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No Reason for Denying Puerto Rico a Jones Act Waiver

UPDATE: On Thursday, September 28, President Trump waived the Jones Act for Puerto Rico for 10 days.

The devastation of Puerto Rico by Hurricane Maria continues to unfold, with the restoration of basic infrastructure services projected to take months. Emergency disaster aid from Washington can help blunt the worst of the humanitarian crisis, but the island’s deep economic problems driven by high public debt and demographic decline will prolong residents’ misery long after the cleanup from Maria is completed.

As George Mason University economist Tyler Cowen wrote in a gloomy article for Bloomberg View, “Sending external aid for life support is a fundamentally different endeavor than seeking to restore and then boost sustainable growth. Are we really ready to write off Puerto Rico? That this story hasn’t dominated the headlines unfortunately suggests the answer is yes. We’re looking at a future where Puerto Rico has simply ceased to be an independently viable economic unit.”

To be sure, the roots of Puerto Rico’s economic death spiral long predate Hurricane Maria and many are local in origin, but carelessness and indifference on the part of federal officials also deserves much of the blame. One major example is the Merchant Marine Act of 1920, commonly known as the Jones Act. While amended by Congress as recently as 2006, the Jones Act’s prohibition on cabotage—the operation between U.S. ports by foreign vessels—remains (46 U.S.C. § 55101 et seq.). As a result, when Puerto Rico wishes to import goods from the mainland U.S., it must use vessels that are staffed, owned, and built by Americans. This introduces complications into the supply chain and increases shipping costs, according to studies from the U.S. International Trade Commission, World Economic Forum, and Federal Reserve Bank of New York, among others.

Puerto Rico’s government and several members of Congress have urged the Trump administration to grant a temporary exemption from these Jones Act restrictions. This waiver request was denied by the Department of Homeland Security. The Department argued that there was “sufficient capacity” of U.S.-flagged vessels and that Puerto Rico lacked the port capacity to justify the waiver. The executive branch has broad authority to issue temporary Jones Act exemptions in the interest of national security, as it has done in the past.

It is true that much of the island’s inland transportation network remains off line and terminals at the Port of San Juan are overflowing with containers of goods destined for Puerto Rican businesses, homes, and public agencies. But this doesn’t explain why federal bureaucrats believe that the residents of Puerto Rico should be required to pay significantly more for freight transportation in a time of crisis, even if there are currently choke points in the island’s surface transportation network.

According to a 2011 study from the U.S. Department of Transportation’s Maritime Administration, U.S.-flagged vessels have daily operating costs more than twice those of foreign-flagged vessels. That’s not chump change. “Now, more than ever, it is time to realize the devastating effect of this policy,” Sen. John McCain (R-AZ) wrote yesterday in a letter to Acting Homeland Security Secretary Elaine Duke.

No one is arguing that the eliminating the Jones Act’s protectionist requirements would solve Puerto Rico’s complex economic troubles. But it would certainly reduce some of the pain residents will face as they try to rebuild. The Trump administration should immediately grant a Jones Act waiver to Puerto Rico and Congress should fully repeal the maritime cabotage prohibition.