The aftermath of Hurricane Maria, the powerful hurricane that devastated Puerto Rico this past September, brought national attention to the costs imposed on the island's economy by a little known U.S. law. The Merchant Marine Act of 1920 (aka the Jones Act) restricts waterborne shipments between U.S. ports to vessels built and registered in the United States, and in doing so sends shipping costs skyrocketing.
In recent weeks there have been reports that the White House is studying a plan that would give Puerto Rico a permanent waiver from the Jones Act to help the island's struggling economy. While they're at it, the Trump administration should consider a permanent waiver for the state of Alaska too.
Due to the Jones Act, Alaskans pay an additional daily "tax" on goods imported from the Lower 48. To illustrate, the average cost of hiring a crew on a Jones Act-compliant vessel from California to Alaska is roughly $11,500 per day, compared to just $2,000 per day for a foreign-crewed vessel. Building a Jones Act-compliant vessel in the U.S. also costs roughly four times more than building an identical vessel at an overseas shipyard. These costs show up in the staple goods Alaskans purchase daily, particularly on foods not produced in Alaska.
The Jones Act also makes it more difficult to sell Alaska products like timber and fish to American markets in the Lower 48. The U.S. International Trade Commission estimates that the annual economic gain from granting a permanent Jones Act waiver to the three jurisdictions most adversely impacted by the Jones Act (Alaska, Puerto Rico, and Hawaii) would be between $5 billion and $15 billion.
However, unlike jurisdictions like Puerto Rico and Hawaii, Alaska has a critical energy industry.
Of the Trump Administration's stated goals in Alaska, one of the most important is an attempt to catalyze offshore energy development, including in Arctic waters, to help the state's sluggish economy. If Trump is serious about offshore development in Alaska as a means to revive the state's economy, a Jones Act exemption would go a long way in making offshore development economically feasible.
In the past decade alone we've seen that the Jones Act has been a serious impediment to offshore development in the state. Notable cases include Shell's failed efforts in the Chukchi and Beaufort, which required the company to build a custom Jones Act-compliant light icebreaker at a cost of $200 million. More recently, we saw a record-setting $10 million fine imposed on Furie for violating the Jones Act in the course of its offshore development efforts in Cook Inlet. Both cases have become warning signs to others in the industry.
When it comes to offshore development in Alaska, the Jones Act is increasingly a deterrent. A Jones Act waiver would help induce development and deliver a key boost to the Trump Administration's "energy dominance" strategy.
To be sure, any major reform of the Jones Act will have ripple effects throughout U.S. maritime industries. Alaska is home to the third-most maritime jobs per capita in the nation, a figure that has given some of Alaska's political representatives in Washington an excuse to not take a stand against the Jones Act. However, most of these maritime jobs are in fishing and other export-oriented, commodity-based industries. These sectors would in fact benefit from a Jones Act exemption, as it would make it cheaper to sell goods to the Lower 48 instead of shipping products longer distances to Asian markets.
A key motivation for keeping the Jones Act in place is the desire to keep American shipyards in business, as they are critical piece of national security. Supporters of the Jones Act argue that a nationwide repeal of the Act would severely undercut the nation's ability to build warships. Here, supporters of the Jones Act have a strong case against a nationwide repeal. However, granting a permanent waiver to Alaska and perhaps other noncontiguous jurisdictions like Puerto Rico would have little effect on the defense industrial base if the act remains in place for the contiguous United States.
Importantly, there is precedent to exempt U.S. territories outside the contiguous 48 states from the unduly burdensome Jones Act requirements. In 1936, just 16 years after the Jones Act was initially enacted, Congress, recognizing the economic burden the regulation placed on non-contiguous territories, passed an amendment to permanently exempt the U.S. Virgin Islands from the Jones Act requirements.
Some political leaders, including Sen. John McCain, have recently pointed to the Virgin Islands case as a justification for issuing a similar exemption for Puerto Rico following Hurricane Maria.
Congressional leaders like John McCain as well as the Trump administration itself would be wise to consider Alaska right alongside Puerto Rico for a Jones Act waiver.
Ryan Uljua is a Senior Fellow at the Arctic Institute where his research focuses on shipping and commodities in the circumpolar economy.