BY KEITH HENNESSEY – Jones Act waivers are in the news because of the Gulf oil spill. I would like to contribute to that discussion by sharing my experiences coordinating the Jones Act waivers for President Bush in the wake of Hurricanes Katrina and Rita. In 2005 I served as the Deputy at the White House National Economic Council.
I’ll begin with a quick definition.
cabotage (n): navigation or trade along the coast
The Merchant Marine Act of 1920, aka the Jones Act, precludes a foreign-flagged ship from operating near the U.S. coast. As I understand it, outside of three miles it’s fine. I am most used to it in the context of it precluding foreign-flagged ships from transporting stuff from one U.S. port to another.
The Jones Act can be waived “in the interest of national defense.” Since the Coast Guard is part of the Department of Homeland Security, the Secretary of Homeland Security actually issues the waiver. The law says the Secretary shall waive it “upon the request of the Secretary of Defense to the extent deemed necessary in the interest of national defense by the Secretary of Defense.” The Secretary may waive it “either upon his own initiative or upon the written recommendation of the head of any other Government agency, whenever he deems that such action is necessary in the interest of national defense.”
Obviously this means that to waive the Jones Act now, the Obama Administration would have to make an argument that doing so was in in the interest of national defense.
Waivers can be granted on a case-by-case basis, or a blanket waiver can be granted. The blanket waivers we did in 2005 were limited to particular purposes and for a fairly short timeframe.
I cannot speak to the particular needs in the current situation, but I imagine the most pressing need might be for oil skimmers that could operate near Gulf state coastlines.
In case it’s helpful, here’s what we did in 2005.
Round 1 – Katrina
- August 29, 2005 – Landfall of Hurricane Katrina in Louisiana.
- September 1, 2005 – President Bush announces that his Administration is waiving the Jones Act temporarily “for the transportation of petroleum and refined petroleum products.” This was an 18-day waiver.
- Here is the text of the waiver by Secretary Chertoff. You can see that he justified it in terms of national security, and did so “in consultation with and upon the recommendation of the Secretary of Energy.”
- The waiver covered gasoline, diesel fuel, jet fuel, and “other refined products.” He also waived it “for the transportation of petroleum released from the Strategic Petroleum Reserve.”
- This waiver allowed foreign-flagged short haul ships to transport these liquids between ports on the Gulf Coast, and (I think) even from Louisiana and Texas to the Eastern Seabord. The pipelines that normally supply fuel to the entire Southeastern U.S. were without power, and we were concerned about fuel supply shortages. The waiver did not increase the total amount of fuel within the U.S., but it provided flexibility for that fuel to move as rapidly and efficiently as possibly to where it was most needed.
- September 19, 2005 – First waiver expires.
Round 2 – Rita
- September 24, 2005 – Landfall of Hurricane Rita.
- September 26, 2005 – At President Bush’s direction, Secretary Chertoff again waives the Jones Act with the same limitations as before. This waiver is for 30 days.
- October 25, 2005 – Second waiver expires, and we shift to case-by-case consideration of waiver requests.
I learned a few things from coordinating this process for President Bush.
- The direct benefits of a waiver were, in this case, small and diffuse. Waivers allowed 50K barrels per day here, and 100K barrels there, to arrive several days earlier than they would have otherwise. The waiver resulted in handfuls of short-term arrangements that moved fuel more expeditiously to where it was needed in the Southeastern United States.
- The fuel situation was so dire that every little bit helped. The direct benefits were small but still worth doing. We were in a situation where every little bit counted and was worth doing.
- Even more than the added shipping capacity, the waivers’ principal benefits were that they added speed and flexibility to the transportation of fuel.
- There was no short-term policy cost to the waivers. This made it an easy call for the President.
- If you’re a supporter of protecting U.S. shippers, shipbuilders, and maritime workers from foreign competition, then there is a long-term policy cost to a waiver. I think this cost was small, but I’m not in that industry. Those in the affected U.S. industries regarded these waivers as hugely important, and they lobbied the Administration hard.
- The pushback was not just from maritime unions, but also from the U.S.-flagged shipping industry, including shippers and shipbuilders, and including R’s and D’s on Capitol Hill who were close to the industry.
- Industry lobbied against the waivers. They lobbied for shorter timeframes, and for narrower scopes. Once the waivers were granted, they pressured Customs and Border Patrol on enforcement.
- They lobbied at all levels, including trying to make their case to me. They were most effective pushing on the Cabinet and sub-Cabinet.
- Even some Cabinet officials in a Republican Administration were affected by the political pressure brought to bear by the industry.
- In both waivers, the President ultimately made the decision. I think it was an easy choice for him – he wanted to do everything possible to help solve the pressing short-term problems in the Gulf region. Long-term policy arguments from U.S. industries seeking protection from foreign competition were less important, and political pushback irrelevant.
Without a strong lean from President Bush on his Cabinet to “do everything we can,” the waivers would not have happened. Given the intense pushback from the narrow interest groups, Presidential leadership was required to make this happen. The benefits were small but, in my mind, easily worth it. When things are really bad in the Gulf, you do everything you possibly can, even if it’s small.
At the time the debate sounded like this:
- A: We have found N foreign-flagged ships that can help us get this done.
- B: We have American ships and crews you can use.
- A: Maybe, but the foreign-flagged ships are better/faster/more flexible/ready now.
- B: But we have American ships and crews you can use, and the marginal improvement in speed or flexibility is small.
- A: Sure it’s small, but every little bit helps.
The Deputy Administration of the Maritime Administration (MARAD) has confirmed that one foreign-flagged skimmer has made a Jones Act waiver request. Yesterday, Dallas businessman Fred McAllister announced that “he has immediate access to 12 foreign ships and could pull in another 13 vessels in the next month.”
Before these recent developments, I had frequently read and heard the Administration argue “We don’t have any requests.” This is reminiscent of the house on Halloween with no lights on and an angry pet bull tied to a tree in the front yard. When asked why they don’t hand out candy to trick-or-treaters, they reply that they haven’t had any requests.
In my experience government officials in crisis management sometimes focus too much on what the government will do, and not enough on the incentive effects of what the government says to the private sector. A blanket waiver combined with a strong encouraging signal from government officials could, I think, spur significant private help, including from friends around the world. We’ll never know unless the President tries.
Recommendation
- I recommend the President waive the Jones Act for all purposes related to the oil spill and oil spill cleanup. I recommend a 75-day waiver to take us through the end of August (when the relief well is supposed to be done?). I assume a 30-day waiver with the possibility of extension is more practically feasible.
- I recommend the President announce that he is directing Secretary Napolitano to issue the waiver, so that it is a Presidential decision. He would be signaling his willingness to do everything possible to help clean up the Gulf Spill, even if it ticks off certain domestic economic interests.
- I further recommend the President have his press secretary announce, at the podium, that the United States has waived the Jones Act, and that we are asking owners of foreign-flagged ships, wherever they might be in the world, to send those ships to the Gulf of Mexico to help clean up the spill. The State Department would reinforce this message through diplomatic channels.
Keith Hennessey wrote this for KeithHennessey.com – reprinted with permission