Battle Ship

Harboring the American Dream

The not-so-bustling port of Los Angeles. Source: Bloomberg
The not-so-bustling port of Los Angeles.
  • Why it matters

    Why it matters

    America’s domestic shipping market is shielded from foreign competition, but there is a new push to repeal the restrictions.

  • Facts

    Facts

    • The Jones Act is also known as the Merchant Marine Act of 1920.
    • It stipulates that shipping between U.S. ports must be done with American-made vessels, owned by Americans and flying under U.S. flag.
    • U.S. Senator John McCain wants to repeal the law, arguing the restrictions cost Americans money in the long run.
  • Audio

    Audio

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The public debate in Europe over free trade with the United States might be dominated by concerns about chlorinated chicken and litigation help for corporations, but the European shipping industry could see an American dream come true.

Long shielded by protectionist measures, the domestic shipping market in the United States could be opened up by the proposed Transatlantic Trade and Investment Partnership, or TTIP.

The current low price of oil has revived efforts to abolish the Jones Act, which helps American shipyards and shipping companies keep competitors from Europe at bay.

U.S. Senator John McCain from Arizona has just introduced a measure that would repeal the law established back in 1920.

“I have long advocated for a full repeal of the Jones Act, an antiquated law that has for too long hindered free trade, made U.S. industry less competitive and raised prices for American consumers,” said the conservative Republican politician in a statement.

The European shipping industry has long tried to gain more access to the U.S. market and is trying to seize the moment by applying pressure in the latest round of TTIP talks.

U.S. oil producers say the Jones Act increases the cost of transporting crude oil to refineries from $4 to $6 per barrel.

“We very much support this initiative,” said Ralf Nagel, president of the German Shipowners’ Association. European cargo shipping transports about 40 percent of the globally shipped tonnage, and contributes €145 billion ($168 billion) to Europe’s gross domestic product.

The Jones Act limits shipping traffic between U.S. ports to ships built in the country, owned by American citizens, and traveling under U.S. flag. The transport of goods and passengers between U.S. ports by foreign companies is forbidden; in addition, ships built overseas may not be offered for sale or for rent.

E.U. trade experts argue that Washington, under the guise of security concerns and in order to maintain shipyard capacity in the event of a war, is robbing European companies of the possibility of being active in the U.S. market.

American oil producers point out that the Jones Act drastically increases the cost of transporting crude oil to refineries – by about $4 to $6 per barrel. Since oil prices have plunged in recent months, the industry is under major pressure. Economic studies conducted in the past have come to the conclusion that the abolishment of the Jones Act could relieve the U.S. economy to the tune of several hundred million dollars annually.

But the unions have fought against the market opening. And the U.S. Trade Representative Michal Froman has so far shown little inclination to make concessions to Europeans on the issue.

Source: European Commission, Eurostat
Source: European Commission, Eurostat

 

On a daily basis, trade in goods and services conducted between the U.S. and Europe is about €2 billion. European trade associations have long criticized protectionist measures taken by the United States. The trade associations’ interests primarily lie in attaining better access to U.S. markets for services and public procurement and the abolishment of restrictions such as those in the “Buy American Act” and the Jones Act.

“Today’s reality is that very often international cargo must be trans-shipped from one vessel to another, often smaller, vessel, in order to reach its end destination,” said Patrick Verhoeven, the secretary-general of the European Community Shipowners’ Associations, at a TTIP stakeholders’ meeting last July. “Under the Jones Act, this ‘feedering’ of international cargo is currently restricted.”

Marietje Schaake, the Dutch trade expert of the Liberals in the European Parliament, appealed to the European Commission to put an emphasis on the abolishment of the Jones Act during their TTIP negotiations. “That must be one of the priorities,” she said.

The Europeans are currently in a bad bargaining position because of public opposition to the treaty. E.U. Trade Commissioner Cecilia Malmström announced she would further suspend the talks over investor protection, which had been dormant for a year.

Washington wants progress in this area. The eighth round of negotiations on transatlantic free trade will take place later this month in Brussels.

 

Thomas Ludwig is a Brussels correspondent for Handelsblatt. To contact him: Ludwig@handelsblatt.com

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