[Congressional Record Volume 143, Number 39 (Monday, April 7, 1997)]
[Senate]
[Pages S2795-S2796]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      ``DISECTING THE JONES ACT''

 Mr. INOUYE. Mr. President, I rise today to call the attention 
of my colleagues to an excellent article by Warren Dean that appeared 
in the March 11, 1997 edition of the Journal of Commerce, which so 
eloquently states the reasons why it would be foolish to weaken or 
repeal the Jones Act.
  I am a longstanding supporter of the Jones Act and of the American-
flag Merchant Marine. But it is important for those Members who are 
less familiar with the Merchant Marine to consider Mr. Dean's article. 
Mr. Dean is a senior partner in a Washington law firm, and an adjunct 
professor of transportation law at Georgetown University Law Center.
  In his column, Mr. Dean spells out clearly and succinctly the reasons 
America stands to lose if foreign-flag ships and foreign crews are 
allowed to take over our domestic waterborne commerce, and why it would 
be unfair not only to America's maritime industry but also to our 
trucking, rail, and pipeline industries as well. If the Jones Act is 
eliminated, all these industries would have to abide by U.S. laws and 
regulations, and pay U.S. taxes, while their foreign competitors in our 
Nation's domestic market would not. Those who claim they want to 
deregulate domestic shipping and reform the Jones Act would do well to 
read this article. It explains just how poorly thought out and unfair 
such actions would be.
  Mr. President, I request that the full text of the article be printed 
in the Record.
  The article follows:

                        Dissecting the Jones Act

                          (By Warren L. Dean)

       Congress is facing an old and tired issue this year--the 
     Jones Act Reform Coalition's clamor to ``deregulate'' 
     domestic deep-water transportation services by repealing the 
     Jones Act. This putative controversy speaks volumes about how 
     poorly Washington understands what it is doing.
       The Jones Act reserves for qualified U.S. corporations the 
     right to carry domestic waterborne cargoes of the United 
     States. The coalition wants to allow foreign-flag vessels to 
     carry cargoes between points in the United States, such as 
     New York and Miami. Those vessels, however, do not operate 
     subject to U.S. law--and would not, under the coalition's 
     proposals.
       In an effort to keep the Jones Act Reform Coalition from 
     wasting its members' money, and to help the U.S. government 
     understand the difference between trade in goods and trade in 
     services, I will offer a few thoughts.
       First, the Jones Act regulates domestic transportation 
     services. Companies in those industries pay U.S. income and 
     excise taxes, employ workers who pay taxes, comply with fair 
     labor standards and other employment laws, meet environmental 
     and safety requirements and face tort and other liabilities.
       Foreign companies that get involved in U.S. markets usually 
     do so through U.S. affiliates established for that purpose. 
     What the reform coalition is pushing, however, is permission 
     for foreign flag-of-convenience operators to participate in 
     domestic interstate commerce, while taking a pass on as many 
     of the laws applicable to domestic commerce as possible.
       Just repealing the Jones Act won't do the job, however. 
     What the Jones Act reform coalition is really advocating is a 
     repeal of a variety of U.S. tax and labor laws that are at 
     the heart of the U.S. economy.
       Under international law, the applicable law on a vessel is 
     that of the ship's registry. So, for example, to allow 
     foreign seamen working for foreign-flag operators to work in 
     U.S. interstate transportation, we would have to waive our 
     tax, immigration, minimum wage, collective bargaining, 
     workplace safety and unemployment laws, among others. We 
     would have to pre-empt state laws in these areas as well.
       Admittedly, some laws--particularly in the environmental 
     area--currently apply to both U.S. and foreign-flag vessels, 
     and would continue to do so under the coalition's proposal. 
     But what's really going on here is that the coalition is out 
     to create a whole new list of economic preferences--in 
     effect, subsidies--for foreign-flag vessels to ``compete'' in 
     our domestic commerce.
       The only reason that other domestic transportation 
     industries have not yet objected to this nonsense is that 
     they aren't persuaded that anyone in Washington is that 
     stupid.
       Their confidence may be misplaced. There actually is a 
     federal agency that spent taxpayer's money to publish a 
     report in 1993 proving that it doesn't have the foggiest idea 
     where its money comes from. It's the U.S. International Trade 
     Commission, which investigates allegations of damage to U.S. 
     industries caused by trade.
       The ITC report estimated that ``the economy-wide effect of 
     removing the Jones Act is an economic welfare gain to the 
     economy of

[[Page S2796]]

     approximately $3.1 billion.'' The ITC's main source for this 
     conclusion was its own 1991 study that found the 1989 cost to 
     the economy of the Jones Act ranged from $3.6 billion to $9.8 
     billion.
       The ITC staff developed these estimates by figuring the 
     difference between U.S. and world shipping rates, and saying 
     the higher U.S. costs are a sort of ``tariff'' charged to 
     shippers using Jones Act vessels.
       But the flaw in the ITC's analysis is that it took the 
     rates charged by foreign-flag operators using ``flag of 
     convenience'' registry in countries such as Panama, Liberia 
     or the Bahamas. Those nations have either nonexistent or very 
     low rates of taxation and regulation.
       The ITC then concluded that shippers could obtain world-
     rate savings in the waterborne domestic commerce of the 
     United States by allowing in competitors who are free of the 
     burdens of U.S. taxation and regulation, and who could 
     compete with land and air modes of transportation that are 
     subject to U.S. regulation and taxation. That premise is, of 
     course, fatally flawed as a matter of law and policy.
       The ITC doesn't understand the difference between importing 
     shoes and importing transportation services. With shoes, the 
     producer's costs, including associated tax and regulatory 
     burdens, are incurred in the exporting state.
       With most services, the producer's costs, including 
     associated tax and regulatory burdens, are incurred in the 
     importing state. But the reform coalition wants to change 
     that with respect to domestic maritime transportation, and 
     preserve the law of the flag of registry.
       The reason is simple: If U.S. tax and regulatory costs were 
     extended to all competitors in domestic trades, whether U.S. 
     or foreign flag, then the savings to shippers from repealing 
     the Jones Act would range from $0 to nearly $0--setting aside 
     the separate cost of building vessels in U.S. yards.
       There's not much fuel for reform there.

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