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NOTE TO SELF: cf Bricker Amendment

See also: Passenger Vessel Services Act of 1886 regarding passenger vessels

The Merchant Marine Act of 1920 (P.L. 66-261) is a United States Federal statute that regulates maritime commerce in U.S. waters and between U.S. ports.

Section 27, also known as the Jones Act, deals with cabotage (i.e., coastal shipping) and requires that all goods transported by water between U.S. ports be carried in U.S.-flag ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents. The purpose of the law is to support the U.S. Maritime industry,sources.

In addition, amendments to the Jones Act, known as the Cargo Preference Act (P.L. 83-644), provide permanent legislation for the transportation of waterborne cargoes in U.S.-flag vessels.

Background

Senator Wesley Jones

The Jones Act, section 27 of the Merchant Marine Act of 1920 (46 U.S.C. 883), has long been regarded as a cornerstone of U.S. maritime policy. It requires that all waterborne shipping between points in the United States be carried by vessels built in the United States, at least 75% owned by American interests, and manned by American citizens. Its purpose is to ensure that the nation has a sufficient merchant marine and shipbuilding base to protect the nation's defense and commercial interests.

• The Act essentially bars foreign built and operated vessels from engaging in U.S. domestic commerce.

The Jones Act can be referred to as a cabotage law, probably derived from the French caboter, meaning to sail coastwise or by the capes. It was named after Senator Wesley L. Jones of Washington, who was chairman of the Senate Commerce Committee at the time. This was not the first law protecting U.S. domestic shipping, but a restatement of legislation dating back to the first session of Congress. Prior to World War I, the domestic merchant fleet operated under an 1817 law, An Act Concerning the Navigation of the United States, enacted by the 14th Congress.

Debates of the Jones Act occur regularly in Congress. Its critics claim it does not accomplish this goal and furthermore raises shipping costs, thereby making U.S. farmers and manufacturers less competitive. Its supporters claim it is needed to foster a domestic shipbuilding base that is vital for national security. Despite economic arguments against the Jones Act, efforts to repeal it have never succeeded.

The United States has had Cabotage laws since Congress imposed a duty on cargo carried on foreign ships in 1789. Less than thirty years later, foreign ships were banned from domestic commerce by the Navigation Acts of 1817. The concept of cabotage was extended to include passenger ships in 1886. Another key aspect of the Jones Act, that ships not only be US-owned, but also US-built entered into the body of law in 1905. Current laws extend the concept of cabotage to require that dredging, towing, and salvage operations in US-waters are done by US vessels.

• The Merchant Marine Act of 1920 was enacted with the aim of maintaining a merchant marine of the best equipped and most suitable types of vessels owned and crewed by U.S. citizens, sufficient to carry the greater portion of U.S. commerce and serve as a naval or military auxiliary at time of war.

• Section 27 of that Act is known as The Jones Act. Together with the Passenger Vessel Services Act of 1886, it reserves marine transportation of freight and passengers to U.S.-built, maintained, documented, owned and crewed vessels.
• Similar laws cover dredging in U.S. waters and towing and salvage operations.

• During World War I, prohibition of foreign ships was temporarily lifted in order to maintain an adequate supply of vessels for domestic commerce.

• This law required that U.S. domestic shipping be conducted only with U.S. flagged vessels.
• Since only U.S. built ships could be flagged in the United States, the Act barred foreign competition.
• Earlier, in 1789 and 1790, the first session of Congress imposed duties and taxes on foreign built, foreign flag ships engaged in the U.S. Atlantic coast trade.
• These duties and taxes were significant and made it difficult for foreigners to compete in U.S. coastwise trade.
• Foreign built and owned vessels were charged 50 cents/ton at each U.S. port while U.S. built and owned vessels were only charged 6 cents/ton.
• The Acts of 1789, 1790, and 1817 were intended to counteract existing laws in England and France that protected their merchant fleets.
• The British Navigation Acts date back to the 1600's and reserved England's foreign and domestic commerce to British built, owned and crewed vessels.
• The Navigation Acts were aimed chiefly at Britain's rival in merchant shipping - the Dutch.

• Cabotage laws, in some form, are not unique to the maritime industry nor to the United States. Air cabotage laws prevent foreign airlines from carrying passengers or cargo between two U.S. cities but there is no requirement that the planes be built in the United States.
• In the cruise ship market, the counterpart to the Jones Act is the Passenger Services Act of 1886 (46 U.S.C. 289).
• This Act states, "No foreign vessel shall transport passengers between ports or places in the United States, under penalty of $200 for each passenger so transported or landed."

• Other countries also protect their domestic shipping fleets.
• A 1991 survey by the Maritime Administration (MARAD) of 56 maritime countries (the United States included) found that 43 countries had some crewing restrictions, 37 countries had ownership provisions, and six countries had domestic construction requirements.

• National Defense. A primary purpose of the Jones Act is to foster a strong domestic maritime industry which can be mobilized rapidly in time of war or national emergency.
• All nations recognize the desire to build their military hardware domestically.

• The defense justification for protection of domestic shipping dates at least as far back as the first treatise on national economic policy written in 1776.
• In the Wealth of Nations, Adam Smith argued against the mercantile trade policies of his era in favor of free trade or laissez faire.
• However, when it came to domestic shipping, Smith believed this industry was a logical exception to free trade.
• He supported England's navigation laws: "The defense of Great Britain depends very much upon the number of its sailors and shipping.
• The act of navigation, therefore, very properly endeavors to give the sailors and shipping of Great Britain the monopoly of the trade of their own country."
• Two-and-a-quarter centuries later, Adam Smith's arguments for protecting a domestic fleet are still propounded today.

• Proponents of the Jones Act argue that the United States needs to maintain a commercial shipbuilding industry, including not only a skilled labor pool of welders and fitters, but also the industrial infrastructure that can be called upon when our national security is threatened.

• While the overwhelming bulk of U.S. military supplies and equipment is moved overseas by ship, some observers argue that given the long time needed to build new ships, the relatively brief duration of most recent wars, and the expanded inventory of government-owned sealift ships, the wartime importance of the shipbuilding industry has declined.
• For some observers, the best wartime national security argument for the Jones Act today is that it helps to maintain a pool of U.S. merchant sailors who can be called upon to man government-owned sealift ships that are reactivated to support the wartime sealift effort.

• Domestic Commerce. A second purpose, or intent, of the framers of the Jones Act is to protect American sovereignty over domestic maritime commerce.
• There are three major waterborne trade lanes covered by the Jones Act: coastal ocean, Great Lakes, and inland waterways.
• Measured in tons, inland waterways is the largest of the three segments.
• In 1997, inland waterways represented 62% of the total volume of freight moved in the waterborne domestic market. *Coastwise trade represented 26%, and the Great Lakes segment represented 12%.
• More specifically, these trade lanes transport the following commodities:

• Domestic crude oil from Alaska to California refineries;
• Grain via inland rivers from Midwest farms to Gulf Coast ports;
• Iron ore from Minnesota and Michigan to Great Lakes basin steel mills;
• Refined petroleum products along the East and Gulf coasts;
• Inter-plant movements of chemicals and fertilizers along the Gulf Coast;
• Appalachian coal to utilities throughout the Midwest; and
• Merchandise to/from Alaska, Hawaii, Puerto Rico, and the U.S. Pacific Islands.

• The type of vessels that make up the Jones Act fleet reflects the preponderance in demand for inland river navigation rather than deep-sea coastal or Great Lakes navigation.
• Barges comprise 85% of the cargo capacity of the fleet whereas deep-sea ships only comprise 15%.
• The largest category of deep-sea ships is liquid carriers (tankers) because 75% of the coastwise trade is in petroleum products.
• Critics of the Jones Act question whether a fleet predominantly composed of river barges qualifies as being militarily useful and whether the crew licensed for barge work would be qualified to work on deep-sea vessels in time of war.

Provisions

Preamble

It is necessary for the national defense and for the proper growth of its foreign and domestic commerce that the United States shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency, ultimately to be owned and operated privately by citizens of the United States; and it is declared to be the policy of the United States to do whatever may be necessary to develop and encourage the maintenance of such a merchant marine, and, in so far as may not be inconsistent with the express provisions of this Act, the Secretary of Transportation shall, in the disposition of vessels and shipping property as hereinafter provided, in the making of rules and regulations, and in the administration of the shipping laws keep always in view this purpose and object as the primary end to be attained.

— Sec. 1. Purpose and policy of United States (46 App. U.S.C. 861 (2002)), MARAD

Cabotage

The cabotage provisions restrict the carriage of goods or passengers between United States ports to U.S. built and flagged vessels. Since 2006 it has been codified as portions of 46 U.S.C. ch.551 (Coastwise Trade). At least 75 percent of the crewmembers must be U.S. citizens. Moreover foreign repair work of U.S.-flagged vessels' hull and superstructure is limited to 10 percent foreign-built steel weight. This restriction largely prevents American shipowners from refurbishing their ships at overseas shipyards.

Seaman's rights

The U.S. Congress adopted the Merchant Marine Act in 1920, formerly 46 U.S.C. § 688 and codified on October 6, 2006 as 46 U.S.C. § 30104. The Act formalized the rights of seaman (see: Seaman (Admiralty Law))

It allows injured sailors to obtain damages from their employers for the negligence of the shipowner, the captain, or fellow members of the crew. It operates simply by extending similar legislation already in place that allowed for recoveries by railroad workers and providing that this legislation also applies to sailors. Its operative provision is found at 46 U.S.C. § 688(a), which provides:

"Any sailor who shall suffer personal injury in the course of his employment may, at his election, maintain an action for damages at law, with the right to trial by jury, and in such action all statutes of the United States modifying or extending the common-law right or remedy in cases of personal injury to railway employees shall apply..."

This allows U.S. seamen to bring actions against ship owners based on claims of unseaworthiness or negligence. These are rights not afforded by common international maritime law.

The United States Supreme Court, in the case of Chandris, Inc., v. Latsis, 515 U.S. 347, 115 S.Ct. 2172 (1995), has set a benchmark for determining the status of any employee as a "Jones Act seaman." Any worker who spends less than 30 percent of his time in the service of a vessel on navigable waters is presumed not to be a seaman under the Jones Act. An action under the Act may be brought either in a U.S. federal court or in a state court. The seaman/Plaintiff is entitled to a jury trial, a right which is not afforded in maritime law absent a statute authorizing it.

Criticism

• Opponents of the Jones Act view the law as a "high-cost, low-selection" policy that is not fulfilling its national defense purpose.
• Instead of fostering a robust maritime industry, critics claim the Jones Act is working against the national security interest.
• By raising the price of domestic waterborne transport, they say it encourages transport by railroad or pipeline, thus decreasing the demand for domestic ship construction.
• Critics claim that the protection afforded by the Act has allowed U.S. shipyards to fall behind the rest of the world in efficient and innovative building methods.

Bulk Shippers. In general, bulk shippers are more likely to be affected by the Jones Act because their commodities have a lower value per unit cost which means the transport costs are a much higher portion of the total cost to the end user.

• U.S. agricultural producers are leading opponents of the Jones Act.
• The American Farm Bureau Federation believes that the Jones Act stands in the way of shipping feed grains economically from the Great Lakes to Southeastern U.S. ports.
• It contends that livestock producers in the Southeast import feed from foreign suppliers rather than buy from U.S. suppliers in the Midwest because international ocean rates are lower than domestic rates.
• However, an economic study sponsored by farm groups concluded that improvements in transportation infrastructure in Brazil and Argentina and lower production costs in those countries were a more significant factor than the Jones Act in explaining the foreign sourcing of feedstuffs.
• Other bulk shippers opposed to the Jones Act include scrap metal and road salt shippers.
• At a 1996 congressional hearing, a representative of the Steel Manufacturers Association complained of not being able to utilize domestically produced scrap metal because domestic waterborne transport made it prohibitively expensive.
• Instead, scrap metal found a foreign market and was being exported to Turkey.
• At this same hearing, a representative of the road salt industry complained that mid-Atlantic states were importing road salt from Chile and Mexico rather than buying from mines in Ohio and Louisiana.
• Importing salt was cheaper than buying domestically due to the difference in transport costs.
• Consumers in Hawaii, Alaska, and Puerto Rico. In addition to bulk shippers, consumers in Alaska, Hawaii, and Puerto Rico also claim they are negatively affected by the Jones Act.
• A 1988 GAO report found that the Jones Act was costing Alaskan families between $1,921 and $4,821 annually for increased prices paid on goods shipped from the mainland.
• A Hawaii state representative asserted that "Hawaii residents pay an additional $1 billion per year in higher prices because of the Jones Act. This amounts to approximately $3,000 for every household in Hawaii."
• A representative of business interests in Puerto Rico argued that their producers were placed at a disadvantage with respect to producers in Mexico because the cabotage laws raised shipping costs between the United States and Puerto Rico.
• These groups claim that they are in fact subsidizing the Jones Act fleet through the higher rates they must pay.
• They argue that since maintaining a Jones Act fleet is largely for national defense purposes, the Nation as a whole should share the cost rather than the burden falling on just a few.
• These groups recommend that a domestic fleet be subsidized directly by the Department of Defense (DOD).

Critics note that the legislation results in costs for moving cargoes between U.S. ports that are far higher than if such restrictions did not apply. In essence, they argue, the act is protectionism.

Opponents contend that the U.S. shipbuilding industry has suffered as a result. Ship operators are given an incentive to maintain veteran U.S.-built vessels rather than replace them with new tonnage. In addition, U.S. shipyards have adapted to building only those ships that are needed by operators, with price tags that reflect their all-American workforces. Subsequently, the claim is that U.S. shipbuilders have long since priced themselves out of the international market for merchant ships.

A 2001 U.S. Department of Commerce study indicates that U.S. shipyards built only 1 percent of the world's large commercial ships. Ships are virtually never ordered in U.S. shipyards unless they are for use in U.S. Shipping. The report concluded that the lack of United States competitiveness stemmed from foreign subsidies, unfair trade practices, and lack of U.S. productivity.

Moreover, critics point to the lack of a U.S.-flagged international shipping fleet. They claim that it makes it economically impossible for U.S.-flagged, -built, and -crewed ships to compete internationally with vessels built and registered in other nations with crews willing to work for wages that are a fraction of what their U.S. counterparts earn.

In June 2010, Sen. John McCain said that this law restricts shipping and raises costs to consumers in Hawaii, Alaska, Puerto Rico and Guam. His proposed legislation to fully repeal the Jones Act of 1920, co-sponsored by Senator Jim Risch, was introduced to Congress as the Open America's Water Act on June 25, 2010, with the following statement:

"Today I am pleased to introduce legislation that would fully repeal the Jones Act, a 1920s law that hinders free trade and favors labor unions over consumers. Specifically, the Jones Act requires that all goods shipped between waterborne ports of the United States be carried by vessels built in the United States and owned and operated by Americans. This restriction only serves to raise shipping costs, thereby making U.S. farmers less competitive and increasing costs for American consumers".

Support

If we did not have the Jones Act, cargo preference, the MSP program and Voluntary Intermodal Sealift Agreement (VISA) programs, I can assure you that it is unlikely that ships would remain under the U.S. flag. And the U.S.-citizen mariner pool needed for the Department of Defense in times of national emergency or war would simply disappear.

U.S. Maritime Administrator, Capt. William Schubert

Pro-defense Groups. The strongest argument proponents of the Jones Act have to counter high cost accusations is its strategic defense necessity - the unstated role of the merchant marine as America's "fourth arm of defense."

• Recent Presidents, Democrat and Republican, have supported the Jones Act. Although in peacetime the Jones Act may be viewed by many as an anachronism, in wartime, shipbuilding and a merchant marine are viewed as vital to national security.
• Defense groups argue that the maritime community represents a highly skilled work force and a physical establishment that can not be quickly replaced once it is lost.
• They assert that the national security importance of the Jones Act goes beyond the simple "bean counting" of deep-sea vessels.
• The most valuable national security component that the Jones Act provides, they contend, is a domestic shipbuilding and repair base.

• Maritime Unions. Maritime unions point to the 124,000 jobs the Jones Act creates for the U.S. economy.
• These jobs are said to pay annually $1.1 billion in federal taxes and $272 million in state taxes.
• Domestic carriers that participate in the Jones Act trade claim that they pay $300 million in federal and $55 million in state taxes on their corporate profits.
• Maritime unions also argue that the Jones Act ensures a level playing field among domestic carriers.
• If carriers are all U.S. owned, they all will be subject to the same laws and regulations.
• All domestic carriers pay U.S. taxes, adhere to U.S. labor laws - including minimum wage and other requirements, and follow Coast Guard safety, and environmental regulations.
• If foreign carriers were allowed in the domestic trades, they would have an unfair advantage because they would be free from these extra costs that U.S. regulations impose on domestic transport.

• U.S. Shipyards. Domestic shipyards contend that there are "fair trade" issues involved in U.S. shipbuilding.
• Many nations subsidize their shipyards either directly or indirectly.
• Recently, South Korea has drawn much criticism from the European Union for its alleged subsidy practices.
• South Korea recently emerged as the largest shipbuilding nation, a title Japan had held for 44 years.
• The EU is claiming that South Korean yards are "dumping" their ships on the market at prices below cost.
• South Korea claims its advantage is a result of cheap labor costs and the weakness of its currency.
• Although the U.S. does not currently provide direct subsidy for commercial shipbuilding, it does provide a loan guarantee program that insures 87.5% of the financing for new ship construction.
• The U.S. shipbuilding community contends the Jones Act is needed to counteract the subsidy policies of other nations.

Supporters of the Shipping Act maintain that the legislation is of strategic economic and wartime interest to the United States. The act, they say, protects the nation's sealift capability and its ability to produce commercial ships. In addition, the act is seen as a vital factor in helping maintain a viable workforce of trained merchant mariners for commerce and national emergencies. Supporters say that it also protects seafarers from deplorable living and working conditions often found on foreign-flagged ships.

Some proponents make the case that allowing foreign-flagged ships to engage in commerce in American domestic sea lanes would be like letting a foreign automaker establish a plant in the U.S. which doesn't have to pay U.S. wages, taxes, or meet national safety or environmental standards.

“America needs a strong and vibrant U.S.-Flag Merchant Marine. That is why you … can continue to count on me to support the Jones Act (which also includes the Passenger Vessel Services Act) and the continued exclusion of maritime services in international trade agreements.” Barack Obama, August 28, 2008

“I can assure you that a Reagan Administration will not support legislation that would jeopardize this long-standing policy ... embodied in the Jones Act ... or the jobs dependent on it.” President Ronald Reagan, 1980

The [Jones Act trailership] SS NORTHERN LIGHTS made 25 voyages and 49 port calls [to the Iraqi war zone]. She carried 12,200 pieces of military gear totaling 81,000 short tons and covering over 2 million square feet. Those statistics clearly demonstrate the value that the U.S.-flag shipping industry brings to the Defense Transportation System.” General Norton A. Schwartz, USAF, Commander in Chief, U. S. Transportation Command, 2005

The Jones Act has been supported politically by Presidents Clinton, Bush, Reagan, Carter and Ford, among others. It is supported by American military leaders, most recently in a statement by Lt. Gen. Roger Thompson, deputy commander in chief, U.S. Transportation Command. There also are 239 co-sponsors of a pro-Jones Act Resolution in the U.S. House of Representatives.

Reduced to its essential terms, the Jones Act simply requires companies operating in the domestic commerce of the United States to comply with U.S. laws. This requirement includes corporate taxes, the National Labor Relations Act, the Fair Labor Standards Act, Coast Guard standards, employing American citizens, etc. American ships are subject to these laws and foreign ships are not. This same fundamental principle applies to every other company doing business in the United States, from agriculture to retail.

The Shipping Act also has support from the domestic airline, trucking, and rail industries.

Waivers of Shipping Act provisions

Requests for waivers of certain provisions of the act are reviewed by the United States Maritime Administration on a case-by-case basis. Waivers have been granted in cases of national emergencies or in cases of strategic interest. For instance, declining oil production prompted MARAD to grant a waiver to operators of the 512-foot Chinese vessel Tai An Kou to tow an oil rig from the Gulf of Mexico to Alaska. The jackup rig will be under a two-year contract to drill in Alaska's Cook Inlet Basin. The waiver to the Chinese vessel is said to be the first of its kind granted to an independent oil-and-gas company.

In the wake of Hurricane Katrina, Homeland Security Secretary Michael Chertoff temporarily waived the U.S. Shipping Act for foreign vessels carrying oil and natural gas from September 1 to September 19, 2005.

Guam, American Samoa, and the Northern Marianas in the Pacific and the U.S. Virgin Islands in the Caribbean are exempt from provisions of the Jones Act because so little shipping goes to those ports that requiring American cabotage would cause hardship.

An Assessment of the Jones Act

• Economic studies have consistently found an aggregate economic cost of the Jones Act.
• For instance, a recent U.S. International Trade Commission economic study found that repealing the Jones Act would have a annual positive welfare effect on the overall U.S. economy of $656 million.
• Although this and other studies make an economic case for repeal of the Act, the Act provides a significant degree of protection for U.S. shipyards, domestic carriers, and American merchant sailors.
• Additionally, the national security implications of the Jones Act are difficult to measure but are considered by many observers as positive for the Nation.

• Like U.S. trade policy in other goods or services, the Jones Act is highly controversial because there are definite winners and losers.
• The potential losses from lifting the shipping restrictions, such as jobs in shipyards and the merchant marine, are highly visible and concentrated, while the potential gains, such as lower consumer prices,are largely invisible and widely dispersed.
• It is worth noting that some of the largest shipyards in the country are the largest employers in the states where they are located.
• On the other hand, only a tiny fraction of American consumers are probably aware of the Jones Act or that it affects the prices they pay for goods.
• Shippers and residents of Hawaii and other insular possessions are most directly affected in terms of the cost of the Jones Act.

More PD text

Benefits

• The business opportunities provided by these laws have encouraged enormous investments in vessels and other marine transportation assets.
• Over the last 5 years, U.S. domestic carriers have significantly upgraded their fleets with 13 ocean-going vessels, 183 tugs, 3,942 barges, 64 offshore supply vessels and 69 ferries.
• The investments in new vessels have contributed to a 35 percent increase in the value of the industry’s assets, the highest five-year growth in 25 years (Table 1).

• In 2005, the U.S.-flag domestic trade fleet of 38,544 vessels transported about 933 million metric tons of cargo between U.S. ports.

• The domestic trades include cargoes moved on the oceans (including trade between the 48 contiguous states and Alaska, Hawaii, Puerto Rico and Guam), along the coasts, on the inland waterways and the Great Lakes.

• In addition to serving as an essential link in our national transportation infrastructure, the domestic trade fleet is a critical component of America’s military readiness. Eighty-five percent of the oceangoing vessels in the fleet are militarily useful.

• Furthermore, of the more than 60,000 water transportation workers in the United States, 35,800 are mariners and nearly 8,000 these are qualified to crew deep-sea vessels and Ready Reserve Force and DOD sealift ships (Figure 1).

• The provisions of these laws must be maintained as an essential element of U.S. maritime policy that provides important economic and national security benefits to the nation such as support of U.S. shipbuilding and repair industries and maintenance of a labor force of skilled American mariners.

References

• Ogletree, Bill, Jones Act - Maritime Law for the Injured Worker (2007). Online Version
• Sethi, Arjun, The Merchant Marine Act of 1920: The Impact on American Labor (2005).
• Maritime Administration (2006). "U.S. Cabotage Laws" (PDF). Washington D.C.: Department of Transportation. Retrieved 2010-08-08. {{cite web}}: Cite has empty unknown parameters: |trans_title=, |month=, |separator=, and |coauthors= (help)

Cruft

• The Merchant Marine Act of 1920 has been revised a number of times, the most recent and thorough revision was the re-codified version of 2006; Online Version

See also

• Flag of Convenience
• Passenger Vessel Services Act of 1886
• Seaman (Admiralty Law)

External links

• The full text of the Merchant Marine Act of 1920 with 2006 Re-Codification
• Summary of contents of Merchant Marine Act of 1920
• Testimony by Deputy Maritime Administrator on September 15, 1998 in Support
• Maritime Cabotage Task Force a Jones Act political action committee
• Congressional Research Service Report RS21566 The Jones Act: An Overview.

[[Category:1936 in law]] [[Category:United States federal admiralty and maritime legislation]]