Puerto Rico and the Jones Act: The Alaska Connection

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The devastation brought to the Caribbean this month, including to the US Commonwealth of Puerto Rico, caused by Hurricane Maria has once again pushed a nearly century-old law back into the spotlight. From it’s introduction, The Merchant Marine Act of 1920, (aka the Jones Act) [pdf], has been subject to a great deal of debate as well as criticism. In the case of Puerto Rico, the law was sharply denigrated well before the storm hit, by critics who argued that its provisions were having an ongoing negative effect on the island’s economy and had contributed to Puerto Rico’s extensive debt burden (estimated at US$74 billion before the post-hurricane destruction; the island declared a form of bankruptcy in May of this year). However, the Jones Act also affects other parts of non-continuous US territory, including Alaska. That state played a significant role in the decision to introduce the law almost a century ago, and has also been part of the intensive debate over whether the Jones Act should be altered or repealed.

The ‘Jones Act’ was named after a Republican Senator, (representing the state of Washington), Wesley Livsey Jones, who was well known as an avid proponent of federal government activism. For example, he was a strong supporter of the Prohibition laws, a stance that likely contributed much to his failed bid for re-election in 1932 as public support for the anti-alcohol laws waned. Under the terms of the law, it is illegal for a foreign registered ship to carry cargo between two American ports, (also known as a form of ‘cabotage’). Under Section 27 [pdf] of the Act, cargo ships traversing and servicing two or more US ports had to be American-owned, crewed and operated. This therefore limited the number of ships which could provide goods to US territories and states outside of continental America.

This law was enacted shortly after the end of World War I, a conflict which saw numerous attacks on British, American and other Allied maritime shipping by German U-boats. The case for the law was that US cargo ships needed to be supported and protected in times of future conflicts. However, there was a side-effect in the case of Alaska, meaning that with few exceptions, cargo to and from the then-territory to another American port had to be carried by American ships, even if other options, (such as Canadian vessels), were less expensive. This meant that Alaskan shipping was greatly tied to Washington State, and shortly after the Act’s implementation it was challenged by local policymakers who argued that it favoured the port of Seattle at Alaska’s expense.

Moreover, the restrictions implemented by the Jones Act appeared to be at odds with President Woodrow Wilson’s policies of Alaskan economic development through railway construction. As was argued in Terrence Cole’s book on Alaska’s pre-statehood history, Fighting for the Forty-Ninth Star, the Jones Act was viewed by Alaskan politicians at the time as one of many examples of the territory being placed at an economic disadvantage due to unfair federal regulation. Ernest Gruening, governor of the Alaska Territory in 1939-53, referred to the Act as part of a string of policies consistent with ‘colonialism’. Despite protests in Alaska that the law was discriminatory, the provisions of the Act continued after the territory became the forty-ninth state [jpg] of the US in 1959.

The Jones Act also applies to other non-continental parts of the US, including Hawai’i, Puerto Rico and Guam, (but not the US Virgin Islands, which has separate customs laws). It is possible for the law to be waived in times of national emergency, such as during the aftermath of Hurricane Katrina in September 2015, as well as this month following hurricanes Harvey and Irma. A similar waiver was issued for Puerto Rico by the Trump government, but only more than a week after the hurricane and in the wake of numerous calls for an exemption, given the island’s dire economic (and humanitarian) situation.

Going beyond the issue of swift disaster relief, there is the argument that Jones Act restrictions have resulted in distorted (and inflated) prices for goods and the act is essentially a form of protectionism. This is difficult for Alaska and Hawai’i as states. But Puerto Ricans are American citizens yet cannot vote in federal elections and have no voting rights in Congress. Some US think tanks and government representatives, including Senator John S. McCain (Rep. Arizona), have called for the outright scrapping of the law, arguing that it has placed an inequitable economic strain on those states and territories affected.

The long recovery period which Puerto Rico is now facing has magnified the Jones Act debate and focussed criticism of the law as an outdated relic of a different era, especially given the falling numbers of large shipyards and American cargo vessels. However, there have also been arguments against the removal of the Act, including the assertion that allowing foreign vessels to operate between US ports will open them to tax and immigration regulations which would negate [pdf] any economic savings, as well as security concerns, the need to protect US vessels as a strategic asset, and the defence of American jobs.

Although Puerto Rico will remain the focal point in the ongoing Jones Act debate, Alaska is still very much in the centre of the controversy, as evidenced by a deal in April of this year which saw the firm Furie Operating Alaska agreeing to pay a record US$10 million fine for violation of the law after it used a Chinese vessel (the M/V Kang Sheng Kou) to move a jackup oil rig most of the way from the Gulf of Mexico to Alaska’s Cook Inlet, via British Columbia, in 2011. The firm had argued that there was no American vessel capable of making the necessary (time-sensitive) journey around South America, as transit through the Panama Canal was not viable for cargo of that size. Alaska has also been the subject of a Jones Act waiver, specifically in 2012 when permission was granted for a Russian icebreaking tanker, the Renda, to supply emergency fuel from South Korea to Nome after storms prevented local vessels from getting through.

However, with the prospect of cross-Arctic Ocean shipping growing in the near future due to ice erosion and the slow but steady opening of new far northern sea routes, it is likely that the utility of the Act, in the case of Alaska, will continue to be questioned, especially in light of growing international interest in Alaskan oil and gas resources, including from China but also from other economies in East Asia. The Jones Act, along with its other shortcomings, may be another example of twentieth century laws trying to catch up with twenty-first century geopolitical realities in the Arctic.