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Puerto Rico Senate To Investigate Jones Act Repeal


April 12, 2001
Copyright © 2001 CARIBBEAN BUSINESS. All Rights Reserved.

During the March meeting of the Council of State Governments’ Eastern Regional Conference a resolution was approved at the behest of Puerto Rico Sens. Jose Ortiz Daliot and Modesto Agosto Alicea, asking the U.S. Congress to repeal the applicability in Puerto Rico of certain U.S. maritime cabotage laws, specifically the Jones Act of 1920.

The Jones Act requires that all water commerce between U.S. ports, including inland waterways, contiguous and non-contiguous states and territories be carried on U.S.-built and registered vessels owned, operated, and manned by U.S. citizens.

"This is the first step by the Puerto Rico Senate to eliminate the applicability of cabotage laws to the Commonwealth of Puerto Rico. At this time, there are new and additional elements that must be considered that were not present in 1995 when a similar discussion of cabotage laws took place in the U.S. Congress.

"These new elements include the elimination of Internal Revenue Code Section 936, the future construction of a transshipment port, and the U.S. commitment towards a free trade agreement for the Americas. This resolution opens a new record in the Senate and public hearings on this topic should be held in May," said Sen. Ortiz.

"We need to hear from all parties affected by the effect of the cabotage laws over Puerto Rico, such as private companies, unionized labor, and the public sector. The U.S. is currently negotiating the elimination of taxes on free commerce," said Ortiz.

On March 8, the Puerto Rico Senate approved Resolution 100 ordering Sen. Ortiz’ International and Federal Affairs Committee to conduct an investigation of the cabotage laws and their applicability to the island. The committee is supposed to present a report within 60 days.

"Cabotage laws are an impediment to our free trade, and even to the success of a future transshipment port. Why should international companies with goods headed for the U.S. unload their cargo in U.S. flag vessels that are costlier than their own ships? We are losing out on a great incentive," said Ortiz.

The senator may also present a similar resolution for approval during the next Council of State Governments’ annual meeting, to be held in Anchorage, Alaska.

"Ideally, we are looking for the derogation of the Jones Act over Puerto Rico. But other alternatives can be discussed. For example, the U.S. Virgin Islands are exempt from some parts of the cabotage laws that now apply to Puerto Rico. If, for example, we could be released from having to use U.S. flag vessels to transport cargo to the U.S. mainland, our transshipment port would become a more competitive and attractive initiative for foreign shippers," said Ortiz.

Most of Puerto Rico’s major U.S. flag ocean cargo carriers, who are protected by the Jones Act, were not aware of the Senate’s resolution to repeal cabotage laws for Puerto Rico. Their reaction was unanimous as to the benefits of U.S. ocean cargo transportation companies in Puerto Rico’s market.

"The Jones Act has provided Puerto Rico the best ocean cargo transportation system available worldwide. In the island, there are five maritime transportation companies that offer multiple services to the most important U.S. ports, with more than 10 weekly sailings, and the most modern cargo handling equipment," said Roberto Lugo, vice president of Crowley Lines Service in Puerto Rico.

If you compare our service to other foreign ocean cargo companies you will find that they rarely have fixed schedules and because of their ports of origin, travel time is much longer in comparison to the U.S. They have never shown a tendency towards changing their schedules until now and will simply add Puerto Rico as another stop in their multiple-stop schedule," said Lugo.

Leo Holt, a board of directors’ member of Navieras' parent company, The Holt Group Inc., said, "The important thing is to look at how consumers in Puerto Rico have been positively affected by virtue of the Jones Act. Today, Puerto Rico has the lowest freight rates in the last 20 years plus a larger selection of U.S. ports. There is a fierce rate war but the beneficiary is the consumer. By repealing the Jones Act you are ignoring a benefit to the citizens of Puerto Rico."

Trailer Bridge’s Chairman John McCown is concerned about the lack of rational analysis about the real effect on shipping rates if the Jones Act is repealed for Puerto Rico. "Foreign ocean freight companies would compete for southbound cargo as they could incorporate Puerto Rico into their route between the U.S. and Latin America, accomplishing perhaps a rate reduction of no more than 3.5%.

"But northbound cargo rates would most certainly go up at least 5%. Is this good business for the Caribbean? The ocean freight companies that service this area have been in a hyper competitive market for some time now, with a significant over capacity in terms of rate per load. We need to start thinking what the ramifications of opening up this market are going to be," said McCown.

Sea Star General Manager Jaime Santiago, president of the Association of Ocean Freight Companies of Puerto Rico, said, "Jones Act freight vessels offer Puerto Rico’s manufacturing companies the lowest rates worldwide because of the existing competitive market. U.S. freight companies offer local clients market stability and quality because they have invested heavily in the Puerto Rico market, something that foreign companies would not accomplish.

A stable and dependable ocean freight service has also resulted in company savings due to inventory reductions. Finally, studies have shown that ocean transportation and labor is less than 10% of total transportation costs. The largest cost comes from land transportation, on which neither foreign nor U.S. companies have an impact," said Santiago.

This Caribbean Business article appears courtesy of Casiano Communications.
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