The Jones Act Debate Part 4: Puerto Rico
We’re now deep in a series covering the debate over the 100-year-old piece of legislation known as the Jones Act. The controversial Merchant Marine Act of 1920, as it is formally named, has passionate proponents and opponents. Perhaps the most passionate arguments over the Jones Act center on its effects on Puerto Rico. That’s what we’ll look at in today’s post.
Here’s what we’ve covered so far:
President Biden Supports the Jones Act – What Is It and What Does It Do?
The Jones Act Debate Part 1: National Security
The Jones Act Debate Part 2: Protectionism or Hindrance
The Jones Act Debate Part 3: Cost to Hawaii
I’ll put my usual disclaimer here that this series itself is not meant to argue for or against the Jones Act. Rather, the point is to lay out arguments being made in the raging debate over the legislation to let you see what people are saying, so you can go research the arguments and make a decision for yourself.
With that, let’s get into the Jones Act and Puerto Rico.
Opponents of the Jones Act Argue It Raises Cost of Living & Hurts the Economy in Puerto Rico
We already touched upon Puerto Rico in part 3 of this series when Congressman Ed Case from Hawaii pointed to a 2012 Federal Reserve Bank of New York study that found “[i]t costs an estimated $3,063 to ship a twenty-foot container of household and commercial goods from the East Coast of the United States to Puerto Rico; the same shipment costs $1,504 to nearby Santo Domingo (Dominican Republic) and $1,687 to Kingston (Jamaica)—destinations that are not subject to Jones Act restrictions.”
However, opponents of the Jones Act don’t have to go all the way back to 2012 to point to a study as evidence that the Jones Act is bad for Puerto Rico. Grassroots Institute of Hawaii published an article by Jonathan Helton in 2019 about two new (at the time of publication) studies that indicate the Jones Act hurts Puerto Rico’s economy. Helton writes:
One of the studies, conducted by John Dunham & Associates, found that the Jones Act has prevented the creation of 13,250 jobs and $1.5 billion in annual economic growth, representing $1.1 billion in higher prices, $337.3 million in wages, and $106.4 million in lost tax revenues.
The other, conducted by Advantage Business Consulting, looked specifically at U.S. territory’s food industry and estimated that the Jones Act equaled a 7.2 percent tax on food and beverages alone, or about $367 million extra for island residents.
“Individually, families pay $300 more or $107 per person for food and beverages,” said ABC economist Vicente Feliciano.
Proponents of the Jones Act Argue It Does Not Raise Cost of Living in Puerto Rico and Positively Contributes to Puerto Rico’s Economy
Proponents of the Jones Act have studies they point to as well, refuting claims like those above that the Jones Act raises the cost of living and goods in Puerto Rico.
The American Maritime Partnership has whole pages dedicated to the subject, including their main Puerto Rico economy page that leads with the following in large text boxes:
A new study performed jointly by Reeve & Associates and Estudios Técnicos, Inc. concluded that the Jones Act has no impact on either retail prices or the cost of living in Puerto Rico.
“…retail prices of goods in Puerto Rico are essentially the same as on the mainland and freight rates for shipments between the mainland and Puerto Rico are very similar or lower than rates for shipping between the [mainland] and neighboring islands of Puerto Rico such as the U.S. Virgin Islands, Haiti, and the Dominican Republic.”
Later, the page says, “The Jones Act has no impact on either retail prices or the cost of living in Puerto Rico,” using the following as evidence:
A market basket analysis of an assortment of consumer goods at Walmart Stores in San Juan, Puerto Rico, and Jacksonville, Florida, found there was “no significant difference in the prices of either grocery items or durable goods between the two locations.” In fact, retail prices of goods in Puerto Rico are essentially the same as on the mainland.
The report found that shipping costs between the mainland and Puerto Rico make up only a small percentage of the retail price. For example, ocean shipping accounts for just 3 cents (or 2 percent) in the retail price of $1.58 for a can of chicken soup in San Juan. It found that, “[e]ssentially, transportation costs for Puerto Rico are not materially different than those on the mainland.
While opponents say the Jones Act hurts Puerto Rico’s economy and prevents job creation, proponents say the opposite. On another American Maritime Partnership page, they give the following blurb, citing yet another study, for how the Jones Act benefits Puerto Rico and creates jobs:
A GAO [Government Accountability Office] study on Puerto Rico listed a number of potential harms to the territory itself if the Jones Act were changed, including the possible loss of the stable service the island currently enjoys under the Jones Act and the loss of jobs on the island. Moreover, American domestic carriers are making some of the largest private sector investments currently underway in Puerto Rico by investing nearly $1 billion in new vessels, equipment, and infrastructure. They employ hundreds of Puerto Rican American citizens on the island and on vessels serving the market, providing highly reliable, low-cost maritime and logistics services. These private sector jobs and reliable services are important to the long-term recovery of the Puerto Rican economy and would be jeopardized by changes to the Jones Act.
American Maritime Partnership also points to the aforementioned study by Reeve & Associates and Estudios Técnicos, Inc as not only saying the Jones Act does not impact retail prices or the cost of living, but also does the following:
In addition, the report found that the state of the art maritime technology, Puerto Rico focused investments, and dedicated closed-loop service offered by Jones Act carriers provide a significant positive economic impact to the island, at freight rates lower or comparable to similar services to other Caribbean Islands.
Opponents Say Jones Act Hurts U.S. Economy in Sale of Goods to Puerto Rico
The main point Jonathan Hilton makes in his article against the Jones Act is obvious: the Jones Act is costly to the people and economy of Puerto Rico. However, Helton, along with other opponents of the Jones Act, also argues that there’s a negative impact on the U.S. economy in that the legislation hurts U.S. goods’ ability to compete with foreign goods when it comes to selling in Puerto Rico. Again, Helton turns to studies in his article to support the claim:
Feliciano and his team of researchers derived their estimates from data showing that transporting containers from the United States to Puerto Rico costs, on average, 2.5 times, or 151 percent more, than transporting from foreign ports. Specifically, “$3,027 from U.S. ports versus $1,206 from non-U.S. ports … after having made the corresponding adjustments for size of container and distance.”
Even U.S. manufacturers are harmed by this issue, because it makes their products cost more, whether in Puerto Rico, Alaska, Hawaii or Guam. The Jones Act is, in effect, a hidden tax that dissuades consumers in these locations from buying U.S. goods, incentivizing them, in turn, to buy foreign goods.
Known as “import substitution,” this concept has Puerto Ricans buying liquid natural gas, corn, potatoes and other products from foreign suppliers, instead of American suppliers, because it is too expensive to ship them in on Jones Act ships.
Proponents Argue U.S. Goods Strongly Compete & Foreign Competition Further Supports Jones Act Does Not Raise Prices in Puerto Rico
We know from previous parts of this series that proponents of the Jones Act argue that it supports American jobs. Proponents of the Jones Act do not think it hinders U.S. products’ ability to compete in Puerto Rico because there is still a strong presence of goods shipped from the U.S. mainland to Puerto Rico despite foreign vessels’ ability to bring goods there directly from the rest of the world.
In a press release article on the aforementioned Reeve & Associates and Estudios Técnicos, Inc study report, American Maritime Partnership shared:
Finding that 57 percent of San Juan’s port traffic in 2016 was carried on foreign vessels, the report noted that there is “nothing in the Jones Act that precludes foreign-flag vessels from serving Puerto Rico directly from foreign countries.” It concluded that there was strong competition between carriers serving the island, stating that “if cargo owners in Puerto Rico believed that the Jones Act shipping services were adding costs that negatively impacted their business, you would expect to see [an increase in foreign flag shipping].”
The aforementioned GAO study American Maritime Partnership also cites took place five years earlier than the Reeve and Estudios Técnicos one just mentioned. The GAO study noted two-thirds of the ships serving Puerto Rico were from foreign carriers. American carriers gaining market share from approximately 33% to 43% in that half decade provides evidence that U.S. goods are competing in Puerto Rico. American Maritime Partnership calls it “an intensely competitive transportation market.”
That intense competition, Jones Act proponents say, provides further evidence that the Jones Act is not hiking up prices in Puerto Rico. In fact, American Maritime Partnership even argues the Jones Act does not even hike shipping costs from the U.S. to Puerto Rico over its foreign island neighbors. American Maritime Partnership directly disputes the claim that import costs are at least twice as high in Puerto Rico as in neighboring islands on account of the Jones Act with:
There is no study that supports this statement in any way. In fact, anecdotal evidence about rates indicates that the opposite is true. For example, one analysis shows it is 40% more expensive to ship goods from the U.S. mainland on foreign vessels to the U.S. Virgin Islands (not subject to the Jones Act) than on Jones Act vessels to Puerto Rico.
The Jones Act Debate Continues
When natural disasters like hurricanes strike, the Jones Act debate tends to flare up. When we continue this series, we’ll look at the arguments around whether or not the Jones Act impedes disaster relief efforts.