The Jones Act

Initial economic research and feedback from stakeholders indicated that some of Puerto Rico’s economic woes were due to the Jones Act. Since 1922, Puerto Rico has been subject to all Jones Act requirements concerning shipping cargo (see BOX 1). The price of virtually every good, from food to energy products to construction material, has been inflated for Puerto Ricans because of the higher transportation costs associated with using Jones Act-qualified vessels.

Since Puerto Rico has no natural sources of petroleum, coal, or natural gas, and the electric grid has been largely dependent on imported fuel sources, electricity is twice as expensive in Puerto Rico compared to the continental United States.[1] These high energy costs have had ripple effects across virtually every sector in Puerto Rico, contributing to comparatively high living costs and doing business in the Commonwealth.

Economic RSF was asked to produce a white paper on the Jones Act and the implications for Puerto Rico. There are many studies arguing for and against the Jones Act and the benefits/detriments it affords to Puerto Rico. BOX 2 is an excerpt from the Damage and Needs Assessment compiled by RAND.

As initially drafted in the COAs, ECN 39 called for an outright exemption of Puerto Rico from the Jones Act. In developing the COA, Economic Sector received a considerable level of push-back on this from RAND. The Economic Sector raised the issue of RAND being conflicted on this issue based on its funding sources, and the COA was published in the initial public draft calling for an outright exemption of Puerto Rico.

After publishing the COA and calling for the outright exemption of Puerto Rico, a considerable level of resistance was encountered. Most notable was the letter displayed on Page 51 from Congressman Duncan Hunter (R – CA), who at the time served as Chairman of the House Transportation and Infrastructure Committee’s Coast Guard and Maritime Transportation Subcommittee.

The report “Impact of the Jones Act on Puerto Rico” concluded that the Jones Act had no impact on retail prices in Puerto Rico or the cost of living. The American Maritime Partnership (AMP) sponsored the report “Impact of the Jones Act on Puerto Rico.” According to the report, “The American Maritime Partnership (AMP) is a broad coalition that represents the U.S. domestic maritime services industry. AMP’s diverse membership, which spans the United States and its territories, includes vessel owners and operators, shipboard and shoreside workers, shipbuilders and repair yards, equipment manufacturers and vendors, dredging and marine construction contractors, numerous maritime associations, and national security organizations.”

A study was also developed by local firm Advantage Business Consulting, which concluded that the Jones Act equaled a 7.2% tax on food and beverages alone, or about $367 million extra for island residents. “Individually, families pay $300 more or $107 per person for food and beverages,” said ABC economist Vicente Feliciano. Feliciano and his researchers derived their estimates from data showing that transporting containers from the United States to Puerto Rico costs, on average, 2.5 times, or 151% more than transporting from foreign ports. Precisely, “$3,027 from U.S. ports versus $1,206 from non-U.S. ports … after having made the corresponding adjustments for the size of container and distance.”

Mr. Feliciano also wrote an opinion piece titled “Impact of Jones Act on Puerto Rico Report a One-Sided Affair,” featured in a local paper and is accessible here. In the article, Mr. Feliciano provided strong criticisms of the report “Impact of the Jones Act on Puerto Rico,” citing the highly selective and limited data utilized. Despite the attention and press coverage of this issue, ECN 39 was revised in the final version to its current form, which states “Exemption of Puerto Rico from the Jones Act, After Consideration of Costs and Benefits.” After this revision was made to the version submitted to Congress, the Governor was criticized by the business community.

In summary, no other COA or recommendation in the Recovery Plan caused more controversy or resulted in more attention than the Jones Act work and recommendations.