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Does The U.S. Fear The Free Market?

By Terry Macalister's Wavelength CAP

April 2, 2004
Copyright ©2004 TradeWinds. All rights reserved.

Our industry may be at the forefront of globalisation but in some places it can also be the burnt-out fag-end of nationalist protectionism.

It's always been a bit of a mystery to me why the great exporters of the free-market mentality have such trouble applying it closer to home.

Surely the US is a great global economic powerhouse because it is based on deeply competitive system. And a zeal to open up new trading opportunities around the world is a driver of its development-aid programme and its foreign policy more widely.

Indeed, it believes Iraq can become a model for the Middle East by showing the way out of state interference to a swashbuckling brand of capitalism.

Nothing wrong with that - as long as you practice what you preach.

Iraq's $18bn reconstruction programme makes it the biggest building site in history. Pity, then, that the US seems compelled to reduce the amount of competition for building contracts by giving 90% of the goodies to companies in its own backyard.

Back home, having had a run at using steel-import duties to keep out foreign competitors, the US is now tightening up its cabotage rules to steamroll those ship operators with links abroad out of the US domestic trades.

What is the justification for this squeeze-out as the maritime rollers turn, if you will excuse the mixed metaphor? There might be a military argument for politicians but is there a commercial one, oth er than keeping a few thousand jobs for US seafarers and shipyard workers?

There are, of course, endless claims that cabotage can be justified on an economic basis.

Last year Reeve & Associates, a US consultancy, gave glossy endorsement to protectionism with its report on the Jones Act or cabotage trade between the US and Puerto Rico.

The document, called "Setting the Record Straight", insisted that average freight rates were nearly 50% lower in 2001 than they were 10 years earlier despite a restriction on local vessels plying the route.

Such data conflicts completely with some earlier reports. And perhaps the game is given away by Reeve & Associates when it argues that US-flag commercial vessels play a "critical role in protecting the United States' authority".

That sounds more like the kind of concept that Republicans such as freebooting former oilmen like President George W Bush can understand and support.

Yet it still seems odd that he is prepared to put up with local shipyards offering such high newbuilding prices that local owners are troubled about what to do when they need tonnage for Jones Act trades.

And poor old BP is potentially looking down the barrel of a gun after having signed a contract together with US partners to build suezmax tankers for $840m at US shipyards just so that they can carry crude south from Alaska.

As Bob Rust pointed out in this paper the other week, the $210m per ship BP is paying Nassco Shipyard in San Diego is around four times what you might pay for a standard sue zmax in Korea today.

The oil major and tanker owner was specifically told by the US Maritime Administration that its programme conforms with regulations but there are increasing fears that the new tighter rules on foreign-lease financing of US-built vessels could scupper it.

This might leave BP having to sell off the tonnage to local US owners at knock-down prices. We've already seen Australia's Adsteam Marine - a pioneer among foreign firms moving into the US cabotage trades - pulling in its horns over there.

The US's desire to cling ever tighter onto anti-competitive and protectionist shipping rules comes as the European Union (EU) marches in the opposite direction. It will be interesting to see how Manolis Kefaloyannis, the new shipping minister in Greece, deals with claims that 5,000 jobs are endangered by the EU requirement to bring down the cabotage barrier.

With my own distant memory of sailing on clapped-out old ferries to the Greek islands during summer holidays, the idea that outside owners - s uch as Ocean Star - are poised to enter the trades with new vessels is welcome.

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