By Daniel Garza
August 18, 2016 at 5:00 am ET
It’s been over a month since President Obama signed a bill to address Puerto Rico’s $72 billion debt crisis, yet already the federal government is taking other steps to impede the island’s recovery. Specifically, the U.S. Customs and Border Protection agency recently announced the launch of a new division that will specialize in enforcing the Jones Act.
The 1920s-era law mandates that all goods transported by water between U.S. ports (that includes Puerto Rico) be sent on ships that are U.S. built, owned and operated. Some claim the Jones Act helps the U.S. economy, but the truth is that it is nothing more than protectionism for domestic ship builders and shipping unions. All Americans—but especially Puerto Ricans, who disproportionately depend on shipping from the mainland—pay a steep price for this favoritism.
The simple fact is that American tanker ships and crews are often more expensive than their foreign counterparts. The average cost of a U.S.-built ship is nearly quadruple that of a foreign-built ship, and the cost to operate one with an American crew is several times higher than one with a foreign crew, according to the Congressional Research Service.
Higher costs to build and operate ships necessarily mean higher shipping prices, and goods that are more expensive to ship translate to higher prices for consumers. These higher prices are precisely the impact of the Jones Act, which comes at a cost of $682 million a year to our national economy.
This is especially burdensome for the island of Puerto Rico. Unlike those of us on the mainland, Puerto Ricans simply can’t have their goods delivered by trains or trucks. Rather, they rely on ships to bring most products to the island. As a result, any product that needs to be shipped to the island on a U.S. ship comes at a higher cost.
Consider the costs to ship a 20-foot container of everyday household goods from the East Coast of the United States. Sending the container to Puerto Rico costs around $3,063, according to the New York Federal Reserve. Yet it only costs $1,504 to ship the same container to one of the island’s neighbors—the Dominican Republic. In other words, the consumers of Puerto Rico are paying more than double the competitive price for everything shipped into the island – a huge increase in their cost of living. Everything from food to vehicles comes at a much higher cost on the island.
This escalated cost has been especially onerous when it comes to energy. Puerto Rico’s Electric Power Authority pays as much as 82 percent more for liquefied natural gas because of the Jones Act. No wonder the overall cost of residential electricity in Puerto Rico is 36 percent higher per kilowatt hour than the overall U.S. cost.
Repealing the Jones Act could make energy much more affordable, a benefit for consumers and businesses, especially manufacturers. If foreign-flagged ships were allowed to transport natural resources to the island at lower rates, prices consumers pay would swiftly drop. One recent estimate found that the Jones Act is inflating gasoline prices by as much as 15 cents per gallon in Puerto Rico.
Repeal would also lead to lower prices on a host of everyday goods and groceries. A recent academic paper submitted to the federal Government Accountability Office estimates that the Jones Act has cost Puerto Ricans roughly $29 billion from 1970 to 2010, in 2010 dollars. Any relief from the Jones Act would redirect the commonwealth’s economic rudder back on path toward prosperity.
The Jones Act is a typical case of the government picking winners and losers, and Puerto Rico is one of the hardest-hit losers of all. If Puerto Rico is ever to regain its footing and enjoy a thriving economy, the first step the federal government must take is to drop the Jones Act.
Daniel Garza is the executive director of The LIBRE Initiative.
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