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The Honolulu Advertiser
Posted on: Monday, July 10, 2006

Jones Act splits Case, Akaka

 •  Akaka vs. Case
Read up on the race between U.S. Sen. Daniel Akaka and U.S. Rep. Ed Case
in the Democratic primary for the Senate in September.

By Derrick DePledge
Advertiser Government Writer

Akaka

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Case

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U.S. Rep. Ed Case believes the Jones Act has created a monopoly that has rewarded Alexander & Baldwin's Matson Navigation Co. and, to a lesser degree, Horizon Lines, at the expense of consumers.

ADVERTISER LIBRARY PHOTO | Feb. 21, 2006

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When U.S. Sen. Daniel K. Inouye endorsed U.S. Sen. Daniel Akaka at the state Democratic convention in May, he talked about Akaka's opposition to the war in Iraq and his drive for Native Hawaiian sovereignty. He also mentioned the Jones Act, an 86-year-old federal law that protects the nation's shipping industry from foreign competition.

It was no throwaway line.

U.S. Rep. Ed Case, Akaka's rival in the Democratic primary for Senate, has broken with the rest of the state's congressional delegation on the need for the Jones Act in Hawai'i, the only significant local issue where Case and Akaka have a different opinion.

The Jones Act requires that cargo moving between U.S. ports travel on ships that are made, owned and crewed by Americans. Hawai'i lawmakers have traditionally defended the act as necessary to ensure the Islands, which depend on imports, have a reliable domestic connection to the Mainland.

But Case believes the law has created a monopoly that has rewarded Alexander & Baldwin's Matson Navigation Co. and, to a lesser degree, Horizon Lines the two carriers that dominate the market at the expense of consumers.

Case said his differences with Akaka on the Jones Act are not just about policy, but about changing the state's political culture.

"It's not the policy disagreement of the Jones Act, it's the concentration of power and the projection of power to reward your friends and punish your enemies simply to maintain the status quo," Case said. "The Jones Act is like the modern-day incarnation of the worst of the Big Five. It is a monopoly over a key lifeline for Hawai'i."

Akaka said the Jones Act has led to the dependable delivery of goods so products can go right to store shelves rather than staying in warehouses in the Islands at higher cost. He also said that having the ships under domestic control strengthens national security. "Hawai'i and the nation need a strong maritime industry," the senator said, "and the Jones Act is an essential part of the industry's survival."

SHIELD FOR U.S. INDUSTRY

The Merchant Marine Act of 1920, commonly known as the Jones Act for its sponsor, U.S. Sen. Wesley Jones of Washington state, was drawn to protect domestic cargo shipping from foreign competition, help sustain a domestic shipbuilding industry, and have a domestic fleet capable of assisting the military in times of war or national emergency. A similar law, the Passenger Vessel Services Act of 1886, provides related protection to domestic passenger ships.

Congress has granted several exemptions to both laws over the years to adapt to the modern financial and geographic realities of commerce.

In the Pacific, American Samoa and the Commonwealth of the Northern Mariana Islands are exempt from the Jones Act, according to the federal Maritime Administration, and foreign-built but U.S.-flagged ships can operate between Guam, American Samoa, Wake Island, Midway Atoll and other U.S. ports.

Inouye and U.S. Rep. Neil Abercrombie obtained an exception to the Passenger Vessel Services Act in 2003 so Norwegian Cruise Line could use three foreign-built ships under U.S. flags for interisland cruises. The exception revived cruises that had ended in the Islands after American Classic Voyages declared bankruptcy after the Sept. 11, 2001, terrorist attacks. Norwegian had been taking interisland passengers on a detour to Fanning Island, in the Republic of Kiribati, to comply with the law before it received the exception to cruise between the islands.

The U.S. International Trade Commission, in a 1999 study of the economic costs of import restraints, estimated that repealing the Jones Act would boost the nation's economy by $1.3 billion but cost more than 4,500 jobs and a reduction in domestic shipbuilding. The commission used a model that presumed that U.S. carriers would lose at least half of the market to lower-priced foreign competitors. The same study also estimated that only repealing the requirement that ships be American built meaning they would still have to be U.S.-owned and -crewed would save consumers between $138 million and $380 million.

IMAGINING CHANGE

Foreign competitors have an advantage over American ships primarily in capital and operating costs, because it is cheaper to build ships abroad and foreign crews are generally paid less than American crews.

Maritime and labor experts have disagreed on the financial impact of the Jones Act on Hawai'i, but Matson generally concedes that foreign competition could lead to lower short-term shipping costs. But Matson officials have questioned whether the lower costs would be passed on to consumers or would remain stable over time.

Matson and others who want to preserve the Jones Act also question whether foreign competitors would make the same commitment to the Islands and all of its ports, rather than just Honolulu or Kahului, and whether they would abandon the market when it is not profitable.

Matson, which controls two-thirds of the Hawai'i market, has served the Islands since 1882 and has made substantial investments in new container ships. Horizon controls about one-third of the Hawai'i market.

"It's very important that Hawai'i's lifeline be operated by an American company instead of foreign interests," said Jeff Hull, Matson's director of public relations.

A Maritime Administration report on competition in domestic offshore shipping, released in May, described the Hawai'i market as highly concentrated but relatively easy to enter or exit and cited the recent entry of Pasha Hawai'i Transport into the automobile shipping segment.

The report was an update of a similar 1997 study that was dismissed by critics of the Jones Act who thought it downplayed the impact of a market largely controlled by two carriers.

Pasha has shown that competition can lead to lower costs. Both Matson and Horizon agreed to match Pasha's auto shipping rate before Pasha made its first delivery to the Islands in March 2005.

THORN IN CATTLE SECTOR

Although many of the reservations about the Jones Act have come from consumers, the agriculture and cattle sectors have also complained over the years about the act, claiming it creates obstacles in getting Hawai'i exports to the Mainland. Big Island cattle ranchers have often turned to foreign ships to take their cattle to Canada before entering the Mainland to avoid the act's restrictions.

"We've always been supportive of giving our farmers every opportunity to import and export their products," said Alan Takemoto, the executive director of the Hawaii Farm Bureau Federation. "We've always been looking for an exemption for Hawai'i."

Politically, the Jones Act is important to organized labor and has rarely been challenged by Hawai'i Democrats. But several Republicans have tried to use it as a populist issue when appealing to voters angry about the state's high cost of living.

INOUYE'S INFLUENCE

Akaka has always supported the Jones Act but it has been Inouye, who is third in seniority in the Senate and the co-chairman of the Senate Commerce, Science and Transportation Committee, who has had the power to defend the act. Along with his specific mention of the Jones Act at the Democratic convention, Inouye has written a letter praising Akaka's position that has been posted on Akaka's campaign Web site.

Inouye wrote that the act has economic and national security importance and has been supported for decades by Democratic and Republican presidents and military leaders. He said other industries that have a national security interest such as aviation and public utilities have similar protection. "Hawai'i cannot become reliant on foreign interests to supply our needs," he said.

Akaka has also received the financial backing of the International Longshoremen's Association and Alexander & Baldwin, Matson's parent, which, according to the Center for Responsive Politics, have been the senator's biggest campaign contributors over the years through political action committees and individual donations.

"I think their support is because I have supported them," Akaka said of Alexander & Baldwin. "But I support them because they're good for Hawai'i."

Case, who has had doubts about the Jones Act since he served in the state Legislature, parted with the rest of the delegation to Congress in July 2003 when he introduced three alternatives to exempt Hawai'i from the act.

The congressman proposed that Hawai'i, Alaska and other offshore locations be exempt from the Jones Act; that only Hawai'i be exempt; or that only Hawai'i agriculture and livestock be exempt.

The bills never advanced in the House, and Case said they likely never would in the Senate given Inouye's influence on the Commerce Committee.

Case believes he has suffered political consequences for his opinion but said he will continue to explain his differences with Akaka and the delegation because he thinks the Jones Act is harmful.

"People in Hawai'i tend to simply accept the status quo and believe there's not another way of looking at things, and that somehow because things have been a certain way, they should be that way, and they should go on being that way," he said.

Reach Derrick DePledge at ddepledge@honoluluadvertiser.com.