Washington Insider-- Thursday

Puerto Rico and the Jones Act

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

European Hopes Dim on Prospects for T-TIP Deal

Prospects for a successful conclusion to ongoing talks on the Transatlantic Trade and Investment Partnership (T-TIP) deal this year between the U.S. and the European Union appear to be dimming, as EU officials expressed doubt that major issues can be resolved in time.

Leaked documents detailing the current consolidated chapters and state of T-TIP negotiations were released earlier this week by environmental group Greenpeace. The documents appear to contradict recent statements by EU and U.S. officials expressing optimism that the negotiations can be concluded this year.

The U.S. has rejected proposals to include French standards on health, food, labor, culture, environment and agriculture in the T-TIP texts. In a May 3 speech in Paris, French President Francois Hollande stated “we will never accept [the exclusion] of these essential principles, and that is why France says no to the talks in their current round.”

Joining Hollande’s criticism was France's Secretary of State for External Trade Mattias Fekl, who said “an agreement concluded today would be a bad agreement.” He also said a halt of the negotiations is likely.

The current text would not give EU small and medium-size businesses adequate access to U.S. public markets, protect geographical indications or sufficiently protect the environment, Fekl said. He also noted the current text is “absolutely incompatible” with the Paris Climate Deal, and called negotiations “totally blocked.”

Given the precarious state of negotiations, EU trade ministers plan to meet next week in Brussels for a discussion on the direction of T-TIP talks. It’s expected that the ministers will reiterate statements of support given by President Barack Obama and German Chancellor Angela Merkel in Germany two weeks ago.

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March US Ag Trade Data: 1st Monthly Trade Deficit Since 2006

U.S. agriculture registered a $35 million trade deficit in March, the first time the sector has seen imports outpace exports since August 2006, according to the latest Agricultural Trade Data released by USDA's Economic Research Service (ERS).

The deficit arose as U.S. ag exports for March were valued at $10.314 billion against imports of $10.349 billion for the $35 million shortfall. In February, U.S. agriculture registered a $1.097 billion surplus as exports were valued at $10.654 billion against imports of $9.558 billion.

March ag imports are the second highest on record, behind only the $10.616 billion mark set in March 2015.

The monthly deficit of $35 million is the first since the $34.276 million deficit registered in Aug. 2006, and the largest deficit since April 2006 when it was $149.114 billion. U.S. agriculture posted three monthly trade deficits in Fiscal 2006.

The rise in imports of agricultural products is somewhat surprising given that overall trade data in March showed imports down 3.6% compared to February while U.S. ag imports rose 8.3% compared to February while exports declined 3.2%. Overall U.S. exports fell 0.9% compared to February.


Washington Insider: Puerto Rico and the Jones Act

The Agenda is raising the question of whether we still need the Jones Act — a highly protectionist measure strongly supported by U.S. maritime interests. The Act, an obscure shipping law, dates back in history to the very first U.S. Congress.

Its current version was passed in 1920 but still requires that any goods shipped from one U.S. port to another and under certain federal programs must travel on a ship built in America with an American crew and owned by Americans, a rule that has negative implications for U.S. Aid food shipments.

It was originally “intended to ensure sea-readiness in case of a war” now is seen by critics as an expensive, protective measure for maritime unions and shipbuilders. Supporters say the original rationale for the law is still valid.

The current debate focuses on the law’s role in Puerto Rico’s debt crisis. The island lies nearly 1,000 miles from the U.S. mainland, and imports 80% of what it consumes, so the Jones Act is seen by many as an example of ways that domestic U.S. laws disproportionately drive up costs for a distant and cash-strapped territory.

In addition, The Agenda sees the Jones Act fight as part of a larger, long-term debate over what lengths the government should go to protect U.S. industries in the name of national security, even if it’s at an economic cost to the nation.

In the first U.S. Congress, a so-called "cabotage" law to regulate the movement of goods between two U.S. ports made sense, The Agenda says because U.S. maritime strength was critical to the nation, so a protectionist law was vital to national growth. Congress strengthened the law after the War of 1812 and then after World War I, passed the Merchant Marine Act which became known as the Jones Act for its sponsor, Sen. Wesley Jones.

Now, removing Jones Act protections would force U.S. shippers to compete with foreigners. The Heritage Foundation and other think tanks observers argue offering protections to shippers is a major form of interference with the free market that raises prices for goods shipped around the U.S..

Critics also note that the Jones Act supports rules for U.S. Aid food programs that require large shares of their shipments use U.S. flagged vessels and U.S. crews, and that these rules sharply reduce that amount of funding available for purchase of US food commodities.

Especially for noncontiguous American states and territories, like Puerto Rico, Hawaii and Alaska, the Act “has the singular distinction of being one of the oldest and most protective measures in the U.S. armory of protection,” said Gary Hufbauer, a former Treasury Department official and current senior fellow at the Peterson Institute of International Economics who opposes the act.

The fight over the Jones Act echoes last year’s battle over the Export-Import Bank, which provides loan guarantees to help overseas customers buy goods made by U.S. companies. Opponents of Ex-Im argue that the bank is a form of protectionism that subsidizes a few lucky U.S. companies while damaging the US economy overall; supporters of Ex-Im see it as an important backstop on an unfair playing field, in which foreign governments generously subsidize their own industries as they try to compete against the U.S.

The argument that U.S. transportation industries need protective laws for the sake of national security is not limited to the Jones Act. A similar debate exists in the airline, trucking and railway industries. For instance, foreign airlines can fly into U.S. airports, but can’t fly passengers on U.S. domestic routes. These airline cabotage rules, Hufbauer said, limit competition and keep prices high while also upsetting our trade partners who want access to the U.S. market. In turn, he added, they limit the ability of U.S. trade officials to request concessions on other issues.

So far, the Jones Act appears safe in the current debate, The Agenda says. The House Natural Resource Committee’s first draft of legislation to help Puerto Rico contained no changes to the law. And while an amendment will likely be offered to exempt Puerto Rico from the Jones Act, it is not expected to pass – something that has not dismayed the law’s opponents, who say they are content at this time just to move the conversation.

Critics recognize the power of the merchant marine lobby—Senator John McCain, R-Ariz., once called it "as powerful as anybody or any organization I have run up against in my political career.” As a result, The Agenda thinks the Jones Act is unlikely to go away anytime soon. ”I expect the protection will continue for years to come,” said Hufbauer. “Sad for Puerto Rico – happy for the merchant marine!”

Most ag groups have long opposed the Jones Act, as well and also have a practical view of prospects for reform. Still, this is a fight producers should watch closely as it proceeds, Washington Insider believes.


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(GH/CZ)