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Jones Act Repeal Bill Introduced


Muda69

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https://www.cato.org/blog/jones-act-repeal-bill-introduced

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Earlier today Senator Mike Lee introduced a bill to repeal the Jones Act. Such a move is long overdue. In place since 1920, the Jones Act mandates that goods transported by water between two points in the United States be done by vessels that are U.S.-flagged, U.S.-crewed, U.S.-owned, and U.S.-built. Ostensibly meant to bolster the U.S. maritime sector, the Jones Act has instead presided over its decline whether measured in the number of oceangoing ships, mariners to crew them, or shipyards to build them. 

While its benefits may be mythical, the law imposes very real burdens such as higher transportation costs, more highway congestion, more pollution, and even reduced access to U.S.-made products. In addition, the Jones Act’s rejection of competition and consumer choice should be considered an affront to cherished American principles. It’s time to rid ourselves of this antiquated law and chart a new course based on innovation and competition rather than discredited protectionism.

To learn more please visit www.cato.org/jonesact

Welcome news.  This antiquated law needs to be repealed.

 

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The Jones Act Is an Antiquated, Protectionist Policy Failure. Mike Lee Is Aiming to Kill It.: http://reason.com/blog/2019/03/08/the-jones-act-is-antiquated-protectionis

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If you wanted to ship some widgets to Jamaica, you could hire literally any ship on the open oceans to make the delivery. But if you wanted to send the same cargo to Puerto Rico, you'd be allowed only to hire a ship that was built in America, crewed by Americans, and operating under the American flag.

The reason? The Jones Act, a vestige of the 1920s that prohibits non-American ships from carrying cargo from one American port to another American port—including ports in American territories, such as Puerto Rico, Guam, and other far-flung islands. You don't have to work in the export business or have a degree in economics to see how that this is blatant protectionism for American shipping companies. And, indeed, shipping costs from the U.S. mainland to Puerto Rico are twice as high as prices to ship the same goods to neighboring islands.

Those higher costs get passed along to consumers in American territories and in states like Hawaii and Alaska, which import much of their food from the lower 48. But those states don't get much of a say in Congress, so the Jones Act has persisted for decades. It's a clear example of public choice theory: American shipping companies enjoy concentrated benefits (being able to charge higher prices because of artifically limited competition) while the residents of Alaska and America's island states and territories pay the diffuse costs.

"Restricting trade between U.S. ports is a huge loss for American consumers and producers," says Sen. Mike Lee (R–Utah), who introduced a bill this week to repeal the Jones Act. He's from a landlocked state himself, but Lee says it's long past time to act, "so that Alaskans, Hawaiians, and Puerto Ricans aren't forced to pay higher prices for imported goods—and so they rapidly receive the help they need in the wake of natural disasters."

Lee's bill, the Open America's Water Act of 2019, would simply allow any otherwise qualified vessel to engage in trade between U.S. domestic ports. If a ship can carry cargo from Miami to Jamaica, it could also carry cargo from Miami to Puerto Rico.

The Jones Act got a bit of attention back in 2017, when President Donald Trump waived the law for a brief period after Hurricane Maria devastated Puerto Rico. An attempt to permanently exempt Puerto Rico from the Jones Act failed in Congress as shipping companies argued that their right to earn artifically higher profits was important enought to force hurricane-ravaged Puerto Ricans to continue suffering artificially higher prices.

One of the great ironies of the Jones Act is that, for all the economic damage it causes, it hasn't even achieved its primary policy goal of strengthening the U.S. shipbuilding industry. The number of ships that meet the Jones Act's requirements for operating between American ports has shrunk from 193 in 2000 to just 99 in 2018. It costs more than three times as much to build a cargo ship in America as it does in some other countries, according to a 2017 report from the Cato Institute, and American shipping companies respond to that incentive by buying foreign-built ships. That means there are fewer ships capable of serving American ports, and fewer ships means higher prices.

Meanwhile, the median income in Puerto Rico is less than half of what it is in the poorest U.S. state. But thanks to nonsensical laws like the Jones Act, the cost of living there is higher than the U.S. average.

Lee's proposal should be a slam dunk in Congress. Unfortunately, it likely faces a difficult path forward.

I encourage all citizens to contact their federal elected representatives and urge them to support the Open America's Waters Act.

 

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  • 7 months later...

Stupid Federal Shipping Regulations Will Prevent Alaskans From Buying Alaskan Natural Gas: https://reason.com/2019/11/07/stupid-federal-shipping-regulations-will-prevent-alaskans-from-buying-alaskan-natural-gas/

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A newly announced plan to tap into natural gas reserves in northern Alaska promises to produce 4 million tons of liquid natural gas (LNG) annually over the next 20 years. Yet not a single drop of that will go to Americans, thanks to a nonsensical federal shipping regulation.

ExxonMobile and Qilak LNG, an Alaska-based subsidiary of a Dubai-based energy firm, announced plans last month to extract natural gas from the state's far northern reaches, along the coast of the Arctic Ocean. Because there are no pipelines serving that remote region, the two companies say they will export the gas via icebreaking ships equipped to carry LNG. Shipping LNG from northern Alaska across the Bering Strait to markets in Asia will be 40 percent less expensive than building a pipeline across the state.

But thanks to the Jones Act, a 1920s federal law regulating American shipping, Alaskans (and Americans in general) won't get to use a single drop of the 80 million tons of LNG expected to be extracted. No icebreaking LNG-carrying vessels currently meet the Jones Act's stringent requirements to serve American ports.

Under the terms of the law, ships carrying goods from one American port to another must be American-built and American-flagged, and must have a crew that's at least 75 percent American. It will be perfectly legal for non-American vessels to pick-up LNG from the new production facilities in northern Alaska, but not if they stop at any other American ports to offload even a portion of their cargo.

There's nothing wrong with exporting that energy, of course, but it seems ridiculous to cut off Alaskans from the benefits of resources found in their own backyards. That's doubly true considering that Alaskans pay higher than average energy prices—a fact that itself is partly attributable to the Jones Act.

.....

The number of ships that meet the Jones Act's requirements for operating between American ports has shrunk from 193 in 2000 to just 99 in 2018. It costs more than three times as much to build a cargo ship in America as it does in some other countries, according to a 2017 report from the Cato Institute, and American shipping companies respond to that incentive by buying foreign-built ships. That means there are fewer ships capable of serving American ports. Fewer ships mean higher prices.

Indeed, the large shipyard in Philadelphia—which has twice been bailed out by taxpayers—currently has no orders for new ships. The most recent vessel built there, a $209 million cargo ship that will shuttle goods between the West Coast and Hawaii, is six times smaller and yet $50 million more expensive than the world's largest cargo ship.

"Denied the benefits of foreign competition, this sector has failed to innovate and reduce costs, in turn depressing demand for its offerings," wrote Cato Institute trade scholars Colin Grabow and Inu Manak earlier this year.

No wonder there aren't any LNG carriers that meet the Jones Act's requirements. If you create legal barriers that artificially raise the cost of doing business in one place, investments and jobs are naturally going to flow somewhere else.

Sen. Mike Lee (R–Utah) has introduced a bill to repeal the Jones Act, and President Donald Trump once even offered tepid support for the idea—but that was before lawmakers from shipbuilding states convinced him it was a bad idea.

The end result of this ludicrous pile of protectionism is that Alaskan natural gas will be sent to Asia while Alaskans pay to import their fuel from Russia and elsewhere. Global trade is a wonderful thing, but prohibiting Americans from buying American-produced natural gas just because it wasn't delivered in an American-built ship makes little sense.

The Jones Act is showing itself to be more ridiculous in a modern economy every day.  It needs to be repealed.

 

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  • 2 weeks later...

Needed: Straight Talk on the Jones Act and LNG: https://www.cato.org/blog/straight-talk-jones-act-lng

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Last week Aaron Smith, president and CEO of the Offshore Marine Service Association, testified before the House Subcommittee on the Coast Guard and Maritime Transportation. As the head of a group which ardently backs the Jones Act it was no surprise that Smith used his opening statement to press for an even more restrictive interpretation of the law's provisions. Shortly after that statement he then had this exchange with Rep. Bob Gibbs (R-OH), the subcommittee's Ranking Member:

 

Gibbs: "We're exporting LNG now—largest producer in the world of natural gas and oil. And my understanding is...we pick up LNG shipments in the Gulf area and then they export to other countries but to get LNG in needed areas of the country, like in New England area for example, they have to get it from foreign. What can we do to adjust, fix it? How can we handle it so we can, Americans can burn LNG, natural gas, domestically-produced LNG and natural gas?"

Smith: "Sure. Thank you for the question, Ranking Member Gibbs. The American maritime industry is willing to meet any challenge. And in fact, what we're best at is overbuilding the market. If you give us the signals that a market will be protected, we're probably going to build too many ships for it. And if you, with these signals now that LNG is going to be protected by this administration, what we're seeing is even the European trade magazines are already saying that there's going to be U.S. LNG capacity. One of my members just launched an ATB, an articulated tug and barge, to transport LNG. And I know that they can take that design, and are taking that design, to produce more of those so we can have that. It is my understanding, although this isn't necessarily exactly what we do on a day-to-day basis, but it's my understanding that we are right now basically at the export...there is no extra capacity in the export terminals. Once there is, we will have the vessels capable to carry that."

Let’s review what happened here: Congressman Gibbs, perhaps mindful of New England’s need to import Russian liquefied natural gas (LNG) last year—and Puerto Rico’s complete dependence on foreign LNG—asked how U.S. LNG can be transported to these places. Smith responded with talk of excessive shipbuilding, LNG bunkering barges, and a lack of export capacity.

It was an astonishing display of misdirection.

Beyond the bizarre notion that market “protection” (i.e. reduced competition) leads to oversupply—surely news to economics professors everywhere—Smith’s citing of barges as evidence of the Jones Act fleet's ability to transport LNG is preposterous. There are a total of two such Jones Act-compliant vessels, the Clean Jacksonville and the recently-launched Q-LNG-4000. Both are primarily used for the refueling of other vessels.

What they are not used for, nor even capable of, is transporting bulk quantities of LNG for use in large-scale electricity generation. Neither vessel, in other words, will allow either New England or Puerto Rico to replace foreign imports with U.S. LNG.

The Clean Jacksonville, for example, has an LNG capacity of 2,200 m3 while the Q-LNG-4000’s capacity is—as its name implies—4,000 m3. In comparison, the Gaselys, an LNG carrier that delivered Russian gas to New England in 2018, has a carrying capacity of 154,500m³.

LNG barges and LNG carriers both transport LNG in the same sense that bicycles and buses both transport people. But one is not a substitute for the other.

The claim, meanwhile, that there is a lack of LNG export capacity to meet domestic needs doesn’t pass the smell test. Consider the following:

  • The International Gas Union’s 2019 World LNG Report shows 29 of 37 LNG-importing countries meeting at least some of their needs with U.S. LNG (and one of the importers listed that didn’t purchase U.S. LNG, Puerto Rico, is subject to the Jones Act). The idea that the United States has sufficient LNG to export it all over the world, yet none available for domestic maritime transport, seems suspect.
  • An August 2018 McKinsey & Co. analysis noted that foreign LNG purchased to meet New England’s needs the previous winter was “$1.6/mmbtu above the cost of loaded spot LNG” at the LNG export facility at Sabine Pass, Louisiana. “The core restriction preventing traders from capitalizing on this arbitrage” according to McKinsey, was not a lack of export capacity, but rather the Jones Act.
  • A July 2019 Wall Street Journal article about the U.S. natural gas boom noted that “These days, it’s a hassle getting gas from drilling fields like the Marcellus and Utica shales in Appalachia, and the Permian Basin in West Texas, to customers in northern cities,” citing a lack of domestic LNG tankers and a “99-year-old law [that] prevents foreign tankers from shipping gas within the U.S.”
  • A July 2019 report from S&P Global Platts states that “Platts Analytics estimates that as much as 60%-80% of US LNG was either swapped or sold on spot/short-term tender in 2018.” The existence of such a vibrant spot market speaks to the availability of U.S. LNG for those willing to meet the market price.

Smith’s unwillingness to paint an accurate picture of the situation is understandable. Admitting that the Jones Act and the vessels that serve under its restrictions are incapable of meeting the U.S. economy’s needs would be a bitter pill to swallow. Indeed, it would call the law’s entire logic into question.

So here’s the straight talk that Smith is unwilling to provide: the “fix” for allowing Americans to burn domestically-produced LNG is repeal or significant reform of the Jones Act.

As long as the Jones Act exists in its current form, the ships needed to transport U.S. LNG to domestic customers will not. The math simply doesn't add up. No LNG carrier meeting the Jones Act's restrictions, particularly its costly U.S.-build requirement, will be competitive in the international transport market. And with purely domestic business insufficient to keep such a ship employed on a full-time basis, there is no economic case for its construction.

It's good to see members of Congress asking questions about the inability of Americans to consume U.S. LNG. But as long as the Jones Act lobby is tasked with responding, needed facts will remain elusive. 

 

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