The Jones Act: An Overview

CRS Report for Congress
Received through the CRS W eb
The Jones Act: An Overview
JohnF.Frittelli
Analys t i n T ransportation
Resources, Science, and Industry Division
Summary
The J ones Act is a p erennial issue i n C ongress. The Act requires t hat all
waterborne shipping between points i n t he United S tates be carried by vessels built in
the United S tates and owned and operated b y Americans. The purpose o f t he Act i s t o
ensure t h at t h e n at i o n h as a s uffi ci ent m erch ant m arine and shipbuilding bas e t o protect
the nation’s defense and commercial i nteres ts. C ritics claim that the Act d oes not
accom p l ish this goal and furt h erm o re rai s es shi ppi ng cost s, t h ereby m aki n g U .S . farm ers
and m anufacturers l ess competitive. J ones A ct supporters claim t hat t he Act i s n eeded
to foster a domestic shipbuildin g b as e t h a t i s vital for national security. Despite
economic argu ments against the J ones Act, effort s t o repeal the Act have not been
successful. This report will not be updated.
Background
The J ones Act, s ection 2 7 o f t he Merchant Marine Act o f 1920 (46 U.S.C. 883), h as
long been regarded as a cornerstone of U.S. maritime policy. The policy has been shaped
by the concomitant goal s of military preparedness and commercial vitality. The Act
requires t hat all waterborne shipping between points within the United S tates be carried
by vessels built in the United S tates, owned by U.S. citizens (at leas t 75%), and m anned
with U.S. citizen crews. The Act essentially bars foreign built and operated vessels from
engagi ng i n U.S . dom est i c com m erce. The A ct was n am ed aft er S en. W esl ey L. J ones o f
Washingt on, chai rman of the S enat e C ommerce C ommittee at t he time.
The J ones Act of 1920 was not the firs t i n stance of protection for U.S. domestic
shipping, rat her i t was a res tatement of earlier prohibitions dating back to the first session
of Congress. During World W ar I, prohibition of forei gn ships was temporarily lifted i n
order t o m aintain an adequate supply o f v essels for domestic commerce. Most of the U.S.
fl eet was cal l ed i nt o s ervi ce for t he war effort. P rior to W o rld W ar I, the domestic
merchant fleet operated under an 1817 law, An Act C oncerning the N avigation o f t he^th
United States, 14 Congress. This law required t hat U.S. domestic shipping be conducted
only with U.S. flagged vessels. S ince only U.S. built ships could be flagged i n t he United
States, t he Act b arred foreign competition. Earlier, in 1789 and 1790, the first session of
Congress imposed duties and tax es on forei gn built, foreign flag s hips engaged i n t he U.S.

Congressional Research Service ˜ The Library of Congress

Atlantic coas t t rade. These duties and tax es were s ignificant and made it difficult for
foreigners to compet e i n U . S . c o a stwise trade. Foreign built and owned vessels were
charged 5 0 cent s / t o n at each U.S . port whi l e U.S . bui l t and o wned vesse l s w ere onl y
charged 6 cents/ton. The Act s of 1789, 1790, and 1817 were intended t o counteract
ex isting l aws i n England and France t hat protect ed thei r m erchant f l eet s . T he British
Navigation Acts d ate b ack to the 1600's and reserved Engl and’s foreign and d o m e s t i c
commerce t o British built, owned and crewed vessels.¹ The Navigation Act s were aimed
chiefly at Britain’s rival i n m erchant s hipping - t he Dutch.
The J ones A ct can be referred t o as a “cabotage” law. The w ord “cabotage” probably
derives from t he French cabo t e r m eani n g t o s ai l coast wi se or by t h e capes. C abot age
laws, i n s ome form, are not unique to the m aritime industry nor to the United S tates. Air
c a b o t a g e l aws p revent forei gn ai rl i n es from carryi n g p assengers o r cargo bet w een t w o
U.S. cities but there i s no requirement that the planes be built in the United S tates. In the
cruise ship market, t he counterpart to the J ones Act is the P assenger Services Act o f 1886
(46 U.S.C. 289). This Act states, “No foreign v essel s hall transport p assengers b etween
ports or places in the United S tates, under p enalty of $200 for e ach passenger so
transported o r l anded.”
O t her countries also protect their domes tic shipping fleets. A 1991 survey by t h e
Maritime Administration ( M A R A D )² of 56 maritime countries (the United S tates
included) found that 43 countries had s ome c rewing restrict i o n s , 3 7 countries had
ownership p rovisions, and six countries had domestic construction requirements.
Pur pose of t he Jones Act
Na tional Defense. A p r i m a r y purpose o f t he J ones Act is to foster a s trong
domestic maritime industry whi ch can be mobilized rapidly i n time of war or national
em ergency. All nations recognize t he desire to build thei r military hardware domes tically.
The d efense j u st i fi cat i o n for prot ect i o n o f dom est i c shi ppi ng dat es at l east as far back as
the first treatise o n n ational economic policy written i n 1776. In the Wealth of Nations,
Adam Smith argued agai nst t he mercantile trade policies of his era i n favor of free t rade
or laissez f aire. However, when i t cam e t o d o m estic shipping, S mith believed t his
industry was a l ogical ex ception t o free t ra de. He s upported England’s n avigation l aws:
"The defense o f Great Br i t ain depends very much upon the number o f its sailors and
shipping. The act of navigation, therefore, very properly endeavors t o give t he sailors and
shipping of Great Britain the m onopoly o f t he trade o f t heir own country."³
Two-and-a-quarter cent u ri es later, Adam Smith’s arguments for protecting a
domestic fleet are s till propounded t oday. Proponents o f t he J ones Act argu e t hat t he
United S tates n eeds t o m aintain a commercial s hipbuilding i ndustry, including not only
a s killed l abor pool of welders and fitters, but al so the i ndustrial i nfrastructure t hat can be

¹ T he l ast of t he Br itish Navigation Acts was repealed in 1849.
² “By t he Capes Around the W orld, A Survey of World Cabotage Practices,” U.S. Departme nt
of T r anspor t a t i on, MARAD. Avai l a bl e a t [ ht t p : / / www.ma r a d.dot .gov/ publ i cat i ons/ pubs.ht ml ]
³ Smith, Adam. An Inquiry into the Nature and Causes of The Wealth of Nations (Modern Library
Edition, 1994), p. 492.

called upon when our national s ecurity is threatened. W hile th e o v e r w h elming bulk o f
U.S. military supplies and equipment i s m oved overseas by ship, s ome observers argu e
that gi ven t he long time needed to build new s hips, t he relativel y brief duration of m ost
recent wars, and t he ex panded i nventory o f government-owned sealift s hips, t he wartime
importance o f t he shipbuilding i ndustry h as dec l i n e d . F or some observers, t he best
wartime national s ecurity argument for t he J ones Act today i s t hat i t hel ps to maintain a
pool of U.S. merchant sailors who can be called upon to man government-owned sealift
ships t hat are reactivated to s upport t he wartime sealift effort.
Domestic Commerce. A s econd purpose, or intent, o f t he framers of the J ones
Act i s t o p ro t ect American sovereignty over domes tic maritime commerce. There are
t h ree m aj or wat erborne t rade l anes covered b y t he J ones A ct : coast al ocean, G reat Lakes,
and i nl and wat erways . M easured i n t ons, i nl and wat erwa ys i s t h e l argest of t h e t hree
segm ents. In 1997, inland waterways represented 62% of the t otal v o lume of freight
moved i n t he waterborne domestic market. Coastw i s e t rade represented 26%, and the
Great Lakes s egment represented 12%.⁴ More speci fi cal l y, t hese t rade l anes t ransport t he⁵
following commodities:
^! Domestic crude oil from Alaska t o C alifornia refineries;
^! Grai n v ia inland rivers from M idwest farms t o Gulf C oast ports;
^! Iron ore from M innesota and M ichigan t o Great Lakes bas in steel mills;
^! Refined p etroleum products along the East and Gulf coasts;
^! Inter-plant movements of chemical s and fertilizers along the Gulf C oast;
^! Appalachian coal t o u tilities t hroughout the M idwest; and
^! Merchandise to/from Alaska, Hawaii, Puerto Rico, and the U.S. P aci fic
Islands.
The t yp e o f v essels that make up t h e J ones Act fleet reflects t he preponderance i n
dem and for i nl and ri v er navi gat i o n rat her t han d eep-sea coast al o r Great Lakes nav i gat i on.
Barges com p ri s e 8 5 % o f t h e cargo capaci t y of t h e fl eet whereas deep-sea shi p s onl y⁶
comprise 15%. The l argest cat egory o f d eep-sea shi p s i s l i qui d carri ers (t ankers) b ecause
75% of the coastwise trade i s i n petroleu m products. C ritics o f t he J ones Act question
whet her a fleet predominantly composed of river barges qualifies as b ei n g m i l itarily
useful and whether the crew licensed for bargeworkwouldbequalifiedtoworkondeep-⁷

sea vessels in time of war.
⁴ “An Assessment o f t h e M a r i ne T r ansportation Sys tem,” Sept. 1999, MARAD. Available a t
[ h t t p : / / www.ma r a d.dot .gov/ publ i cat i ons/ pubs.ht ml ]
⁵ “ C a p stone Paper_J ones Act Repeal?” SUNY Maritime College, April 1, 2001, p.9.
[ h t t p : / / www.sunyma r i time.edu/ACADEMICS/ GRADUAT E/ f o r u m/ _f or um_gr a d/ 00000019.ht m]
⁶ MARAD ‘ 99, available a t [ http://www.dot.marad.gov/]
⁷ “Shifting Focus,” Journal of Commerce , J an. 21, 2000.

Gr oups Opposi ng t he Jones Act
Opponents o f t he J ones Act view the l aw as a “ high -cost, low-selection” policy t hat
is not fulfilling i t s n a tional defense purpose.⁸ In stead of fostering a robust m aritime
industry, critics claim the J ones Act is working against the n ational s ecurity interest. By
rais i n g t he price o f domestic waterborne transport, they say i t encourages transport b y
railroad or pipeline, thus decreas ing t he demand for domes tic ship construction. Critics
claim t hat t he protection afforded by the Act has allowed U.S. s hipyards to fall behind the
rest of the world in efficient and innovative building m ethods.
Bulk Shippers. In general, bulk s hippers a r e m o r e l i k ely t o b e affected by the
J ones Act because their commodities h ave a l ower value p er unit cost which means t he
transpo r t costs are a m uch h igher portion o f t he total cost t o t he end u ser. U.S.
agricultural p roducers are leading oppone nts o f t he J ones Act. T he Amer i c a n Farm
Bu reau Federation b elieves t hat t he J ones A ct stands in the way of shipping feed grains
economically from t he Great Lakes t o S outheas tern U.S. ports. It contends that lives tock
producers i n t he Southeast import feed from foreign suppliers rather than buy from U.S.⁹
suppl i ers i n t h e M i d west because i n t ernat i onal o cean rat es are l o wer t han dom est i c rat es.
However, an economic study sponsored by farm groups concluded t hat improvements i n
transportation i nfrastructure i n Braz i l and Argentina and lower production costs in those
countries were a m ore s ignificant factor t h a n the J ones Act in ex plaining the foreign¹⁰
sourcing of feedstuffs.
Other bulk s hippers opposed to the J ones A ct include s crap m etal and road s alt
shippers. At a 1996 congressional h earing, a representa t i v e o f t he Steel Manufacturers
Associat i o n c omplained of not being abl e t o u tilize domestically produced scrap m etal
because domestic waterborne transport m ade it p rohibitively ex p ensive. In s t e a d , s crap
metal found a foreign market and was being e x ported t o Turkey. At this same hearing,
a representative o f t he road s a l t industry complained t hat mid-Atlantic states were
importing road sal t from C hile and Mex ico rat her t han buyin g fro m m i n es in Ohio and
Loui si ana. Im port i n g s al t was cheaper t h an buyi n g dom est i cal l y due t o t h e d i fference i n¹¹
transportcosts.
Consumers i n Haw aii, Alaska, and P uerto Rico. In addition t o bulk
sh i p p e rs , c o nsumers in Alaska, Hawaii, and P uerto R ico also claim they are negativel y
affected by the J ones Act. A 1988 GAO report found th a t t h e J o n e s Act was costing
Alaskan families b etween $1,921 and $4,821 annually for i ncreased prices paid on goods¹²
shipped from t he mai n l a n d . A H awai i s t at e represent at i v e assert ed t h at “Hawai i

⁸ “Spotlight focuses again on the J ones Act,” Journal of Commerce , M ar. 16, 2000.
⁹ “J ones Act Ref o r m,” avai l a bl e a t [ ht t p : / / www.f b.or g] .
¹⁰ Southe a s t U S Feedstuff I mports: Caus al Factors and Recommended Response, Pr omar
International, March 2003.
¹¹ U.S. House of Representatives, Subcommittee on Coast Guard and Maritime T ransportation,
Hearing on The I mpact of U.S. Coastwise Trade Laws on the Transportation System i n t he United
States, J une 12, 1996.
¹² “The J o n e s A c t , Impact on Al aska Transportation and U.S. Military Sealift Capability,”
(continued...)

residents p ay an additional $ 1 b illion p er year in high er prices because of the J ones Act.
This amounts t o approx imately $3,000 for every househol d i n Hawaii.”¹³ A
represent at i v e o f busi n ess i nt erest s i n P u ert o R i co argu ed t h at t h ei r p roducers w ere p l aced
at a d i s advant age w i t h respect t o producers i n M ex i co b ecause t h e cabot age l aws rai sed
shipping costs bet ween the United S tates and Puerto Rico.¹⁴
These groups claim t hat t hey are in fact subsidiz ing t he J ones Act fleet through t he
high er rates t hey m ust p ay. T hey argue that si nce m aintaining a J ones Act fleet is largely
for n ational d efense purposes, t he Nation as a whole s hould s hare the cost rather t han t he
burden falling o n j ust a few. These groups r ecommend that a domestic fleet be subsidized
directly by the Department of Defense (DOD).
Gr oups Suppor ti ng the J ones Act
Pro-defense G roups. The s trongest argument p roponents o f t he J ones Act have
to counter high cost accusations is its strategic d efense necessity - t he unstated role o f t he
m erchant m ari ne as Am eri ca’s “fourt h arm o f d efense.” R ecent P resi dent s, Dem o crat and
Republican, h ave s upported t he J ones Act . Although i n p eacetime the J ones Act may b e
viewed by many as an anachronism, i n wartime , s hipbuilding and a m erchant m arine are
viewed as vital t o n ational s ecurity. Def ense groups argu e t hat t he maritime community
repres ents a highly s killed work force and a physical es tablishment t hat can not be quickly
repl aced once i t i s l ost . They assert t h at t h e n at i onal s ecuri t y i m port ance o f t he J ones A ct
go es beyond the s imple “bean counting” of deep -sea vessels. The most valuable national
security component that the J ones Act provides, they contend, is a domestic shipbuilding
andrepairbase.
Ma ritime Unions . Maritime unions point to the 124,000 jobs the J ones Act creates
for t he U.S. economy. These j obs are s aid t o p ay annually $1.1 billion i n federal tax es
and $272 million i n s tate tax es. Domestic carriers t hat p articipate i n t he J ones Act trade
claim t hat t hey p ay $300 million i n federal and $55 million i n s t ate tax es o n t heir
corporat e p rofi t s .¹⁵ Maritime unions al so argue t hat t he J ones Act ensures a level playi ng
fi el d am ong dom est i c carri ers. If carri ers are al l U.S . o wned, t hey al l wi l l be subj ect t o
the s am e l aws and regulations. All domes tic carriers pay U.S. tax es, adhere to U.S. labor
laws - i ncluding minimum wage and other requi rem ent s, and fol l o w C oast Guard s afet y,
and envi ronm ent al regul at i ons. If forei gn carri ers were al l o wed i n t he dom est i c t rades,
t h ey woul d h ave an unfai r advant age b ecause t h ey woul d b e free from t hese ex t ra cost s
that U.S. regulations impose on domes tic transport.
U.S. Shipya rds. Domestic ship ya rd s contend t hat t here are “fair trade” issues
involved i n U.S. s hipbuilding. Many nations s ubsidiz e t heir shipyards either directly or

¹² (...continued)
General Accounting Office, September 1988, RCED-98-96R.
¹³ Ward, Gene. “ V i ew Point: T o Fix Economy, J unk the J ones Act , ” Honolulu Star-Bulletin,
Dec. 5, 1997. Available at [ http://starbulletin.c om/97/12/05/editorial/viewpointf.html ].
¹⁴ T e s t i mony of Rafael Cebollero, U.S. House, Subcommittee on Coast Guard and Maritime
T r ansportation, Hearing on The I mpact of U.S. Coastwise Trade Laws, J une 12, 1996.
¹⁵ T h ese s t a t i s t i c s a r e avai l a bl e f r o m [ ht t p : / / www.ma r a d.dot .gov/ ] .

indirectly. R ecen tly, S outh Korea has drawn much criticism from t he European Union
for its alleged s ubsidy p ractices. S outh Korea recently emerged as t he largest s hipbuilding
nation, a title J apan had held for 44 years. The EU i s claiming t hat S outh Korean yards
are “dumping” t heir ships o n t he market at prices below cost . S outh Korea claims its
advantage i s a result of cheap labor costs and the weakness of its currency. Although t he
U.S. does not currently provid e direct subsidy for commercial s hipbuilding,¹⁶ it does
provide a l oan guarantee program t hat i nsures 87.5% of the financing for n e w s h i p
construction.¹⁷ The U.S. s hipbuilding community contends the J ones Act is needed to
counteract the s ubsidy policies o f o ther nations.
An Assessment of t he Jones Act
Economic studies have consistently found an aggregate economic cost of the J ones
Act. For i nstance, a recent U.S. International Trade Commission economic study found
that repealing t he J ones Act would h ave a a nnual positive wel f a r e effect on the overall
U.S. economy of $656 million.¹⁸ Although t his and other s tudies make an economic case
for re p e a l o f t h e Act , t he Act p rovi des a si gn i fi cant d egree o f p rot ect i o n for U.S .
shipyards, domes tic carriers, and American merchant sailors. Additionally, t he national
security implications of the J ones Act are difficult to meas ure but are considered by many
observers as positive for the Nation.
Li ke U.S. trade policy i n o ther goods or services, t he J ones Act is high ly
con t r oversi al b ecause t h ere are defi ni t e wi nners and l osers. The pot ent i al l osses from
lifting t he shipping rest ri ct i o n s , s uch as j obs in shipyards and the m erchant m arine, are
highly visible and concentrated, while the potential gains, s uch as l ower consumer prices,
are l argely invisible and widel y dispersed. It is worth noting t hat s ome o f t he largest
shipyards i n t he country are t he largest employers in the s tates where they are l ocated. On
the other hand, only a tiny fraction of Ameri can consumers are probably aware of the
J ones Act or that it affects t he prices they pa y for goods. S hippers and residents of Hawaii
and other insular possessions are m ost directly affect ed in terms of t he cost of the J ones
Act.

¹⁶ Direct subsidies e nded i n 1982 when funding of the Construction Differential Subsidy ( CDS)
wasterminated.
¹⁷ The Maritime Guaranteed Loan (Title XI) Progr am which i s administered by MARAD.
¹⁸ The Economic Effects of Significant U.S. Import Restraints, T hird Update, J une 2002.