Industry Opposes Senator McCain’s Jones Act Repeal Rider to Keystone Pipeline Bill

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Authored by attorney Daniel R. Weckstein, Esq.

Last week, Senator John McCain (R-Arizona) offered an amendment to the already controversial Keystone Pipeline Bill.  His amendment would repeal the Jones Act and its protections for the American shipbuilding and maritime industry.  Under the Jones Act, vessels used for coastwise trade in the United States must be constructed and repaired in American shipyards.  If the Jones Act was repealed, such vessels could be constructed and repaired in foreign shipyards, many of which are subsidized by foreign governments.

Not surprising, this proposal by Senator McCain has raised a storm of protests from American shipyards, American industry groups, maritime unions, pro-defense organizations and even local Hampton Roads groups.  Among those submitting strong protests to the Amendment’s proposed repeal of the Jones Act are the American Maritime Partnership, the Navy League, the Shipbuilder’s Council of American, the International Propeller Club and even our own locally-based Virginia Ship Repair Association (VSRA).  These groups are all united in their belief that the senator’s proposal will severely hamper, and perhaps cripple, the American maritime industry and harm America’s stature as a maritime or seafaring nation.  For example, the Navy league stated that it “opposes the McCain Amendment (amendment #2) to S.1, which would gut the U.S. shipbuilding industry by striking the U.S. build requirement provisions of the Jones Act.”

This strong reaction arises from several areas of concern with the proposed repeal.  First, without the Jones Act, there is a real concern that American shipbuilding and ship repair will suffer dramatic losses of capacity.  Because construction and repairs can be cheaper at foreign subsidized industrial facilities, the ship building business and repair business could shift to foreign countries.  As that work moves overseas, American shipyards will be forced to downsize and perhaps consolidate or close.  This loss of capacity could in turn cripple the American industrial base and result in the loss of tens of thousands of jobs.  Such capacity is not something easily recovered in times of war or national emergency, and once ship building capacity is lost, it will probably never return.  Once the skills of the shipbuilder workers are lost, it could take decades to rebuild them if, in fact, they could be recovered. The ability to perform quick repairs or new construction from local yards would also be gone.  Bill Crow, the President of the Virginia Ship Repair Association that represents 254 member companies and over 40,000 Virginia workers notes that “The amendment that Senator McCain introduced would be irreversibly catastrophic to Virginia’s ship repair and shipbuilding industrial base.”

Moreover, there is a potentially devastating “ripple effect” to the loss of these jobs.  Less American made ships means less American maritime companies and less American crews.  Many small businesses work in the ship building and repair industries to support such construction, and these interests would also be harmed.  Shipyards also use tools and heavy equipment potentially supplied by other American companies.  Additionally, large ship building and repair companies also have the capacity to perform work in related maritime industries such as the offshore wind electrical projects we are now seeing and in other non-maritime, industrial and infrastructure repair projects (for example, bridges and heavy industrial projects).  The loss of the bulk of these shipyards’ core businesses would greatly impact their ability to provide cost effective work in other non-maritime industries, and this in turn could have damaging effects throughout other American industries.

In addition to the loss of jobs and industrial base, there are also very real national security issues.  If our ships are built or repaired in foreign ports, then we become dependent upon such foreign countries.  Again, in times of national emergency, we may not be able to rely upon such shipyards, particularly those located in countries such as South Korea that are potentially vulnerable to  global conflicts.

Because our Navy, Marine Corps and Coast Guard vessels are also built and repaired in the same American shipyards, the loss of the commercial work would lower these yards’ volume, resulting in higher prices for the work performed for our armed forces.  With our shrinking Navy and military budget, higher prices could harm our national defense efforts and could further increase the national debt.  If the cost per military ship rises with the loss of commercial work to absorb a yard’s overhead, not only do we as a country suffer economic losses, but this potentially results in an even smaller Navy with even less ability to respond to international crisis  and domestic security needs.

Moreover, the American merchant marine fleet, which under the Jones Act operates the coastwise American trade, is also protected by the Jones Act.  The loss of such ships, and potentially such sailors, could severely impact our national defense.  During times of war, such American made and crewed ships are available for use in military or supply operations.  With the McCain Amendment’s potential repeal of the Jones Act, such assets might be lost to the American military and defense strategy.

For all of these reasons, the proposed amendment to the Keystone Pipeline bill which would result in the repeal of the Jones Act is a very bad thing for America in general, and repeal of the Jones Act could severely harm the Hampton Roads and Virginia maritime industry.

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