An obscure, 1920 shipping law might be crippling Puerto Rico even more -- and Trump is under pressure to take action

People walk around a roadblock caused by a mud-slide September 24, 2017 in Hayales de Coamo, Puerto Rico. Photo: Joe Raedle/ Getty Images.
  • Puerto Rico was devastated by Hurricane Maria and some experts say a 100-year-old US law is slowing its recovery.
  • The law, known as the Jones Act, places heavy tariffs on foreign ships delivering goods to the island, a US territory.
  • President Donald Trump said he is considering giving Puerto Rico a Jones Act waiver, but he is weighing pressure from the maritime industry.

Puerto Rico is reeling in the aftermath of Hurricane Maria — the most powerful storm to hit the island since 1928 — and many lawmakers and economic experts are calling on the Trump administration to overturn a law they say is further hampering the island’s recovery.

The Merchant Marine Act of 1920, known as the Jones Act, was passed after World War I in an effort to protect the US maritime industry from foreign competition by requiring that only US ships — built, staffed, and owned by Americans — carry goods between domestic ports.

But that means any foreign ships delivering goods to Puerto Rico — a US territory — are subject to steep tariffs, driving up the prices of consumer goods.

Goods shipped from the US mainland — often transferred from foreign ships onto US vessels in Florida — are double the price in Puerto Rico than in neighbouring islands, including the US Virgin Islands, not subject to the Jones Act. It makes the cost of living in Puerto Rico, where the per capita income is less than half that of the poorest state in the US, significantly higher than in most American cities.

“This is a shakedown, a mob protection racket, with Puerto Rico a captive market,” Nelson Denis, a former New York State assemblyman, wrote in a Monday New York Times op-ed.

With Puerto Rico in dire straits, critics of the law argue the government should repeal it completely, automatically suspend it during natural disasters, or provide far-flung places like Alaska, Hawaii, and Puerto Rico with permanent waivers.

The Trump administration granted temporary waivers in Texas and Florida following Hurricane Harvey and Hurricane Irma.

“A humanitarian crisis is about to explode in Puerto Rico. But the consequences of Jones Act relief would be immediate and powerful,” Denis wrote. “This is not the time to price-gouge the entire population.”

Critics argue the law also places burdensome restrictions on US businesses, which are subjected to higher costs of US shipping, and consumers. But the maritime industry — represented by powerful lobbying groups — is strongly in favour of maintaining the status quo.

“Almost every study shows that the losses to consumers are much bigger than the gains to anybody else,” Tom Grennes, a professor of economics emeritus at North Carolina State University, told Business Insider.

But while the gains are concentrated in the shipping industry, the losses are spread thin — in mainland America, they amount to about $US5 per US citizen per year.

Presidents from Ronald Reagan to Barack Obama have supported the law for national security reasons, arguing that US reliance on foreign shipping could be dangerous in a crisis. But the size of the US fleet is shrinking all the time, so Grennes says this defence of the law is increasingly irrelevant.

On Wednesday, Trump told reporters that he is “thinking about” granting Puerto Rico a Jones Act waiver. But he quickly added, “We have a lot of shippers and a lot of people who work in the shipping industry that don’t want the Jones Act lifted, and we have a lot of ships out there now.”

While the Jones Act is in line with Trump’s “Buy American, Hire American” motto, it is also a form of regulation — which Trump has pledged to cut — and, in some cases, burdens the energy industry.

Department of Homeland Security spokesman David Lapan told HuffPost on Tuesday that there are enough US ships available to deliver goods to Puerto Rico, so foreign vessels are unnecessary. He added that the potential consumer cost savings of waiving the law are “not material to our decision-making.”

Trump has been criticised for appearing to be less attentive to Puerto Rico, which he described as “absolutely obliterated” by the storm, than to Texas and Florida following hurricanes Harvey and Irma.

The president’s first public response to Hurricane Maria came in a series of tweets criticising the island’s weak infrastructure and economy five days after the storm hit.

A handful of US lawmakers have long argued for a repeal of the Jones Act.

In July, Republican Sen. John McCain, a longtime foe of the Jones Act, introduced legislation that would repeal the law, which he argues “hinders free trade, stifles the economy, and ultimately harms consumers.” The senator renewed his call to action this week.

“I am very concerned by the department’s decision not to waive the Jones Act for current relief efforts in Puerto Rico, which is facing a worsening humanitarian crisis following Hurricane Maria,” McCain wrote in a letter to the Department of Homeland Security.

“It is unacceptable to force the people of Puerto Rico to pay at least twice as much for food, clean drinking water, supplies and infrastructure due to Jones Act requirements as they work to recover from this disaster,” he added. “Now, more than ever, it is time to realise the devastating effect of this policy and implement a full repeal of this archaic and burdensome act.”

Seven Democratic congressmembers, including Reps. Nydia Velázquez of New York and Luis Gutiérrez of Illinois, have also spoken out. Velázquez called for a one-year suspension of the law to speed Puerto Rico’s recovery.

“The island is now facing an unprecedented uphill battle to rebuild its homes, businesses and communities,” Velázquez wrote in a letter signed by seven other members of Congress to DHS. “Temporarily loosening these requirements — for the express purpose of disaster recovery — will allow Puerto Rico to have more access to the oil needed for its power plants, food, medicines, clothing, and building supplies.”

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