Tariffication of the coastwise trade laws.

Author:Diggs, Keith E.
 
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The coastwise trade laws prohibit foreign vessels and mariners from transporting goods or passengers between American ports. These anticompetitive laws punish American producers and consumers yet barely sustain a dwindling merchant marine. Every attempt to repeal the laws encounters insurmountable political resistance. Reformers of the coastwise trade laws, then, should instead try to convert the prohibition on foreign involvement into a tariff.

TABLE OF CONTENTS INTRODUCTION I. COASTWISE TRADE AND THE MERCHANT MARINE A. The Coastwise Trade Laws and Their Cost B. The Harm to the Merchant Marine and National Defense II. A Path to Reform. A. Resistance to Repeal. B. Tariffication: A First Step CONCLUSION. 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 trade (7) is at the mercy of a monopoly that Congress grants American ships, shipyards, ship owners, and sailors against foreign competition. Outcompeted in international 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 Act (8)--reserve the coastwise transportation 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 marine (9) and its capacity to serve as a "naval and military auxiliary in time of war or national emergency." (10) Supporters buttress this argument with concerns about the preservation 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 between U.S. ports to bear the near-triple costs of operating American-flagged vessels. (12)

Quite simply, the coastwise trade laws impede U.S. growth (13) 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 grandfather 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 foreign-owned, -operated, or -built vessels would have to pay before being allowed 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 reserve a captive market for its merchant marine. (16) This Part explains the effects of this policy. Section I.A explores the coastwise trade laws' economic, legal, and environmental costs. Section I.B focuses on the supposed beneficiary of the coastwise trade laws--the merchant marine--and argues that its decline, in spite of its monopoly on coastwise trade, justifies reforming the laws.

    1. The Coastwise Trade Laws and Their Cost

      In the United States, the coastwise trade is closed to foreigners. Federal law allows only vessels owned by U.S. citizens to be issued a "certificate of documentation" (17)--that is, to fly the U.S. flag. Engaging in coastwise trade requires a coastwise endorsement--a qualification on the certificate of documentation, akin to a motorcycle designation on a driver's license--which is available only to vessels that are eligible for the certificate (18) and built in the United States. (19) As currently codified, (20) twin provisions in the coastwise trade laws prohibit the transportation of merchandise and passengers except aboard vessels holding these endorsements. (21)

      These "unabashedly protectionist" (22) provisions are quite costly. The U.S. International Trade Commission estimated in 1999 that the Jones Act alone, which pertains only to the shipment of goods, reduced real national income by $1.32 billion. (23) This is an old problem whose effects have been felt by many domestic industries over the years. For example, the Pacific Northwest timber industry of the early 1960s found itself priced out of the East Coast market by its Western Canadian counterpart, which could employ foreign-flagged vessels for shipping. (24) Midwestern grain farmers were priced out of the same market in the 1990s. (25) Today, our coastwise trade laws benefit Canada by incentivizing cruise lines to bus passengers from Seattle to Vancouver before embarking on cruises to Alaska. (26)

      Shippers have long contrived such work-arounds. In 1893, Congress inserted into the coastwise trade statutes the language restricting foreign vessels from transporting goods "via any foreign port." (27) This was an attempt to close a loophole created by a pending Ninth Circuit decision, which ultimately held that a shipment of goods from New York to California by way of Belgium was outside the scope of the coastwise trade laws then in force. (28) This reactionary prohibition, however, has failed to prevent the exploitation of loopholes in the coastwise trade laws. Professor McGeorge, supporting his conclusion that the prevailing interpretation of the Jones Act bears no reasonable relation to its original purpose, (29) highlights how some--but only some--industries are able to evade the coastwise trade laws by processing shipped merchandise in a foreign port. Oil companies, for example, can ship Alaskan crude to the East Coast via less expensive foreign vessels so long as the oil passes through an offshore refinery. (30) A purveyor of Alaskan snow crab, however, will have no such luck: even if he sends the crab to Korea for extensive processing before shipping it back to the United States, the coastwise trade laws will apply to him because of how U.S. Customs interprets the word "different."...

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