Puerto Rico's Jones Act Waiver Is Needed More Than Ever

An island crushed by Hurricane Maria lost a lifeline on Sunday. It wasn’t lost due to a shortage of funds. It was lost to protectionism, and an inability to recognize that an economy’s recovery depends on free markets and economic growth.

When the Department of Homeland Security ended Puerto Rico’s 10-day waiver from the Jones shipping limitations, it cut off the enormous potential benefits of open access to fuel, building supplies, food and clothing just as it was about to be most productive.

Waiving Puerto Rico from the Jones Act was a good idea, but a limited waiver had limited value. The inherent difficulties in transporting goods throughout an island with blocked roads and destroyed bridges circumscribed the positive impact of Jones Act suspension during the initial recovery stage. The greater advantages of improving Puerto Rico’s access to goods lies ahead, when roads are sufficiently cleared to ensure that cheaper, more plentiful supplies arriving from the mainland would be able to reach deep into Puerto Rico’s interior. The advantages of access to the widest possible markets become even greater over the next few months, during the reconstruction phase, when the cost and availability of building materials like lumber, asphalt and cable will be an even more decisive factor.

But the Department of Homeland Security didn’t see it that way. A DHS spokesman said that waiving the Jones Act – which decrees that only ships built, crewed and owned by Americans can carry goods tariff-free from one U.S port to another – is “unnecessary to support the humanitarian relief efforts on the island.”

That depends on your definitions of “unnecessary” and “relief.” If one’s definition of unnecessary is there are other means available to ship goods to Puerto Rico, then in that sense suspending the shipping restrictions for a longer period is unnecessary. But it is far more costly. If one’s definition of relief is attaching a band-aid to a broken arm, then waiving the Jones Act for 10 days was sufficient.

Guaranteeing a market for a small maritime industry adds significant costs to shipping of basic goods. It diminishes leverage from all local businesses and consumers. The proof of the Jones Act’s potential cost in the near future can be seen by looking at the impact it has had in the past. The price of goods shipped from the U.S. mainland is almost twice as high as in nearby islands.

According to the DHS spokesman, "there is an ample supply of Jones Act-qualified vessels to ensure that cargo is able to reach Puerto Rico.” If that is the case, why is the cost of living in Puerto Rico 13 percent higher than it is in 325 urban areas in the United States, despite a per capita income that is about half that of the poorest of the 50 states? If limiting shipping to a small group of U.S.-flagged ships ensures consistency of supply to Puerto Rico, as some have argued, why did the New York Fed just three years ago characterize the high cost of shipping as a “substantial burden on the island’s productivity?”

Powerful shipping and shipbuilding interests and unions are not trying to protect the Jones Act out of a humanitarian desire to ensure steady supply to the people of Puerto Rico. They are trying to secure a guaranteed market and deny consumers alternative options. Unfortunately, the restrictions on shipping to Puerto Rico is not win-win. The U.S maritime industry wins. The people of Puerto Rico lose.

This is not a partisan issue. Administrations of both parties have cast their lot with powerful cronies. When President Trump initially seemed to side with a well-heeled industry at the expense of 3.5 million Americans facing a humanitarian crisis – saying “we have a lot of shippers … that don’t want the Jones Act lifted” – he was only following the footsteps of his Democratic predecessor. Two days before he left office, President Obama’s administration, siding with shipping unions, tried unsuccessfully to tighten the Jones Act, seeking to revoke the power of U.S. Customs and Border Protection to grant exemptions allowing oil and gas operators to use foreign-flagged vessels. The Democrats’ faithful allies, the AFL-CIO, opposed the just-lapsed DHS temporary waiver of the Jones Act restrictions.

No party comes to this issue with clean hands. That is no reason to use them now to strangle Puerto Rico’s economic recovery. Repealing the shipping restrictions in the Jones Act would help achieve economic growth on the island. Even lifting the restrictions temporarily would help rebuild it. President Trump has pointed out, rather obviously, that Puerto Rico is “an island in the middle of an ocean, a big ocean.” That is exactly why government should facilitate shipping rather than choke it off.