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July27, 2015

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GOVERNMENT WATCH INTERNATIONAL | WASHINGTON | CUSTOMS | SECURITY | REGULATION 14 THE JOURNAL OF COMMERCE JULY 27.2015 By Joseph Bonney PUERTO RICO'S FISCAL crisis is rekindling criticism of the Jones Act, the cabotage law requiring the use of U.S.-flag vessels for shipments between the commonwealth and the U.S. mainland. A paper by three economists led by Anne O. Krueger, a Johns Hopkins Univer- sity professor and former chief economist at the World Bank, urges that Puerto Rico be exempted from the Jones Act in order to reduce transportation costs. The paper's recommendation was echoed on the New York Times editorial page and by the conservative Heritage Foun- dation in Washington after Puerto Rico Gov. Alejandro Garcia Padilla's warning that the commonwealth can't pay its $72 billion in outstanding debt and will need to restruc- ture it. "Exempting Puerto R ico from the U.S. Jones Act could significantly reduce transport costs and open up new sectors for future growth," the economists' paper said. "In no mainland state does the Jones Act have so profound an effect on the cost structure as in Puerto Rico." This isn't the first call for amending or repealing the Jones Act, which retains strong congressional support from U.S.- flag maritime interests. A 1990s campaign to modify the law went nowhere. In Janu- ary, Sen. John McCain, R-Ariz., failed in his effort to attach an amendment to repeal the Jones Act to legislation authorizing the Key- stone XL pipeline. The economists' paper included pro- posed transportation law changes: The Jones Act and Puerto Rico Public Service Commission regulation of ground trans - portation were among recommendations for rebuilding Puerto Rico's economy, which has been contracting for a decade amid a continuing population outf low from the island. The Jones Act reform push comes amid turmoil in the U.S. mainland-Puerto Rico shipping market. Horizon Lines' departure from the trade at the end of 2014 has tightened southbound capacity and allowed remaining carriers to raise rates that had slid for several years while vol- ume fell. Northbound rates and volume remain low in the heavily imbalanced market. Crowley Liner Services and Sea Star Line have added container-on-barge capac- ity to compete for Horizon's market share, which totaled 28.8 percent of the market in the first nine months of 2014, according to PIERS, a sister product of The Journal of Commerce within IHS Maritime & Trade. Trailer Bridge is the market's third-ranking carrier. Crowley and Sea Star also are building new ships that will operate on liquefied natural gas in the Puerto Rico trade. In April, TOTE launched the first of two LNG- powered container ships that will carry up to 3,100 20-foot-equivalent units. Crowley is building two combination container/roll- on, roll-off ships that will carry up to 2,400 TEUs and 400 vehicles. The boomlet in orders for U.S.-built ships has bolstered Jones Act defenders' arguments against changes to the law. Mari- time Administrator Paul "Chip" Jaenichen told a congressional hearing last February that mere discussion of Jones Act repeal could discourage financing plans for vessel orders at U.S. shipyards. JOC Contact Joseph Bonney at and follow him on Twitter: @JosephBonney. A JONES ACT FIX FOR PUERTO RICO? The commonwealths's debt crisis prompts increasing calls for an exemption from the U.S. domestic shipping law

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