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Jones Act Is Always At Risk In Trade Pact Negotiations |
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By MICHAEL R. McKAY | |
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The Jones Act--Section 27 of the Merchant Marine Act of 1920--has been a frequent target of foreign governments at the trade table. During the Reagan administration's negotiations with Ottawa on a U.S.-Canada free trade agreement, Canada sought to crack the cabotage law, which holds waterborne commerce between or among U.S. ports for vessels owned, built, registered and manned in the U.S. The attempt failed. Later, during the North American Free Trade Agreement talks among the U.S., Canada, and Mexico, Canada proposed a "North American Jones Act," under which the vessels of each nation would compete for domestic cargoes within the three countries. Mexico sought to induce U.S. support by unilaterally easing its own cabotage restrictions, but the proposal fell flat. At the Paris-based Organization for Economic Cooperation and Development, the Jones Act has been imperiled on two fronts--a failed shipbuilding subsidy agreement that would have capped annual Jones Act construction and subjected new Jones Act projects to OECD approval, and a 1994 proposal for regional maritime services agreements that would limit or eliminate cabotage requirements. But the most persistent threat to the Jones Act is that posed by periodic multilateral trade negotiations, a new round of which will begin next year. The threat arose in earnest in December 1993, when the eight-year Uruguay Round of General Agreement on Tariffs and Trade bargaining ended. The Jones Act had been exempt from GATT since the international trade rule and dispute adjudication authority was established in 1947. At U.S. insistence, and over the objections of several foreign governments, the law was not covered because it applied only to domestic trade, and because it had preceded GATT by 27 years. At the close of the Uruguay Round, international attention shifted to a proposed General Agreement on Trade in Services, or GATS, which was to be negotiated among the U.S. and 117 other countries under the auspices of a new international authority--WTO, the World Trade Organization. In December 1993, the Clinton administration agreed to bargaining possibly leading to a maritime services agreement as part of GATS. The European Union, Japan, the five Nordic nations, and others anticipated negotiated access to Jones Act markets, either for vessels built within their borders or for ships flying their flags. Foreign interests also expected to win at least some concessions on U.S. cargo preference laws, which set aside specific amounts of U.S. government-financed imports and exports for U.S.-flag vessels. However, the administration refused to accept the Jones Act or the cargo preference laws on the GATS agenda, arguing that U.S. shipping markets were already wide open--at the time, the U.S.-flag share of commercial U.S. imports and exports was less than three percent, a share that has remained essentially constant. The administration insisted that the shipping services agenda be limited to the authority of the independent Federal Maritime Commission to respond unilaterally when foreign policies or practices discriminated against U.S.-flag ship operators in high-seas trade, port access, and auxiliary services. The administration wavered only briefly from its position. Hoping to win U.S. businesses greater access to European audio-visual markets, the U.S. offered to freeze cargo preference programs--no expansion, no contraction--and specifically proposed discussion of the 1985 requirement that up to 75 percent of the Department of Agriculture's food aid exports be delivered in U.S.-flag ships. At the deadline for formal agenda offers, the cargo preference proposal was withdrawn. By mid-December 1993, participating countries had agreed on "framework" rules under which ship service bargaining would proceed under an agreement deadline of June 1996. "Negotiations shall be comprehensive in scope, aiming at commitments in international shipping , auxiliary services, and access to and use of port facilities, leading to elimination of restrictions within a fixed time scale," said the negotiating rules agreement. The U.S. held fast against specific references to the Jones Act and cargo preference as "restrictions." But the U.S. agreed to a maritime policy stand-still, which barred the parties from adopting "any measure affecting trade in maritime transport services, except in response to measures applied by other countries, and with a view to maintaining or improving the freedom of provision of maritime transport services, nor in such a manner as would improve their negotiating position and leverage." The stand-still clause would later be cited by European and Asian governments in their criticisms of the 10-year, $1 billion Maritime Security Program authorized in the 1996 Maritime Security Act and a later law that denied foreign-flag tankers access to Alaskan North Slope crude oil exports. Meanwhile, Japan demanded--and won-- a WTO pledge to review the Jones Act and rule on its legitimacy within five years. A favorable Jones Act determination would then let the law stand, pending WTO review every two years. The talks proceeded in Geneva, where the WTO had set up shop, and the U.S. refused to yield on the Jones Act , the cargo preference laws, and--later--MSP and the ANS oil export measure. Bargaining ended as scheduled in June 1996, but without agreement--officially, the talks were "suspended" until 2000. The EU, Japan and others in 1999 began prepping for the 2000 round now in preparation. At almost every opportunity, the U.S. trading partners floated the Jones Act as an agenda item. In May 1999, for example, the Consultative Shipping Group--representing cargo ship owners in 13 European countries and Japan--dispatched a delegation to Washington to ask the Maritime Administration in the Department of Transportation and lawmakers to get behind Jones Act repeal in the interest of "free trade." One European account of the mission said the CSG had been bolstered by a persistent but unsuccessful movement by powerful U.S. and U.S.-based multinational conglomerates to force Jones Act repeal or crippling amendment. In July 1999, a report prepared by the Secretariat of the WTO charged that the U.S. restricts competition in, as one account put it, "maritime transportation, where domestic services are limited to U.S. carriers." The WTO report drew this written response from Deputy U.S. Trade Representative Susan G. Esserman on July 14: "Specific questions were raised about maritime. We participated fully in the Uruguay Round and extended negotiations on maritime transport, especially given the already high level of liberalization ... in our maritime transport sector. In fact, 97 percent of U.S. international waterborne trade is carried on foreign-flag vessels. In 1996, the U.S. joined with delegates representing more than 50 maritime nations to end the extended maritime discussions ... and take up the issue again in the next round of trade negotiations in the WTO. "With respect to U.S. cabotage practices in maritime transport, the administration supports the Jones Act as an essential element of our nation's maritime policy, and will not be proposing changes" the Esserman statement continued. "The U.S. is among the more than 40 maritime nations that reserve their domestic trade to national-flag vessels. The terms of reference governing the extended maritime negotiations following the Uruguay Round excluded cabotage from the negotiations. The U.S. supported this position due to the essential link that the Jones Act provides in our national transportation network and readiness capability. This point has been repeatedly noted by our Department of Defense. Indeed, over 75 percent of the ocean-going vessels in the Jones Act fleet have military utility. The Jones Act assures U.S. control of essential transportation assets--including vessels, shipyards, and parts and equipment suppliers--and related infrastructure in both peacetime and wartime." The Esserman statement prompted some foreign interests to relent on the cabotage issue and to view cargo preference as an easier target. "Negotiations on maritime transport services will be particularly difficult, given the reluctance of the powerful U.S. maritime lobby, which remains strongly opposed to the sector being negotiated at a multilateral level," said Patricia Hewitt, a member of the British delegation to the WTO. "I can assure the industry that the government will press the U.S. strongly to come on board with a meaningful liberalizing offer." Such recent history demonstrates determination on the part of foreign governments and the business interests they represent. The U.S. has been just as determined to blunt such opportunism. But under different circumstances-an administration absolutely if naively committed to "free trade," or a Congress significantly less supportive of the Jones Act and the cargo preference statutes-the World Trade Organization could be allowed to determine whether U.S.-flag ships continue to operate in foreign and domestic trades, and whether the U.S. has the right to act in its best interest without the WTO's blessing. |
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