Trading a Jones Act waiver for improved access to UK markets

BY VINCENT H. SMITH

Britain is poised to leave the European Union in January of 2021 and is now negotiating separate trade deals with both the US and the EU. As a member of the EU and an important component of the Common Market, the UK adopted a wide array of regulations to ensure the free flow of goods and services between EU member states.

When the UK leaves the EU, it will need to determine which aspects of EU regulations it will keep in order to maintain access to Europe and which it might loosen in exchange for access to other markets. The US government has traditionally insisted that Jones Act proscriptions on the ability of foreign-flagged ships to move cargo between any two US ports cannot be “on the table” in trade negotiations.  However, in the current trade talks with the UK, that strategy may not be viable if a major objective is to expand access to British markets for producers of US agricultural products.

Under the Jones Act, right now a US ship can sail from New York to Southampton, then from Southampton to Liverpool, and finally back to New York and load and offload cargos at all of those ports. As Boris Johnson has already pointedly noted, a similar British ship cannot sail from Liverpool to New York to and then to Boston and off load any cargo it picked up in New York. That would violate the Jones Act.

Post Brexit, including a waiver from the Jones Act provisions for British flagged vessels could be important in a trade deal with the US for the UK.  As part of the EU, a UK registered ship could freely move goods throughout the member states, but now that option has been called into question and, as a result, shipping companies have been assessing whether they should flag their ships in the UK or other European countries.

As a result, the UK registry declined by 34 percent between December 2018 and 2019 as many carriers reflagged vessels in other EU member states because they would be assured of continued access to both the EU and UK domestic markets. Access to the US market would make the UK flag much more attractive, financially, which is important for an island nation that conducts 95 percent of its trade on ships.

A Jones Act waiver for the UK also would have the benefit of substantially increasing competition for coastwise cargoes within the United States and some of its territories, including Puerto Rico, the Gulf States, and New England. The impact would be to lower transportation costs for many sectors of the US economy and to shift cargo between major US destinations from trucks, rail, and pipelines to vessels, with substantial reductions environmental in pollution and much less damage to US highways and bridges. A potential additional benefit could be that US vessels could become more competitive in the US-UK market. Currently the US fleet accounts for 0.4 percent of the carrying capacity of the global shipping market, while the UK fleet contributes slightly more (0.5 percent).

More importantly, giving the UK a Jones Act waiver would create opportunities for the US to make headway on other tough issues, including improved market access for beef and other US agricultural exports. Such a shift could require the UK to move away from EU product standards that currently restrict US farmers from exporting beef and some other agricultural commodities to EU consumers.

A Jones Act waiver for the UK could therefore be a win-win for many sectors of the US economy that stand to gain from cheaper transportation between US markets and improved access to UK markets and the 60 million UK consumers who are likely to prefer higher quality and less expensive agricultural and other US exports.