return to : MA Projects | Previous Page

  

I. Introduction  

I. A. The Role of the Cruise Industry

Until the 1970’s, the cruise industry was focused more on “passenger transportation.”  Immigrants came from the old world to the new on passenger ships. American flagged passenger vessels provided back-up transportation for military troops, and were as early as the civil war, the Spanish-American war, and World War I. The need for passenger ships to provide transportation for military troops essentially ended with the advent of fast, modern air transportation. Passenger vessels have not been used by the U.S. military since the Korean War in the 1950’s.  

Today cruise ships primarily provide entertainment service and advertising interesting Ports of Call.   Cruise ships are rarely used as a method of transportation. Despite this, the United States code regarding Cabotage has remained unchanged, and the policy of the 1800’s and early 1900’s remains the same.  According to the United States Code for the Merchant Marine Act:  

It is necessary for the national defense and for the proper growth of its foreign and domestic commerce that the United States shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency, ultimately to be owned and operated privately by citizens of the United States; and it is declared to be the policy of the United States to do whatever may be necessary to develop and encourage the maintenance of such a merchant marine, and, insofar as may not be inconsistent with the express provisions of this Act, the Secretary of Transportation shall, in the disposition of vessels and shipping property as hereinafter provided, in the making of rules and regulations, and in the administration of the shipping laws keep always in view this purpose and object as the primary end to be attained.[1]  

The loss of U.S. military need for cruise ships combined with failed public policies with respect to the U.S. flagging requirements have resulted in the U.S. missing out on the current boom. Currently U.S. flagged cruise vessels are a dying breed, in 2000 there were only 7,000 deadweight tons left[2] versus 1,205,000 deadweight tons of foreign flagged ships. (See chart below).  However, although the ships are not militarily useful, the crews that man them and the metal trades workers, and shipyards that build them are militarily useful and are becoming critically scarce.  This will be addressed later in the paper.   

 

World and U.S. Merchant Fleets in Thousands of Deadweight Tons,
April 1, 2000 [3]
 

 

U.S. Flag

All Flags

Container Ships

2,990

63,967

Dry Bulk

579

276,196

Tanker

8,515

324,503

Roll-on/Roll-off

554

14,542

Cruise/Passenger

7

1,205

Other

696

82,875

Total

13,341

763,288

 

A.2 Domestic Port Economic Impact

U.S. public ports generate a lot of jobs for the U.S. economy, the Cruise industry makes up a small portion of this overall impact, the AAPA would like to increase the positive effects that the cruise industry has had on a few ports, to more local U.S. ports.  

The U.S. public port industry consists of more than 100 public port authorities and agencies located along the Atlantic, Pacific, Gulf and Great Lakes coasts, as well as in Alaska, Hawaii, Puerto Rico, Guam, and the U.S. Virgin Islands.[4]  

Public ports generate significant local and regional economic growth, including job creation. According to the AAPA’s most recent study, in 1996 the Direct Impact of Ports’ activities to the U.S. economy was:

  • Commercial port activities in 1996 provided direct employment for 1.4 million Americans.
  • Port activity contributed $74.8 billion to the U.S. Gross Domestic Product (GDP) and personal income of $52.7 billion in 1996.
  • Port activities in 1996 accounted for federal taxes of $14.7 billion, and state and local tax revenues amounting to $5.5 billion.[5]

The same study by the AAPA concluded that in the year 1996, the Compilation of direct, indirect, and induced economic impact of port activities to the U.S. economy was:[6]

  • To create 13 million jobs
    • To generate $494 billion in personal income
  • To contribute $1.5 trillion in business sales
  • $743 billion to the Nation's GDP
  • $200 billion in Federal, State and local taxes

 

II. Background: Understanding Flagging, and Cabotage

Overview
This section discusses the international commitments that have been with regards to ship operations, safety, and registration.  
 

II. A. International Shipping Requirements[7]

All ocean - going vessels involved in international commerce must have a country of registry in order to operate in international waters. Accordingly, most countries, including the U.S. , provide these registration services or flags of registry. Due to favorable laws designed to promote the economic health of shipping companies the predominant countries offering flags of registry for cruise vessels are the United Kingdom, Liberia, Panama, Norway, Netherlands, Bahamas and to a much lesser extent, the United States. [8] These nations provide vessel owners with competitive ship registry services and maritime expertise, and are all member states of the International Maritime Organization (IMO)[9].  

In the international shipping industry, there are a number of factors that must be met for a valid registry: the flag state must be an IMO member nation which has adopted all of the IMO’s maritime safety Resolutions and Conventions; Secondly, the flag state should have an established maritime organization that is capable of enforcing all international and its national regulations. Usually this is the nation’s Coast Guard, a recognized Classification Society, and various health or communication regulatory agencies.  Major flag registries provide maritime expertise and administrative services; require annual safety inspections prior to issuance of a passenger vessel certificate; and utilize recognized classification societies to monitor its vessels compliance with all international and flag state standards.  

Flag states also have certain rules and requirements for vessels that fly their flags. These include crew nationality, crew composition, ship owner citizenship and ship building requirements that include both safety features and flag country content in the materials used.[10]  

The crewing, ship construction and ownership requirements to flag a vessel in the United States are among the most restrictive of the maritime nations.  The regulations for U.S.-flag vessels engaged in coastwise trade mandates that all officers and pilots and 75% of other onboard personnel be U.S. citizens or residents. In addition, U.S. flag vessels engaged in coastwise trade must be owned by U.S. citizens and constructed in U.S. ship yards. This construction requirement applies to the entire hull and superstructure of the ship and the majority of materials outfitting the vessel.  

All vessels, regardless flag, must comply with SOLAS[11] standards and other internationally recognized conventions. The flag state has the primary responsibility for ensuring that its vessels meet all established international guidelines. The flag state conducts annual ship examinations, which include a thorough inspection of the vessel and its safety systems. As a result of these examinations, a vessel is certified to be in compliance with all international safety standards. The effort of the flag state is augmented by an additional annual survey conducted by a classification society to certify a vessels seaworthiness and structural integrity.  

Port states, that is, those countries at whose ports a vessel calls, also play an important role in this regulatory framework. The United States , a major port state represented at the IMO by the U.S. Coast Guard, has a reputation for its vigorous enforcement of SOLAS standards. To ensure compliance with SOLAS safety requirements, the Coast Guard conducts quarterly inspections on all vessels embarking passengers at U.S. ports. This cooperative effort between flag and port states provides a maritime safety enforcement system, which has proven effective over the years.  

Because of the cost of these requirements as well as tax laws outlined above for U.S. flag registry, nearly 90% of the commercial vessels calling on U.S. ports fly a non-U.S. flag. Therefore, vessels with international registries, are not unique to the cruise industry. A majority of the major U.S. controlled shipping companies engaged in international commerce have chosen to operate under flags other than that of the United States . This is because foreign crew costs are 1/3 to ½ that of American crew costs, and American ship costs are 25% to 100% more than that of foreign ships according to virtually every industry and government source.  

Although a majority of cruise vessels fly non-U.S. flags, the United States and its ports derive substantial economic benefits from cruise industry operations. A recent study by WEFA, Inc. concluded that the cruise industry was responsible for generating 214,901 full-time jobs for U.S. citizens. The study also concluded that the industry, its passengers and its U.S. suppliers purchased $15.5 billion on U.S. produced goods and services in 1999. These jobs and expenditures contribute greatly to the overall U.S. economy.[12]  This local economic benefit occurs to port communities regardless of the nationality of the flag is responsible for many port cities to being ambivalent as far as U.S. cabotage laws are concerned.  This complicates reaching political consensus for reform.  
 

II.B. Background and History of U.S. Cabotage

Overview
This section provides an overview of the setting, history, and motivation behind the passage of the main two laws which created U.S. cabotage: the Passenger Vessel Services Act, and the Jones Act. There is some discussion of other flagging restrictions in general as well.
   

B. Background and History of U.S. cabotage

The United States , as well as other nations, protects its domestic transportation industries through cabotage laws. "Cabotage" from the French word "caboter" means to sail coastwise or by the capes.  The “capes” being visible points on the shore.  

U.S. Maritime Cabotage Laws include 31 separate enactments governing the transportation of cargo and passengers between two points in the United States , its territories and possessions, and all dredging, towing, salvage and other marine operations and fishing in U.S. waters. These laws reserve to U.S.-flagged vessels the right to transport cargo and passengers between U.S. ports. Cabotage laws also apply to forms of transportation other than water carriers such as airlines, however, this paper is devoted exclusively to water carriers.  

The cabotage statute enacted in 1789 imposed tonnage duties on the entry of every vessel transporting products in the coastwise trade unless the vessel was built and owned by U.S. citizens. An 1817 law reserved transportation of merchandise between U.S. ports to U.S. flag vessels on penalty of forfeiture of the merchandise.  Tonnage duties were levied on U.S. vessels that failed to have the required percentage of U.S. citizens in their crews  

The current cabotage statute for ownership, construction, and crewing of cargo and passengers is the Merchant Marine Act of 1920, and its amendment, the Jones Act.[13]  The Passenger Services Act of 1886, is the statute covering cabotage as it applies to passengers transported between U.S. ports.[14]  A point worth noting is that when these acts were originally passed, ships provided a substantial portion of citizen transportation.  Today ships primarily provide a cruise and entertainment experience and are rarely used for transportation.   

In fact, until the advent of modern air travel in the 1950’s, several U.S. flag companies operated large passenger vessels constructed and operated with federal subsidies in the transatlantic, Latin America, Caribbean, and Pacific routes.  These federal subsidies were intended to offset both the differential in shipbuilding costs and crew wages versus cheaper foreign competition.  

The U.S. is not alone in having cabotage laws. The Maritime Administration solicited information on cabotage laws from fifty - six maritime nations and received fifty-three responses. Only six countries reported no restrictions. Forty-three reported crewing restrictions, thirty - seven have ownership restrictions, thirty provide a domestic fleet subsidy, six have a domestic construction requirement and fifteen have reflagging restrictions.(SEE APPENDIX FOR LIST)
   

B.1 The Passenger Services Act

The basic act which created the Passenger Vessel Act of 1886 was created on June 19 of 1886 by the forty ninth Congress, and can be found in U.S. law under Chapter 421[15] Section 8, 24 Stat. 8.  This basic act states, “That foreign vessels found transporting passengers between places or ports in the United States , when such passengers have been taken on board in the United States , shall be liable to a fine of two dollars for every passenger landed.”   

The Fifty Fifth Congress amended the act on February 17, 1898 .  Chapter 26[16], section 2, 30 Stat. 248.  The amendment changes the penalty from two dollars to two hundred, which shows a crack down on foreign transport of passengers in the US .  According to the amendment, Sec 8 (shall now read): “No foreign vessel shall transport passengers between ports of places in the United States , either directly or by way of foreign ports or places in the United States , either directly or by way of a foreign port, under a penalty of two hundred dollars for each passenger so transported and landed.”  The law now appears in the United States Code under 46 App. USCA 289 (1996) as: “No foreign vessel shall transport passengers between ports or places in the United States, either directly or by way of a foreign port, under a penalty of $200 for each passenger so transported and landed.” (To see a demonstration of the legal itineraries a Foreign flagged cruise vessel might follow, see the Passenger Vessel Services Act under Legal Analysis).  

There was also a national security concern.   This was the congress that declared war on Spain.
   

B.2 The Jones Act

After the close of World War I, the Senate Commerce Committee, whose chairman was Senator Wesley L. Jones of Washington , conducted a study to determine what should be done with the many vessels owned and operated by the U.S. government. As a result congress enacted the Merchant Marine Act of 1920, containing a policy declaration that it was necessary for the national defense and for the proper growth of foreign and domestic commerce that the U.S. have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a navel or military auxiliary in time of war or national emergency, ultimately to be owned and operated privately by U.S. citizens. This Act is known as the Jones Act, and Section 27.  The Act required that no merchandise transported by water between U.S. ports is to be carried "in any other vessel than a vessel built and documented under the laws of the United States and owned by persons who are citizens of the United States ."  

The 1920 recodification of U.S. Cabotage laws increased the citizen stock ownership requirement from 50% to 75% and established standards (patterned generally upon a 1918 law) for determining when the 75% stock ownership requirement had been met.[17]  

Although separate acts, the Jones Act and Passenger Vessel Services Act are often confused and/or lumped together by policy makers.
   

B.3 Background on Flag restrictive laws in general

Laws recognizing the importance of a domestic merchant marine fleet go back date back as far as the 17th century (British "Navigation Acts", French régime of the Colbert Ordinances and of the "exclusif colonial").  Under such regimes the external trade of a country had to be transported by ships flagged in the country manned with nationals and where colonial traffic was reserves to the flag of the country.  The United Kingdom abolished this model in 1847 but traces of it remain in the legislation of numerous countries.  One of the outcomes of these laws was to enforce an almost total lack of trade and communication between nearby Caribbean islands that happened to be “owned” by different European powers.   

In the United States , among some of the measures passed by the first Congress in 1789 was a law restricting registration for coastal trades and fisheries to U.S.-built and U.S.-owned vessels.  U.S.-flag vessels were also given preferential treatment with respect to tonnage taxes and cargo import duties.  

Throughout the 20th century, successive Congresses and Presidents have sought to ensure that the United States had sufficient private, commercial marine fleet capacity to protect the nation's commercial and defense interests. The Merchant Marine Act of 1936 provided direct subsidies to builders and operators of U.S.-flag ships. Though now phased out, these subsidies provided the capacity for the massive and successful effort to supply and move American troops during World War II. An extension of the notion of cabotage laws and local economic interests occurred in 1978 when the Outer Continental Shelf Act (OCS) became law.  Under the OCS Act, offshore structures attached to the continental shelf are considered American territory, just like any domestic port, and therefore traffic between rigs and shore is considered "coastwise trade" for the purpose of the law. The U.S. OCS and the resources-mineral and otherwise-it contains have long been considered American property. However, it was not until 1976 that fishery resources within a 200-mile "exclusive economic zone" (EEZ) were also claimed, and until 1978 that oilrigs, and the jobs dependent on them, were likewise protected under the law. These laws, and others pertaining to the U.S. maritime industry, can be found in Title 46 of the United States Code.[18] What they all have in common is the notion of some degree of national security, safety/environmental control, and economic protection or preservation.  (See Appendix for the list of major cabotage supporting Nations).  
 
 

II C. Political Stakeholder Background

Overview

The political stakeholder background introduces the two major factions in the dispute over U.S. cabotage laws: The Pro-Cabotage side, and the Pro-Cabotage Reform side.  Each side of the argument is broken down into the political party support, and the various interests that fall on either side of the argument.  The coalitions which represent the interests of each side are:The Jones Act Reform Coalition and the Maritime Cabotage Task Force.  The AFL-CIO Maritime Trades Department is also considered part of the Maritime Cabotage Task Force, and is singled out for being a particularly strong member of the Pro-cabotage coalition.
   

C.1 Overview of Stakeholders involved 

Overview of Stakeholders involved

Pro-Cabotage

Pro- Reform

Political Party Support: Democrat; Hard line Republican

  • Defense Interests: Ready reserve
  • Shipyards
  • Unions: AFL-CIO maritime trades
  • U.S. Flagged Ships
  • Coalition: Maritime Cabotage Task Force
  • President has stated support for the Jones Act

Political Party Support: Moderate Republican

  • Free Traders
  • Travel and Tourism Agencies
  • Agricultural Interests
  • Port Authorities
  • Port Cities
  • Business, Entrepreneurs
  • Foreign Cruise Interests
  • Coalition: The Jones Act Reform Coalition

In general, on the Pro-Cabotage side, the political parties supporting Cabotage laws are: Democrats and hard line Republicans.  Democrats support the laborers for Cabotage, and hard line Republicans support the defense interests, or the maintenance of the ready reserve. On the Pro-Reform side, Moderate Republicans who are pro-business and/or free traders have been seeking cabotage reform.  Other Pro-cabotage interests include: the unions whose jobs depend on the U.S. flag business; the U.S. flagged ship operators themselves, who wish to maintain restrictions on the coastwise movement of foreign flagged operators; and Defense interests who wish to maintain shipbuilding skills, ships, and crew for the ready reserve.  On the Pro-Reform side, Travel and tourism agencies side with Port Authorities and Port cities in wanting more economic well-being through cabotage reform. Agricultural interests believe that cabotage reform will lead to lower shipping and freight costs for their goods. Businesses would like more choice in investment; while foreign flagged operators would like more choice in itineraries for their U.S. passengers.



[1] U.S. Code  http://www4.law.cornell.edu/uscode/unframed/46X/ch24.html

[2] There were 14 U.S. flagged cruise ships in existence in 2000.

[3] ROLE OF THE MARITIME INDUSTRY IN THE UNITED STATES , U.S. Department of State

 http://usinfo.state.gov/journals/ites/1000/ijee/trans-maritime.htm

[4]  The American Association of Port Authorities: http://www.aapa-ports.org/industryinfo/portfact.htm

[5] The American Association of Port Authorities: http://www.aapa-ports.org/industryinfo/portfact.htm

[6] http://www.aapa-ports.org/industryinfo/portfact.htm

[7] This information was obtained from the International Council of Cruise Lines

http://www.iccl.org/imi.htm

[8] SEE APPENDIX FOR FLAGGING RULES IN COUNTRIES OTHER THAN U.S.

[9] The IMO is responsible for establishing international standards for cruise ship safety, design and construction. The IMO is an affiliate of the United Nations. http://www.iccl.org/policies/accessibility.htm

[10] See Appendix for examples of registry requirements in some popular countries of registry

[11] International Convention on Safety of Life at Sea (1974) (SOLAS 74) as amended (1998) requires that passenger ships carry an approved lifejacket (Personal Flotation Device - PFD) for every person onboard the ship. Additionally, a number equal to 10% of the number of passengers onboard and that are suitable for children must be carried. However, the number of children's lifejackets carried must not be less than the number of children onboard. http://www.iccl.org/policies/lifejackets.htm.

[12] International Council of Cruise Lines: http://www.iccl.org/imi.htm

[13] The Jones Act refers to Section 27 of the Merchant Marine Act of 1920, which requires that all water transportation of goods between U.S. ports be on U.S.- built, owned, crewed, and operated ships.

[14] http://www.hawaii.gov/dbedt/he7-99/psa.html  

[15] Chap 421 An act to abolish certain fees for official services to American vessels, and to amend the laws relating to shipping commissioners, seamen, and owners of vessels, and for other purposes

[16] An act to amend the laws relating to navigation

[17] http://www4.law.cornell.edu/uscode/unframed/46X/ch24.html

[18] http://www.sice.oas.org/dispute/wto/tract04e.asp

 

top

Continue to Next Page