With crude oil supplies reaching the Gulf Coast at record levels thanks to the shale oil boom, many U.S. oil refiners and marketers have expressed interest in reforming — or outright repealing — the Jones Act. Signed into law by President Woodrow Wilson in 1920, the Jones Act mandates goods shipped by waterway from one U.S. destination to another U.S. destination must be transported on U.S.-owned and U.S.-built ships flying the U.S. flag with at least a 75-percent U.S. crew. This law was designed to protect the U.S. maritime industry and only covers marine travel, as there is no corresponding law restricting foreign-made planes or trucks from transporting goods across the country.
“The Jones Act is driving up shipping costs for all manner of goods, including crude oil and gasoline,” said AFPM President Charles T. Drevna. “In fact, it is now cheaper to ship crude oil from the Gulf Coast to Canada (which can receive U.S. crude oil today), refine it into gasoline and ship it back to the East Coast rather than simply ship the crude from the Gulf Coast to our East Coast refiners. In the past year, the cost of shipping crude on Jones Act tankers has increased even more as demand outpaces supply. This makes little economic sense and only serves to weaken U.S. manufacturing.”
Industry group Petroleum Marketers Association of America (PMAA) is calling for the U.S. Congress to request a new Government Accountability Office study on the Jones Act, which was last done in 1998. PMAA said Congress should give the DOE the authority to waive the Jones Act to allow the transport of crude oil and refined products to refineries in energy sensitive regions of the U.S.
In addition to oil refiners and marketers, a number of legislators are calling for a review of the Jones Act. U.S. Rep. Joe Barton recently introduced a bill to remove all restrictions on the export of crude oil by repealing the nation’s Energy Policy and Conservation Act, which bans most U.S. oil exports and has been in place since 1975. With his bill, Barton also expressed his support of revisiting the restrictions set forth by the Jones Act.
“Americans can compete with anyone in a free market, rather than hiding under the guise of a protectionist statute that actually inhibits greater growth of American manufacturing,” Drevna added. “With the right policies, the U.S. has an opportunity to become the world’s top energy producer and to continue the return of manufacturing jobs. If we’re taking a hard look at the energy policy of the 1970s, surely we can also take a hard look at the shipping policy of the 1920s.”
U.S. Sen. John McCain introduced legislation to repeal the Jones Act in 2010 but received little support from his fellow legislators. McCain recently said he plans to introduce new legislation to repeal the law.
“Laws like that had some rationale behind them in the 1920s perhaps, but it only serves to raise shipping costs and make U.S. farmers less competitive,” McCain said during a recent Jones Act event at The Heritage Foundation in Washington, D.C. “It increases costs for Americans if American goods have to be carried on these ships, which have much higher costs to operate.”
During his remarks, McCain brought up a 2002 economic study by the International Trade Commission that says a repeal of the Jones Act would lower shipping costs by 22 percent and have an annual positive effect on the U.S. economy of $656 million.
“Since those studies are the most recent, I imagine the repeal of the Jones Act would be far more than $656 million annual positive welfare — probably close to $1 billion,” McCain said.
The Jones Act must also regularly be circumvented in emergency situations. States are often given temporary waivers to the law to facilitate help.
“We saw it after Hurricanes Sandy, Katrina and Rita, and we saw it after many winter storms,” McCain said. “This past February, after a brutal winter storm that hit the Northeast, state officials in New Jersey had run out of road salt and were unable to treat the roads when they were prevented from transporting 40,000 tons of salt by cargo ship the state had purchased from a facility in Maine. Why? There were no U.S.-flagged vessels to carry it.”
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