote from the centers of economic activity, suffer from high transportation costs. But Puerto Rico does so disproportionately, with import costs at least twice as high as in neighboring islands on account of the Jones Act, which forces all shipping to and from US ports to be conducted with US vessels and crews.” (Krueger Report, p. 8)
The New York Times and the International Monetary Fund (IMF) both agree that the Cabotage Law, aka the Jones Act, is choking the Puerto Rican economy and must be revoked as soon as possible.
A quick overview of the Jones Act, will show you why it must die a merciful death.
Here is the the language of the U.S. Merchant Marine Act of 1920:
Pursuant to Sec. 27 of this Act, all goods carried by water between U.S. ports must be borne on U.S. flag ships that are constructed in the continental U.S., and owned and operated by U.S. citizens.
In other words…every product that enters or leaves the island, other than steeply taxed and highly regulated foreign registry vessels, must be carried on a U.S. ship to and from U.S. ports. Every consumer item that passes between U.S. and Puerto Rican ports must be carried on a U.S. ship – or face extremely protectionist tariffs, quotas, fees and taxes which are then passed onto the Puerto Rican consumer.
This includes cars from Japan, engines from Germany, food from South America, medicine from Canada — any product from anywhere. In order to comply with the Jones Act, all this merchandise must be off-loaded from the original carrier, reloaded onto a US ship and then delivered to Puerto Rico.
It all makes as much sense, as digging a hole and filling it up again.
This is not a business model. It is a shakedown. It’s the maritime version of the “protection” racket. A 40-year study of this “cabotage cost” to Puerto Rico shows the following figures:
The above figures were published in the study “Economic Impact of Jones Act on Puerto Rico’s Economy” (Jeffry Valentin-Mati, Ph.D. & José I. Alameda-Lozada, Ph.D., presented to U.S. General Accounting Office, April 26, 2012, p. 75).
From 1970 through 2010, the Jones Act cost Puerto Rico $29 billion. Projected from 1920 through the present (2015), this cost becomes $75.8 billion.
This $75.8 billion cost is higher than Puerto Rico’s current public debt. In other words…had the Jones Act never existed, then neither would Puerto Rico’s public debt.
As if the “protection racket” aspect of the Cabotage Law weren’t enough, the shipping industry in Puerto Rico – controlled by U.S. carrier companies – is teeming with corruption. Between 2008 and 2013, six shipping executives with broad responsibilities in the Puerto Rico market were sentenced to federal prison for Sherman Antitrust Act violations: conspiring to fix shipping rates, and allocating cargoes, amongst the three companies which employed them.
The largest Jones Act carrier companies in Puerto Rico – Sea Star, Crowley, and Horizon Lines – were all named as co-conspirators who “conspired to fix, stabilize and maintain rates and surcharges for Puerto Rico freight services, to allocate customers of Puerto Rico freight services between and among the conspirators, and to rig bids submitted to customers of Puerto Rico freight services.”
In addition to those imprisoned executives, the three carriers – Sea Star, Crowley, and Horizon – all pleaded guilty to violating the Sherman Antitrust Act in other areas during 2011 through 2012, and were collectively fined a total of $46.2 million.
Jones Act repeal would increase Puerto Rico’s control over its own coast, maritime activity, trade relations, and would generate an island-based shipping industry: ship building, operation, maintenance, and ownership.
This shipping industry would provide opportunities for many skilled laborers: carpenters, electricians, welders, electrical engineers, seamen. It would also create thousands of small businesses: metal, wood and hardware suppliers; storage facilities; shipyard building and maintenance; even restaurants and food stands to feed these 50,000 new workers. On an island with 12% “official” unemployment (closer to 25%), this would jump-start the entire economy.
In addition, Jones Act repeal would end a system of price support for US products, which affects every Puerto Rican consumer. Puerto Rico is the fourth largest market in the world for US products. 85% of all products consumed in Puerto Rico, come from the US. There are more Walmarts per square mile in Puerto Rico, than anywhere else in the US. There are more Walgreens per square mile, than anywhere in the world.
Yet for the past 95 years, all of this US product flow has arrived at extremely inflated prices: in many cases, Puerto Ricans are paying twice the prevailing price of consumer goods. For this reason, the cost of living is higher in Puerto Rico than anywhere in the US mainland, even while its per capita income (just under $17,000) is half that of Mississippi, the poorest of the fifty states.
While Jones Act repeal would not solve all of Puerto Rico’s economic problems, it is a viable and achievable first step – that does not invite foreign investors, US billionaires, and hedge fund operators to buy up pieces of Puerto Rico. In fact, it does the exact opposite: it helps to build a local, indigenous economic infrastructure, that does not depend on the US or any other foreign power.
The Jones Act is a corrupt law.
The Jones Act shipping companies are also corrupt.
In view of the mounting outcry for Jones Act reform, Gov. Garcia Padilla must make it a core demand, in the negotiation of Puerto Rico’s public debt. NOW is the time to require this, while this debt is being reviewed, and the de facto relationship between Puerto Rico and the U.S. is under a global microscope.
If Garcia Padilla does not create even one strong, self-sustaining industry in Puerto Rico, the insular economy is doomed to fail. If the U.S. refuses to cooperate with him, then Puerto Rico needs to demand its independence.
The New York Times has called for an end to the Cabotage Law. Even the IMF economists who drafted the Krueger Report agreed. It is immoral, illegal, and fatal for Puerto Rico to be denied the right to its own shipping industry.
It is disastrous for Puerto Ricans to be forced to buy US products, at double their actual price.
The Cabotage Law is the new Vieques. It needs to end RIGHT NOW.
For a history of the War Against All Puerto Ricans, read the book…
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