Tariffication of the Coastwise Trade Laws

• Date: 01 June 2014
• Author: Diggs, Keith E

Introduction

"Americans put a sort of heroism into their manner of doing commerce."1

America's maritime shipping industry amazed Alexis de Tocqueville when he visited the young country in the 1830s. American ships dominated the market, both at home and abroad. The Frenchman attributed America's "maritime genius" to the fact that its merchant marine could "cross the seas most cheaply," not because of any inherent material advantage but rather because of its mariners' competitive spirit.2

Tocqueville would scarcely recognize the industry today. The registries of Panama and Liberia easily eclipse that of America in number of ships and tonnage capacity,3 while South Korea and China lead in shipbuilding, as Asia has become the industry's epicenter.4 America's international maritime trade is now "largely the domain of foreign ships"5 flying what labor unions pejoratively call "flags of convenience";6 the country's coastwise trade7 is at the mercy of a monopoly that Congress grants American ships, shipyards, ship owners, and sailors against foreign competition. Outcompeted in inter- national maritime shipping, the American industry survives in the coastwise trade not because of its maritime genius but instead because Congress keeps the foreign geniuses out.

This Comment focuses on the coastwise trade monopoly. Two laws- the Jones Act and the Passenger Services Act8-reserve the coastwise trans- portation of goods and passengers, respectively, for American-built ships owned by Americans employing American crews and documented under American laws. The idea is to protect the merchant marine9 and its capacity to serve as a "naval and military auxiliary in time of war or national emer- gency."10 Supporters buttress this argument with concerns about the preser- vation of American jobs,11 but the merchant marine has sharply declined despite its monopoly on coastwise trade. Moreover, the monopoly forces American producers and consumers requiring maritime transportation be- tween U.S. ports to bear the near-triple costs of operating American-flagged vessels.12

Quite simply, the coastwise trade laws impede U.S. growth13 and impose substantial costs on the American economy for the benefit of a politically favored interest group. Powerful domestic industries with clever lawyers can work around the laws,14 while foreign mariners making an honest living in the U.S.-foreign trade can serve only one American port per voyage. Yet the political will for wholesale repeal of American coastwise trade laws does not exist,15 and international trade law is riddled with exceptions and grandfa- ther clauses that shield the coastwise trade laws from trade liberalization.

This Comment argues that Congress, rather than pursuing an elusive repeal, should reform the coastwise trade laws by enacting a tariff that for- eign-owned, -operated, or -built vessels would have to pay before being al- lowed to engage in the coastwise trade. Such reform would introduce foreign competition at a pace that would accommodate the special interests who oppose repeal. Part I explains how congressional efforts to promote and maintain the U.S. merchant marine through a monopoly on coastwise trade have both failed in their original purpose and damaged American economic interests. Part II evaluates the plausibility of repeal and proposes tariffication as a viable reform.

1. Coastwise Trade and the Merchant Marine

   The United States ostensibly restricts its coastwise trade in order to re- serve a captive market for its merchant marine.16 This Part explains the ef- fects of this policy. Section I.A explores the coastwise trade laws' economic, legal, and environmental costs. Section I.B focuses on...