honoluluadvertiser.com

Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser
Posted on: Monday, November 2, 2009

Jones Act unfairly hurts Isle business, suit alleges


by Andrew Gomes
Advertiser Staff Writer

Hawaii news photo - The Honolulu Advertiser

Local businesses and former business operators say the Jones Act disproportionately harms Hawai'i consumers and companies, in part because it has created a duopoly between shippers Horizon Lines and Matson Navigation Co.

SUSAN GOLDMAN | Bloomberg News Service

spacer spacer

An 89-year-old federal law that protects America's fleet of commercial ships but has long been criticized as inflating the cost of living and doing business in Hawaii is under attack again.

Five local businesses and former business operators filed a lawsuit last month against the federal government seeking to invalidate the cabotage law known as the Jones Act.

The suit seeks to represent all Hawaii companies negatively impacted by the law, and recover damages for them and consumers.

However, some observers believe the odds are low for undoing a law that has survived previous attacks, including anti-trust examinations and a major push in the mid-1990s to dismantle or modify the law in Congress.

The suit, filed in federal court in Hawaii, claims that the Jones Act runs afoul of the U.S. Constitution's Commerce Clause governing trade between states because negative effects of the law disproportionately harm Hawaii consumers and businesses.

"The Jones Act adds restraints and obstructions to free trade on the state of Hawaii," the suit states. "It is discriminatory legislation."

State officials estimate that 80 percent to 90 percent of goods consumed in the state are imported from the Mainland and foreign countries, and nearly all of that arrives by ship.

The Jones Act requires that all cargo moved between two U.S. seaports be shipped on vessels that are built in the United States, owned by a U.S. citizen or company and manned by a U.S. crew.

The law is intended to protect domestic shipping and ensure a capable merchant marine in times of war.

Glen Nekvasil, spokesman for the Maritime Cabotage Task Force, a national transportation industry group formed to protect the Jones Act, said the group has reviewed the lawsuit and believes it is without merit.

University of Hawaii constitutional law professor Jon Van Dyke said the Jones Act may not be a popular law, but he doubts that it's unconstitutional.

"Congress has the ultimate authority to determine what's protected or not protected under the Commerce Clause ... and Congress has done so passing the Jones Act," he said.

Van Dyke added that though the Commerce Clause has been used to strike down state laws restricting commerce, he's not aware of any case where the Commerce Clause was used to strike down a federal law. "This is going to be a very difficult case for (the plaintiffs) to win," he said.

The Commerce Clause gives Congress the power to regulate commerce among states.

The lawsuit is asking a federal judge to find that the federal law obstructs free trade to Hawaii.

Local economist Paul Brewbaker questions what the true cost of the Jones Act on Hawaii's economy is, because while estimates abound, no one in recent history has measured the impact.

Brewbaker also said it's questionable what kind of ocean transportation service would evolve if Hawaii was excluded from the Jones Act, because the state is so remote, produces minimal goods for export and has ports that are too small for the most efficient supertankers.

These natural barriers, he said, may discourage competition or produce more inefficient and costly service. "Large integrated firms — even monopolies — often arise in markets because they're more efficient," he said.

Another reality that in part has undermined previous attacks on the Jones Act is that competition, though limited, exists in the Mainland-Hawaii ocean transportation business. Matson Navigation Co. dominates the market, which is also served by Horizon Lines. Pasha Transport Lines LLC is a third player mostly limited to shipping automobiles.

The suit claims that the Jones Act hinders competition and has created a duopoly between Matson and Horizon that have a history of matching fuel surcharges.

Paul Bingham, managing director of global commerce and transportation for the Massachusetts-based economic research firm IHS Global Insight, said much is at stake over the Jones Act, which has kept U.S. ocean transportation companies that employ thousands of people in business.

"It benefits certain parts of the economy at the expense of others," he said.

Bingham said the lawsuit makes a somewhat novel argument using the Commerce Clause, but he notes that the Jones Act has faced and withstood multiple challenges over its long history.

One of the more forceful challenges to the law occurred in the mid-1990s when the Washington, D.C.-based Jones Act Reform Coalition was created and pushed for reforming the law in Congress.

The group, backed by businesses impacted by shipping costs, got a bill introduced, but the legislation failed and the coalition disbanded.

The federal lawsuit was filed by local attorneys John Carroll and Chris Dias on behalf of five plaintiffs: goat cheese producer Kauai Kunana Dairy Inc., the Kukui brand jelly and jam maker Hawaiian Fruit Specialties LLC, the defunct Hilo bakery O'Keefe & Sons LLC, Honolulu maintenance and janitorial service Craig T. Marumoto LLC, and Paul Smith, former owner of plastics manufacturer Pacific Allied Products.

A hearing on a motion seeking a preliminary injunction is scheduled for Dec. 7.