Jones Act Inflicting Damage on Hawaii Economy

BY JOHN CARROLL – The people of Hawai’i must be made aware of the damage the Jones Act shipping restrictions are inflicting on Hawai’i’s economy and the harm they will bring into the lives of each and every one of you.

But don’t just take my word for it.  According to a recently published article in the Star Advertiser newspaper, since 2003 increases in ocean freight rates, terminal handling costs, fuel surcharges and government fees amount to a 50 percent jump in the price of shipping a container of produce to Hawaii from California.

A walloping increase like that will affect every person sitting in this room.  Plans for future happiness will have to be postponed, or even cancelled.  University education may even become unaffordable for some children.

That compares with a 27 percent increase in Honolulu’s consumer price index during the same period.

An estimated 80 percent of what is consumed in Hawaii is imported, and 98 percent of that comes by sea.

Both Matson and competitor Horizon Lines recently announced increases in shipping rates, effective Jan. 2.

These shippers will raise their ocean freight charge, or base rate, by an average of 3.8 percent. The rates will vary depending on the items being shipped. The terminal handling charge, which is a flat rate, will increase by 19.4 percent.

According to Matson, in 2003 a container of produce shipped to Hawaii had a surcharge of only $240.  As of Jan. 2 it will soar to $1,075

This statistic alone will give you a glimpse of your future economic condition.

,Matson has increased the handling charge more than fivefold since 2003. By comparison, the base rate for a container of produce is up 14.9 percent to $4,592 during the same period.

Young Bros. of the interisland shipping market sought approval from state regulators last week to raise rates by an average of 24 percent next year. If approved, it will be the sixth increase in seven years.

Containers bringing household goods from the West Coast used to go back full of pineapple and raw sugar, providing an efficient use of cargo space. But with the decline in those agricultural products, many containers now go back to California empty. As a result, the companies shipping goods end up subsidizing the cost of the empty containers.

In 1979 for every three westbound containers we had one eastbound container. The ratio is now about 10-to-1. The major beneficiaries are protected union workers, ILWU, Sailors’ Union of the Pacific, Horizon Lines, Alexander  & Baldwin and Matson Navigation Companies.

The fundamental purpose of the commerce clause  of the United States constitution is, among others, “…to assure the unrestricted flow of commerce throughout the several states,” and “…to assure to the commercial enterprises in every state substantial equality to access to a free national market”.

Since Hawaii is separated by 2,300 miles of ocean and has no highways, railroads or pipe lines from the continental United States, it is almost fully dependent on ocean shipping for at least 90 percent of every substance used and consumed in the state.

The Jones act opposes Article 1 Section 8 Clause 3 of the United States Constitution “the commerce clause”

The Jones Act adds restraints and obstructions to free trade to and from the State of Hawaii; therefore the provisions applied and enforced are unconstitutional and violate the Commerce Clause as well as the 5^th and 14^th Amendments of the United States Constitution.

Thanks to the Jones Act the state of Hawaii is denied access to about 90% of all available shipping in the entire world.

Restrictions imposed by the federal Jones Act have virtually destroyed Hawaii’s agricultural economy.

The loss of dairies, poultry farms, vegetable production, even banana plantations have declined or been eliminated because of the intolerable costs of farming and shipping in Hawaii.

The cost of agricultural production is prohibitive, not only because of the cost of fertilizers, herbicides, and farm implements, but also the cost of outbound shipping of locally grown fruits, livestock and ornamental plants to any destination other than the West Coast of the continental United States.

A class action lawsuit on behalf of all the people in the state of Hawaii asking the U.S. federal court to eliminate the Jones act restrictions as they relate to the state of Hawaii as well as the states of Alaska, Washington, Oregon, and California could be filed by our State’s Governor right now.

Unfortunately Governor Abercrombie, along with the entire Congressional delegation all favor and have supported the Jones Act restrictions. These restrictions require a ship to be American owned, manned by 70% American crew, flagged and maintained in America.  It protects the ship builders, union seaman and most of all the American owners such as Alexander and Baldwin.

The basis for this  suit should be the clear cut violation of the provisions of the commerce clause of the U.S. constitution which guarantees “equal access to interstate commerce among the States, Foreign Nations and Indian tribes”.

President Obama is criticizing South Korean restrictions on trade with the US while the US law will not permit a South Korean vessel from unloading cargo in Hawaii and proceeding to any other State in the Union without stopping at a “foreign port” before proceeding to the next port of call in the US.

Concerning legality, these restrictions are violative of the earliest Supreme Court holdings regarding impairing interstate commerce.  In Gibbons versus Ogden (1824), it was found by the court  “…no preference shall be given, by any regulation of commerce or revenue, to the ports of one state over those of another… nor shall vessels bound to or from one state, be obliged to enter, clear or pay duties in another.” (22 U.S. 1, 73)”.

In Great Atlantic & Pacific Tea Co. v. Cottrell (1976), the court held that “…”[reciprocity requirement was] precisely the kind of hindrance to the introduction of milk from other states…condemned as an ‘unreasonable clog upon the mobility of commerce…” (424 U.S. 366, 367).  These are just two examples of several cases in which the court acted in the defense of fair trade and commerce. Singapore has free trade, open ports and about 250 square miles of land.  Hawaii has closed ports, terribly limited shipping and about  eleven thousand square miles of land.  Hawaii’s gross domestic product is roughly sixty four (64) billion dollars annually, the bulk of which is either government spending or tourism. Tiny Singapore with its 250 square miles generates in excess of 200 billion dollars per year, GDP.

The net effect of this single change in the law should open free trade to Hawaii.

The positive impact on the gross domestic product of decreased shipping costs and access to foreign markets for Hawaii’s unparalleled agricultural products, mango, papaya, lilikoi, pineapple, sugar, banana,  lamb, pork and beef, will be….significant.

These changes could  drastically alter Hawaii’s  economy and, hopefully, eliminate joblessness  altogether, and drastically reduce the homelessness population and sustain wages.

Sharp declines in the sugar and pineapple industries with be dramatically reversed.

The ratio of inbound containers to outbound containers will be brought back to parity and the subsidized costs of the empty containers will be significantly lowered.

The cost reduction benefits will be greatly increased by elimination of  monopolistic shipping laws and thus tapping into the advantages of competition and free trade.

Agriculture, aquaculture, and a Singaporean economic model will be a solution in reviving our economy. Due to the imposition of the Jones act, the state of Hawaii has suffered excessive economic injury, the result of artificially high prices on all commodities used or consumed locally. These high prices, which are not found anywhere else in the entire nation, are brought on by the restrictions on ocean shipping.

Because of Hawaii’s geographical location, the Jones act restrictions have created an environment in which a commercial monopoly can operate and thrive legally under federal law requiring vessels that engage in domestic trade to be U.S. built and U.S. manned and owned is a frivolous obstruction to interstate commerce to the state of Hawaii.

It is frivolous because it causes far more harm than any benefits it was originally intended to create

The net effect of the Jones Act on the State of Hawaii is harmful in the extreme. The unconstitutional enforcement of the Jones act restrictions must be stopped so that the people of Hawaii can also enjoy the benefits of the Commerce Clause, currently enjoyed by every other state in the nation.

Thanks to certain groups, the protection intended  by the Jones Act has, in our case, been transformed into a sort of economic imprisonment, where, as in medieval Europe, taxes were extorted from the common people, the working man, for the enrichment of those in power.

In the U.S. there is very little political appetite for free trade; hence the slow development of bilateral free trade agreements and the World Trade organization.  Quoting the Singapore Prime Minister from yesterdays Star Advertiser article.

However the renegotiated free-trade agreement between South Korea and the U.S. was settled recently.  President Obama was critical of South Korean resistance to the US proposals.

The U.S. is one of nine Asia-pacific countries negotiating a trans-pacific partnership, which will be a pathway to free trade area of the Asia-pacific region.

Hawaii can serve as a central hub for this trans-pacific partnership with the elimination of the Jones Act. Hawaii’s political leaders must act decisively to make Hawaii part of international “Free Trade” initiatives.

Governments must continue to promote global trade to broaden economic growth to foster long term prosperity for all.

Elimination of Jones Act Restrictions is vital to Hawaii’s entry into world wide “Free Trade.”

John Carroll is a Honolulu attorney and former state Senator

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