[Congressional Record Volume 144, Number 145 (Tuesday, October 13, 1998)]
[Extensions of Remarks]
[Page E2115]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           JONES ACT EXPOSED

                                 ______
                                 

                            HON. NICK SMITH

                              of michigan

                    in the house of representatives

                       Tuesday, October 13, 1998

  Mr. SMITH of Michigan. Mr. Speaker, there are more and more people 
that are becoming aware that the so called ``Jones Act'' is unfair to 
American producers and consumers. A Wall Street Journal editorial on 
the Jones Act, A Washington Tale (Oct. 5, 1998), is right on target. 
This 1920's law, which requires that all cargo transported from one 
U.S. port to another (even via a foreign port) travel on vessels built 
in the U.S., is protectionism at its worst.
  No other mode of domestic transportation operates under such 
stringent rules and no law prohibits our foreign competitors from using 
lower cost international ships when they export to our market. Because 
the Jones Act fleet is so small (down from 2,500 oceangoing ships in 
1945 to less than 120 today) many American businesses are unable to 
access deep-sea ships at any cost. Quite literally, today, the only 
people who can't ship to Americans are other Americans.
  The sterile national security arguments (refuted so well in the 
Journal's editorial), are used as a bludgeon when any discussion of 
reforming the Jones Act arises. It seems that whenever we get close to 
making some headway, the siren call of ``national security'' is raised 
to stifle all debate. The real story of the Jones Act is that it 
benefits a few protected ship operators at the expense of everyone 
else. I have yet to discover an economist who'll defend the law. The 
benefits of the Jones Act are based on myth and wishful thinking. The 
British news journal, The Economist, in their October 3rd edition 
stated that the United States is ``paying dearly for the Jones Act'' 
which has ``pushed freight rates to between twice and four times what 
they would be under free trade.'' (Pg. 14, Survey of World Trade)
  Mr. Speaker, I include as part of my remarks the editorial:

          [From the Wall Street Journal, Monday, Oct. 5, 1998]

                  Review & Outlook--A Washington Tale

       ``Accountability'' is now being much talked about, not only 
     as an admirable civic virtue, but as an indispensable 
     lubricant to a functioning global economy. Without it, you 
     get Indonesia. But the next time a foreign official is 
     getting lectured by someone from the U.S. Treasury, let them 
     pull out the following tale of how the American political 
     system looks when its own accountability completely 
     disappears.
       Our story starts on Kodiak Island, Alaska. There's a fellow 
     there named Ben Thomas who owns a logging company. Mr. Thomas 
     would like to sell his logs in the mainland U.S., but he 
     can't get them to market at a good price. In fact, he says 
     that it's cheaper to send his logs to Korea than it is to 
     send them to Olympia, Washington. Even if he wanted to pay 
     the outrageous shipping prices, Mr. Thomas says, during good 
     markets the ships are often not available.
       Unless you're in the ship business, or have to use U.S. 
     ships like Ben Thomas, you probably have never heard of the 
     78-year-old Jones Act. The beneficiaries of the ancient Jones 
     Act like it that way. What you don't know can't hurt them.
       Mr. Thomas' problem is that by law, he must use a ``Jones 
     Act'' ship to send his logs anywhere in the U.S. The 1920 
     Jones Act stipulates that maritime commerce within the U.S. 
     must be limited to U.S. flagships that are U.S. built, U.S. 
     owned and operated and manned by U.S. crew. While Mr. Thomas 
     can't get his logs to Olympia, Canadian lumber companies can 
     ship their logs to the U.S. at world market prices on state-
     of-the-art ships. Obviously this undermines U.S. 
     competitiveness at home.
       Senator John McCain held hearings recently on the Freedom 
     to Transport Act, a timid attempt to reform the pernicious 
     Jones Act. The Ben Thomas story is the same for producers in 
     many other industries--oil, agriculture, steel, coal, 
     automobiles, to name but a few. Thanks to the Jones Act, the 
     U.S. today has a downsized, overpriced ship-building 
     industry, a small and aging maritime fleet--the oldest in the 
     industrialized world--and a wildly distorted shipping network 
     that is reminiscent of the U.S. auto industry before Japanese 
     competition; the customer comes last.
       Midwestern farmers are screaming about grain sitting on the 
     ground because of a ship shortage and pig farmers in the 
     South are instead buying their grain from Canada. Shipping as 
     a share of the transportation industry is sharply down. The 
     nation's railways are backed up and the highway system is 
     unable to absorb the fallout.
       The Freedom to Transport Act is hardly radical. It would 
     leave in place most of Jones's protection, but its main 
     provision allows those ships over 1,000 tons, carrying bulk 
     cargo, to be built outside the U.S. This may seem a small 
     matter, but the U.S. needs cheap ships before it can have 
     competitive shipping. Forget about foreign competition; as it 
     stands now, the domestic shipping industry has enormous 
     barriers to entry for potential domestic entrants because of 
     the high price of ships.
       According to the U.S. Maritime Administration, the U.S. has 
     only 120 self-propelled vessels over 1,000 tons; this is down 
     from 2,500 at the end of World War II. During the Gulf War, 
     President Bush had to suspend the Jones Act to move petroleum 
     supplies. Yet ironically, national security has been the main 
     rationale for maintaining the Jones Act.
       U.S.-built commercial ships are so outrageously expensive 
     that shipping companies have practically ceased ordering 
     them. Rather than order high priced deep-water ships, many 
     U.S. companies have taken instead to using integrated tug 
     barges, a sorry replacement for real ships.
       Opponents of the new legislation claim that Jones Act 
     shipbuilders help spread the base of military ship-building 
     costs, but the facts suggest the opposite. Rob Quartel, a 
     former U.S. Maritime Commissioner and president of the Jones 
     Act Reform Coalition, cites military builder Newport News 
     Shipyards. Its futile attempt to get back into the commercial 
     ship-building business in 1994 ended with cost overruns and a 
     $330 million loss. It has since abandoned the commercial 
     market.
       What's clear is that Jones is not about national security; 
     it's about Congressional security. What counts in Washington 
     is that the shipping industry provides politicians with 
     steady, lucrative cash flow.
       According to a 1995 International Trade Commission study 
     dealing with only ocean-borne cargo and the potential gains 
     from removing the U.S. build requirement. ``The economy-wide 
     effect of removing the Jones Act is a U.S. economic welfare 
     gain of approximately $2.8 billion.'' Of course open 
     competition would eat into the profits of the protected 
     interests. Federal Election Commission records suggest that 
     those profits make their way, in part, back to the pockets of 
     the Jones Act's political protectors. With no accountability, 
     it's like a political annuity.
       The Journal of Commerce has reported that FEC records show 
     that in the 18 months leading up to the 1996 elections, 
     ``seven maritime unions with about 45,000 members gave nearly 
     $1.8 million to congressional candidates.'' Mr. Quartel says 
     that in 1994, three of the top 10 political action committee 
     givers were maritime related. This explains why, even through 
     the evidence demonstrates the destructiveness of Jones, 
     Congress has never had the stomach to dismantle this antique 
     law.
       Senator McCain has vowed to hold more hearings, but with 
     the maritime lobby spreading so much money around Washington, 
     he's swimming against the tide. Senator Trent Lott--from the 
     ship- and barge-building state of Mississippi--has testified 
     against the pending legislation.
       There is a cautionary tale here for our politics. Words 
     like ``shipping'' and ``the Jones Act'' don't get the 
     political juices running. Which is to say that when the press 
     or any other agent of accountability loses interest in a 
     subject, this is what rent-seeking politicians and 
     competition-averse commercial interests will do with it. 
     These are the real fat cats, and right now they're simply 
     getting fatter.

  I have called on the House Transportation Committee to hold hearings 
on my bills (H.R. 1991 and H.R. 4236) to reform the Jones Act. It is my 
hope that the next Congress will seriously consider this important 
issue.




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