Input:
	Introduction

The Jones Act, which refers to Section 27 of the Merchant Marine Act of 1920 (P.L. 66-261), requires that vessels transporting cargo from one U.S. point to another U.S. point be U.S.-built, and owned and crewed by U.S. citizens. The act provides a significant degree of protection from foreign competition for U.S. shipyards, domestic carriers, and American merchant sailors. It is a subject of debate because some experts point out that it makes domestic ocean shipping relatively expensive, constrains the availability of ships, and contributes to making it much more costly to build merchant vessels in U.S. shipyards than in shipyards abroad.
The Jones Act has been an issue in recent Congresses, coming into prominence amid debates over Puerto Rico's economic challenges and recovery from Hurricane Maria in 2017; in the investigation into the sinking of the 40-year-old ship El Faro with 33 fatalities during a hurricane in 2015; and in discussions about domestic transportation of oil and natural gas. The law's effectiveness in achieving national security goals has also been the subject of attention in conjunction with a congressional directive that the Administration develop a national maritime strategy, including strategies to increase the use of short sea shipping and enhance U.S. shipbuilding capability. In May 2018, the Office of Management and Budget requested public comment on federal requirements that could be modified or repealed to increase efficiency and reduce or eliminate unnecessary or unjustified regulatory burdens in the maritime sector.

	Legislative Context

The Jones Act of 1920 was not the first law requiring that vessels transporting cargo domestically be U.S.-built, owned, and crewed. Rather, it was a restatement of a long-standing restriction that was temporarily suspended during World War I by P.L. 65-73, enacted October 6, 1917.
Laws favoring a U.S.-flag fleet over a foreign fleet were initiated by the third act of the First Congress (1 Stat. 27, enacted July 20, 1789), which assessed lesser duties on vessels built and owned domestically than on those foreign-built and -owned. On September 1 of the same year, Congress specified that only a U.S.-built vessel owned by U.S. citizens and with a U.S. citizen captain could register as a U.S. vessel (1 Stat. 55). In 1817, Congress enacted a precursor to the Jones Act by disallowing any vessel wholly or partially foreign-owned from transporting domestic cargo between U.S. ports (3 Stat. 351). In 1886, this prohibition was extended to vessels transporting passengers domestically (24 Stat. 81).
The early United States had a comparative advantage in shipbuilding due to its ample supplies of large timber. During the second half of the 1800s, it lost that advantage as wooden sailing ships gave way to iron steamships, with the advantage shifting to Scotland and England. Congress began debating how to respond to the steep drop-off in the share of U.S. foreign trade carried by U.S. vessels. The fall-off in domestic coastwise transport was less severe, but railroads began offering competition to coastal shipping. Proposals to allow foreign-built vessels to sail under the U.S. flag became known as the "free ship" movement. Opponents of the free ship movement argued that the higher cost of U.S. crews in and of itself would prevent a resurgence of trade carried by U.S. vessels even if foreign-built ships were allowed. While bills that would have allowed foreign-built vessels to qualify for U.S.-flag international service were reported by House and Senate committees in the late 1800s, it was in 1912 that Congress enacted such a measure (P.L. 62-33, 37 Stat. 562). Thus, since 1912, the domestic build requirement has principally applied to vessels making domestic voyages.
In the late 1800s, Congress considered but did not pass bills that would have allowed foreign-built ships in domestic trade. Rather, Congress tightened the language concerning coastwise transport in response to shippers' attempts to avoid high-cost U.S. vessels. For instance, in 1891 a shipper loaded 250 kegs of nails at the Port of New York with an ultimate destination of Los Angeles (Redondo).The shipper loaded the merchandise on a foreign-flag ship bound for Antwerp, Belgium, where the goods were transferred to another foreign-flag ship bound for Los Angeles. Despite the circuitous routing and extra port charges, the freight charges were apparently less than they would have been using a U.S.-built and U.S.-owned ship to carry the nails directly between New York and Los Angeles. A court found that the shipper had acted legally. Similarly, shipments from Seattle to Alaska often were routed via Vancouver, Canada, so shippers could use foreign-flag ships for both legs. Congress amended the coastwise law in 1893 (27 Stat. 455) and again in 1898 (30 Stat. 248) to prohibit shippers from routing cargo through a foreign port so as to avoid coastwise laws.
Nonetheless, U.S. shippers continued to use foreign-flag vessels in the Alaska trade by moving cargo between the United States and Vancouver, Canada, by rail. In the Merchant Marine Act of 1920, Senator Wesley Jones of Washington, chair of the Commerce Committee, sought to stop this practice by requiring Alaska-bound cargo to move through the Port of Seattle by amending the coastwise language to cover shipments "by land and water" and replacing shipments between "U.S. ports" with shipments between "U.S. points." These amendments remain current law.

		Shipbuilding Costs Debated

The relative cost of building ships in the United States versus foreign countries was part of the debate leading up to passage of the Jones Act. Four years earlier, in the Shipping Act of 1916, Congress had requested annual reports on the subject from the federal agency in charge of maritime transportation. The minority report to a 1919 House committee report to the bill that would become the Jones Act expressed the view that banning foreign-built ships would result in more costly domestically built ships:
… in order to build up and sustain an American merchant marine it is absolutely necessary to remove every restriction against American merchants acquiring ships, whether built in the United States or out of the United States, at the lowest possible price, in order to enable them to compete with other nations in the transportation of the commerce of the world. If our merchants are allowed to buy ships in the open world market and place them under American registry with the privilege of using them both in the coastwise and overseas trade, it will inevitably follow that ships under the American flag will be bought as cheaply as ships under other flags.
On the other hand, if the American merchant shall be permitted to buy ships only from American builders in order to engage in our coastwise trade, it necessarily follows that every ship built in the United States will command a higher price than any foreign-built ship.
Our American iron and steel manufacturers were unable to compete until they had to. When they had to they did compete successfully. Our shipbuilders can and will do likewise.
A 1922 government report on shipbuilding indicated that U.S.-built ships cost 20% more than those built in foreign yards. The cost differential increased to 50% in the 1930s. In the 1950s, U.S. shipyard prices were double those of foreign yards, and by the 1990s, they were three times the price of foreign yards. Today, the price of a U.S.-built tanker is estimated to be about four times the global price of a similar vessel, while a U.S.-built container ship may cost five times the global price, according to one maritime consulting firm. The cost differential is also an issue for Department of Defense officials in charge of military sealift ships. As discussed later in this report, the military has modified a plan to build sealift ships domestically, finding it unaffordable, and instead will buy more used foreign-built cargo ships. Since U.S. shipyards do not build vessels for export, they are not required to compete with foreign shipyards on price or vessel characteristics.
However, as was argued in the late 1800s, shipbuilding costs are not the only cost factor. U.S. crewing costs are higher than those of foreign-flag vessels. U.S.-flag ships have an operating cost differential estimated to be over $6 million per ship per year compared to foreign-flag ships. While crewing is the primary cost element, this estimate also includes insurance and ship maintenance costs. A 2011 study by the U.S. Maritime Administration (MARAD) found that in 2010, the average operating cost of a U.S.-flag ship was 2.7 times greater than a foreign-flag ship, but MARAD estimates that this cost differential has since increased.

		Statement of U.S. Maritime Policy

A main thrust of the Merchant Marine Act of 1920 concerned the sale of a surplus of government cargo ships constructed for World War I. A second important and enduring aspect of the bill is its statement of maritime policy. The policy goals stated in the 1920 act, which appear in Section 27, have continued to the present day (46 U.S.C. §50101). The law stated the following:
That 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 times of war or national emergency, ultimately to be owned and operated privately by citizens of the United States; and it is hereby 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.
This statement reflects the United States' status as an emerging power at that time. When World War I began in 1914, European nations utilized their ships for the war effort or kept them in harbors for fear of submarine attacks, leaving the United States with a shortage of ships for carrying its foreign trade. The Merchant Marine Act therefore emphasized that the United States should have its own merchant marine so as not to be dependent on any other nations' merchant vessels.

	What the Jones Act Requires

The Jones Act applies only to domestic waterborne shipments. It does not apply to the nation's international waterborne trade, which is almost entirely carried by foreign-flag ships. The U.S. citizen crewing requirement means that the master, all of the officers, and 75% of the remaining crew must be U.S. citizens. If the U.S. owner of a Jones Act ship is a corporation, 75% of the corporation's stock must be owned by U.S. citizens.
Regarding U.S. territories, the U.S. Virgin Islands, America Samoa, and the Northern Mariana Islands are exempt from the Jones Act. Therefore, foreign-flag ships can transport cargo between these islands and other U.S. points. Puerto Rico is exempt for passengers but not for cargo. Vessels traveling between Guam and another U.S. point must be U.S.-owned and -crewed but need not be U.S.-built.

	Regulatory Background

The Coast Guard is in charge of enforcing the U.S.-build requirement for vessels (46 C.F.R. §§67.95-67.101), U.S. ownership of the carriers (46 C.F.R. §§67.30-67.43), and U.S. crewing (46 C.F.R. §10.221)—essentially, the licensing of Jones Act operators. It enforces these requirements when an operator seeks a "coastwise endorsement" (46 C.F.R. §67.19) from the agency. The terms "coastwise qualified" and "Jones Act qualified" are synonymous. Customs and Border Protection (CBP) is primarily responsible for determining what maritime activity falls under the act, namely defining what constitutes "transportation" and whether the origin and destination of a voyage are "U.S. points" (19 C.F.R. §§4.80–4.93). Agency interpretations of domestic shipping restrictions have been consistent since the late 1800s and early 1900s, as discussed further below.

		"U.S.-Built" Vessel Defined

A significant element of the Jones Act is the requirement to use only "U.S.-built" vessels. Competing freight transportation modes have no requirement to purchase only domestically built equipment. Congress has not defined what constitutes a U.S.-built vessel, leaving this determination to the Coast Guard. Coast Guard regulations deem a vessel to be U.S.-built if (1) all "major components" of its hull and superstructure are fabricated in the United States, and (2) the vessel is assembled in the United States. The "superstructure" means the main deck and any other structural part above the main deck (e.g., the bridge, forecastle, pilot house).
The Coast Guard holds that propulsion machinery (the ship's engine), other machinery, small engine room equipment modules, consoles, wiring, piping, certain mechanical systems and outfitting have no bearing on a U.S.-build determination. Consequently, for oceangoing ships, U.S. shipyards typically import engines from foreign manufacturers. This is allowed because engines are deemed components that are attached to the hull rather than an integral part of the hull's structure. A ship part or component that is self-supporting and independent of the vessel's structure and does not contribute to the overall integrity of the vessel or compromise the watertight envelope of the hull can be manufactured in a foreign country. However, the part or component must be attached or joined to the vessel in a U.S. shipyard, not an overseas yard.
The Coast Guard's test for "major components" of the hull or superstructure is based on weight; up to 1.5% of the steel weight of hull and superstructure components can be manufactured abroad. By this reasoning, the propeller, stern bulb, bulbous bow, some rudders (depending on their design), and watertight closures used in U.S.-built vessels are often imported, as long as they (in the aggregate) do not exceed the steel weight limit. The Coast Guard also permits steel products in standard forms ("off the shelf") to be imported with no limit on their weight, but any shaping, molding, and cutting of the steel that is custom to the design of the vessel must be performed in a U.S. shipyard.
Shipyards typically seek confirmation from the Coast Guard that incorporating certain foreign-built components in construction of a vessel will not disqualify the vessel from the Jones Act trade. These "determination letters" written by the Coast Guard detail which and to what extent foreign components are permissible. In the Coast Guard Authorization Act of 2018 ( P.L. 115-282 , §516) Congress directed the Coast Guard to publish these letters.
Shipyard unions refer to ships built in this manner as "kit ships." They sued the Coast Guard in 2007, arguing that the Coast Guard's interpretation of the statute violated the Administrative Procedure Act. The U.S. District Court for the Eastern District of Pennsylvania sided with the Coast Guard, noting in part that the Coast Guard's interpretation is rooted and consistent with the Treasury Department's interpretation dating to at least the late 1800s (the Treasury Department was the agency of jurisdiction at that time), as well as U.S. Attorney General interpretations dating to the early 1900s. The shipyard unions' lawsuit was prompted by a Philadelphia shipyard's partnership with a South Korean shipbuilder, begun in 2004, to use the Korean builder's ship designs and other procurement services to build a series of Jones Act tankers. This partnership continues today and also includes container ships built in the Philadelphia shipyard. Since 2006, General Dynamics NASSCO of San Diego, another builder of Jones Act oceangoing ships, has partnered with Daewoo Shipbuilding of South Korea to procure vessel designs, engineering, and some of the materials for the commercial ships it has since built for Jones Act carriers.
Importing engines and other major ship components would appear to undermine the Jones Act policy objective of a domestic shipbuilding capability independent of foreign yards. In the court case cited above, the shipyards argued that not allowing use of such foreign components would increase the cost of ships further. This would reduce orders for new ships and harm the domestic fleet.

		Passenger Vessel Itineraries

The United States is the largest cruise ship market, but most Americans board foreign-flag cruise ships. This is because CBP has determined that a cruise ship serving a U.S. port does not have to be Jones Act-compliant as long as it has visited a distant foreign port (any port outside North and Central America, Bermuda, the Bahamas, and the Virgin Islands). Thus, for example, if a cruise ship includes Aruba or Curacao in its itinerary, it does not need to be Jones Act-compliant. The reasoning is that the main objective of such a cruise itinerary is to visit such foreign ports, not to transport passengers from one U.S. port to another U.S. port. This reasoning was articulated in a 1910 Attorney General's opinion.
Another significant regulatory interpretation allowing for the prevalence of foreign cruise ships at U.S. ports is a 1985 rulemaking by the U.S. Customs Service (the predecessor of CBP). In this rulemaking, Customs allowed foreign-flag cruise ships to make round trips from a U.S. port and to visit other U.S. ports as long as they also include a visit to a nearby foreign port (such as those in Canada, Mexico, or Bermuda). All passengers must continue with the cruise until the cruise terminates at the same dock at which it began. Again, the reasoning is based on the primary intent of the cruise voyage; if the main purpose of the voyage is not domestic transportation of passengers then the Jones Act is not violated.
Another type of passenger vessel excursion involves visits to no other ports. The purpose of the voyage could be whale watching, recreational diving, gambling, duty-free shopping, or deep-sea fishing, for example. These are so-called "voyages to nowhere" since passengers do not visit any other ports besides the one at which they embark and disembark. In these cases, CBP has determined that if such vessels stay within the 3-mile zone of U.S. territorial waters they must be Jones Act-compliant since CBP considers any places within such waters as "U.S. points." This interpretation is based on Treasury Decision 22275, issued in 1900. However, CBP has determined that if the vessel journeys beyond 3 miles from shore (into international waters), then it does not need to be Jones Act-compliant. This determination is based on a 1912 Attorney General opinion. But the policy regarding charter fishing boats differs from that regarding other passenger vessels. If charter fishing boats venture into international waters, they still must be Jones Act-compliant. This determination is by virtue of a 1936 ruling by the Bureau of Navigation and Steamboat Inspection (Circular Letter No. 103, June 3, 1936), and affirmed by Treasury Decision 55193(2) in 1960.
Another element of CBP's interpretation of the Jones Act with respect to passenger vessels is its definition of a passenger. According to CBP, a passenger need not be a paying customer (such as a tour boat or cruise ship ticket holder); rather, the term encompasses anyone aboard a vessel who is not a member of the crew or an owner of the vessel. Thus, for example, an owner of a yacht who chooses to entertain business clients aboard his or her vessel must comply with the Jones Act. A construction company transporting construction workers to a construction site must use a Jones Act-compliant vessel.

		Offshore Oil and Gas Vessels

In the offshore oil market, CBP's interpretations have affected "lightering" (the transfer of oil offshore from an oil tanker too large to transit a harbor to a smaller vessel) and offshore supply vessels (OSVs) used to supply oil platforms. CBP has determined that if a tanker to be lightered is anchored to the seabed and within 3 nautical miles of shore (which are U.S. territorial waters), it is a "U.S. point." Many lightering areas in the Gulf of Mexico are 60 to 80 miles offshore and therefore the lightering vessels can be foreign-flagged. Lightering operations in the Delaware Bay and elsewhere are within the 3-mile zone, and therefore lightering vessels operating in these areas must be Jones Act-compliant (in which case tank barges rather than ships are typically used as lighters).
Regarding OSVs, two factors determine whether these vessels must be Jones Act-compliant in servicing offshore oil rigs. By virtue of the Outer Continental Shelf Lands Act of 1953 (P.L. 83-212), U.S. waters extend 200 miles offshore strictly for purposes related to the exploration, development, and production of offshore natural resources. CBP has determined that within this zone, only oil rigs attached to the seabed (anchored or submerged to) are "U.S. points." Another type of oil rig is not attached to the seabed: some mobile offshore drilling units (MODUs) are semisubmerged and can hold their positions with the use of propellers. CBP had determined that MODUs not attached to the seabed are not "U.S. points," and therefore foreign-flagged vessels were permitted to service these units. However, in 2008, Congress required that OSVs servicing MODUs be U.S.-owned and -crewed, but need not be U.S.-built ( P.L. 110-181 , §3525), which is the same requirement applied to U.S.-flag vessels engaged in international voyages.
A second factor determining whether OSVs must be Jones Act-compliant is whether the OSV is transporting supplies or workers to the oil rig, or if the vessel is involved in installing equipment necessary for the operation of the rig. CBP defines "vessel equipment" as anything "necessary and appropriate for the navigation, operation or maintenance of a vessel or for the comfort and safety of persons on board." Consequently, a vessel laying cable or pipeline in U.S. waters does not need to be Jones Act-compliant. Similarly, while OSVs transporting supplies and rig workers must be Jones Act-compliant (if the rig is attached to the seabed), vessels involved in installing rig equipment or conducting geophysical surveying or diving inspections can be foreign-flagged, as well as "flotels," which are vessels that provide living quarters for construction workers. The distinction can be unclear. In 2017, CBP proposed that most or all activities performed by OSVs fall under the Jones Act, but after reviewing comments, the agency withdrew the proposal.

		Offshore Wind Farms

Some question whether the Outer Continental Shelf Lands Act, and therefore the Jones Act, applies to offshore wind farms located beyond 3 miles from shore. Currently, wind farm developers are being guided by CBP's interpretations of the Jones Act with respect to OSVs and oil rigs. The Department of Energy has noted that the nonavailability of Jones Act-compliant "Tower Installation Vessels" (TIVs) can be a hindrance to offshore wind farm development, especially for installations in deeper water. In Europe, TIVs not only install the towers but also transport the equipment from shore to the offshore site. Since there are no Jones Act-compliant TIVs, U.S. wind developers either transport the equipment from foreign countries or use Jones Act-compliant vessels to transport the equipment to the site from a U.S. port alongside non-Jones Act-compliant TIVs to install the equipment.

		Foreign Blending Ports

A third CBP interpretation of the Jones Act has been significant in shaping coastal maritime activity. CBP determined that if merchandise is transformed (manufactured or processed) into a new and different product at an intermediate foreign port, then the vessels transporting the original product from a U.S. port to this foreign port and transporting the transformed product from the foreign port to a U.S. port do not need to be Jones Act-compliant. For example, a Texas oil producer has shipped a gasoline product to a Bahamian storage facility where its product is blended with a different imported petroleum product to produce a final gasoline product that is shipped to New York. Foreign-flag tankers are allowed to make all of these shipments even though it could be argued that a portion of the cargo is being shipped between two U.S. points (Texas and New York). The transformation of the product into a new and different product at an intermediate foreign port distinguishes this case from the 1891 kegs-of-nails case mentioned above. This interpretation has precedent in a 1964 Customs Service ruling involving California rice being processed in the U.S. Virgin Islands (exempt from the Jones Act) before being shipped to Puerto Rico, with both shipment legs involving foreign-flag ships.

	The Jones Act Since 1920

Since 1920, Congress has enacted provisions that could be said to tighten Jones Act requirements, as well as provisions that exempt certain maritime activities from the requirements. In 1935, Congress forbade Jones Act-qualified vessels sold to foreign owners or registered under a foreign-flag to subsequently requalify as Jones Act-eligible (P.L. 74-191), meaning that they could never again be used in U.S. domestic trade. This provides additional protection from competition for Jones Act carriers if coastal shipping demand increases, because it can take two years to construct a new ship. In 1940, Congress expanded the Jones Act to cover towing vessels, such as river tugs that push barge tows and harbor tugs that assist larger ships, and salvage vessels operating in U.S. waters (P.L. 76-599). In 1988, Congress specified that waterborne transport of valueless material, such as dredge spoil or municipal solid waste, requires use of a Jones Act-qualified vessel ( P.L. 100-329 ).

		Precedents for Exempting the Jones Act

Congress has enacted numerous exemptions or exceptions to the Jones Act. A list of these legislated exemptions and exceptions can be found in the Appendix .
It has waived the Jones Act's restrictions when finding that no Jones Act-qualified operator was interested in providing service in a particular market, reasoning that the waiver thus would bring no harm to the domestic maritime industry. For instance, in 1984, Congress exempted passenger travel between Puerto Rico and any other U.S. port as long as no Jones Act-qualified operator was able to provide comparable service ( P.L. 98-563 ). This exemption remains in force, allowing foreign-flag cruise ships to carry passengers between the U.S. mainland and the island. On two occasions, in 1996 ( P.L. 104-324 ) and again in 2011 ( P.L. 112-61 ), Congress has permitted certain foreign-flagged liquefied natural gas (LNG) tankers to provide domestic service because none existed in the Jones Act fleet; no ship owners have made use of these exemptions (see Table A-1 ).
Congress has also enacted exemptions due to a sudden spike in demand for Jones Act-qualified vessels. To address a vessel shortage, Congress enacted an exemption for iron ore carried on the Great Lakes during the 1940s that was related to a surge in steelmaking for the war effort. It did the same for a bumper grain harvest in 1951 (see Table A-1 ). In 1996, Congress enacted an exemption for vessels participating in oil spill cleanup operations when an insufficient number of Jones Act-qualified vessels are available.
Congress has enacted Jones Act waivers for two innovations in vessel designs used in foreign trade but whose cargo operations included domestic legs that technically would otherwise fall under the Jones Act. One concerned a ship designed to carry river barges on international voyages, a technology known as Lighter Aboard Ship (LASH). In 1971, Congress exempted these specific barges from the Jones Act (P.L. 92-163). The exemption is no longer relevant, as this type of shipping is not now in use. In 1965, as container ships were about to come into use internationally, Congress exempted the movement of empty containers between U.S. ports from the Jones Act (P.L. 89-194). This exemption is restricted to containers used for international shipments, thus allowing the foreign-flagged container carriers to reposition their empty equipment along U.S. coastlines.
Jones Act-compliant ships are necessary for transshipment of loaded international containers. This distinction between carriage of loaded and unloaded containers has ramifications for the development of marine highways or short sea shipping routes. Transshipment of international containerized cargo by feeder ships is prevalent abroad, but the practice does not exist in the United States. The Jones Act would require such ships be U.S.-built, -crewed, and -owned. Lack of transshipment services increases demand for rail and road connections to ports, as smaller feeder container ships do not play a role in distributing international containerized cargo among U.S. ports.

			Waivers for Specifically Named Vessels

In addition to authorizing exemptions to the Jones Act under certain circumstances, Congress has enacted exemptions for specific vessels identified by name and identification number (a registration number with a state government, the Coast Guard, or International Maritime Organization). Typically, the legislative language does not indicate why a waiver was needed or describe the kind of vessel, its size, or its function. A search of the statutes at large under the terms "coastwise" and "endorsement" and "certificate of documentation" indicates that since 1989, at least 133 specific vessels have been granted Jones Act waivers by Congress in 16 separate legislative acts.
These waivers typically appear in maritime-related legislation, such as a Coast Guard authorization bill. One act contains waivers for 67 vessels and another for 35 vessels. It appears in most cases that these vessels are not commercially significant—for instance, that they are not large or even moderately sized cargo or passenger vessels. Some of them are owned by nonprofit entities. One exception was the previously mentioned 2011 granting of waivers to three LNG tankers built in the United States in the late 1970s that subsequently became foreign-registered ( P.L. 112-61 ). In many cases, it appears the vessel needs a waiver because of a technicality in meeting Jones Act requirements; for example, the U.S.-citizen ownership history may be missing some records. In many cases, the statute granting the waiver places specific conditions on how the vessel can be used.

			Administrative Waivers in The Interest of National Defense

As noted, the domestic shipping restrictions were waived during World War I. They were waived again in preparation for World War II (P.L. 77-507, 1942). In 1950, after the Korean War began, Congress enacted a provision allowing the executive branch to issue waivers "in the interest of national defense" (P.L. 81-891). This authority is still in effect, as the language did not specify that it was intended only for the conduct of that war. In 1991 and 2011, waivers were granted on national defense grounds to expedite oil shipments from the Strategic Petroleum Reserve in response to the Persian Gulf War and a conflict in Libya, respectively.
In addition to military conflicts, the executive branch has waived the Jones Act for fuel resupply in the aftermath of natural disasters. This so-called "national defense waiver" authority has been the basis for recent waivers granted in the aftermath of major hurricanes, beginning with Hurricane Katrina in 2005 up to and including Hurricanes Harvey, Irma, and Maria in 2017 (see Table A-2 ). In 2008 ( P.L. 110-417 ), Congress inserted a role for MARAD to check on the availability of any Jones Act-qualified vessel before granting certain waivers.
The lack of heavy-lift vessels in the Jones Act fleet has also prompted national defense waivers: in 2005 to allow a foreign-flag heavy-lift vessel to transport a radar system from Texas to Hawaii and in 2006 to allow an oil company to use a Chinese-flagged heavy-lift vessel to transport an oil rig from the Gulf Coast to Alaska. The national defense justification for the oil rig waiver was apparently based on addressing a fuel shortage in that region of Alaska. However, in 1992, Customs denied a waiver request to use a foreign-flag heavy-lift vessel to transport replicas of Christopher Columbus's Niña, Pinta, and Santa Maria vessels from Boston to San Francisco. A specific type of heavy-lift vessel is used in the construction of offshore oil rigs, but CBP has denied Jones Act waivers for these vessels even after Coast Guard and the Bureau of Safety and Environmental Enforcement in the Department of the Interior advised that not granting a waiver created a safety hazard for these operators.
CBP has stated that the "national defense" justification is a high standard and that national defense waivers would not be issued for economic reasons such as commercial practicality or expediency. Consistent with this view, while CBP has issued national defense waivers in circumstances involving fuel shortages, it has not issued waivers that would merely favor domestic supply lines over offshore ones, even though one might argue the latter is a national security issue. For instance, in 1976, arguing that offshore supply lines are more vulnerable, some Members of Congress representing Gulf Coast states sought to have the Jones Act extended to the U.S. Virgin Islands. At the time, the largest refinery in North America was located in the U.S. Virgin Islands, and the refinery supplied petroleum products to the U.S. Northeast on foreign-flagged tankers. In 2014, northeast refineries reportedly contemplated seeking a Jones Act waiver to ship crude oil from Texas. These refineries import much of their crude oil. In 2018, the United States exported between 40 million and 80 million barrels of crude oil per month on foreign-flag tankers, imported about 150 million barrels per month from overseas sources on foreign-flag tankers, and shipped about 15 million barrels per month domestically on Jones Act tankers.
A similar situation is occurring with liquefied natural gas (LNG): the United States has begun exporting substantial quantities by ship while continuing to import LNG by ship, but no LNG is shipped domestically. There are no LNG tankers in the Jones Act fleet, and it is unclear why shippers have not utilized the 1996 or 2011 waivers for LNG tankers mentioned above. Puerto Rico, which currently imports LNG from Trinidad and Tobago, is seeking a 10-year waiver of the Jones Act to receive bulk shipments of LNG from the U.S. mainland.

	The Jones Act Fleet

Recent controversies over the Jones Act have concerned the oceangoing ship and offshore supply vessel sectors. The Jones Act also covers ships on the Great Lakes, river barges, harbor tugs, dredging vessels, and various kinds of passenger vessels. The Jones Act ship fleet, in particular, has shortcomings compared to the merchant fleet desired by the drafters of the 1920 act as they described it in the aforementioned statement of U.S. maritime policy.

		Oceangoing Ships

As of March 2018, there were 99 oceangoing ships in the Jones Act-compliant fleet, employing about 3,380 mariners. The largest category of Jones Act ships is tankers. Of the 57 tankers in the fleet, 11 carry Alaskan crude oil to refineries on the West Coast, 44 are medium-sized product tankers that mostly carry refined products along the Atlantic Coast, and 2 are chemical or asphalt tankers. The dry cargo fleet includes 24 small to medium-sized container ships, 7 ships that have ramps for carrying vehicles (known as roll on/roll off vessels), and 2 dry bulk vessels designed to carry such commodities as grain and coal in bulk form. The fleet also includes 9 relatively small general-cargo vessels supplying subsistence harbors along Alaska's coast.
As Figure 1 indicates, the number of oceangoing ships in the Jones Act fleet has shrunk to less than a quarter of what it was in 1950. The ships are much larger today than they were then, but their aggregate carrying capacity (DWT) is still less than in 1950.
As shown in the figure, there was a pronounced drop in the size of the fleet in the late 1950s and early 1960s. At a 1967 congressional hearing, Alan Boyd, Secretary of Transportation in the Lyndon B. Johnson Administration, testified that the U.S. merchant marine was "too small, too old, and too unproductive," and stated, "you do not revitalize an industry by flooding it with Federal dollars and imprisoning it within a wall of protection." The Lyndon B. Johnson Administration appears to be the only Administration in the modern era that has called for the repeal of the Jones Act.
While domestic ships are carrying fewer tons of freight today than they did in the 1950s, their most direct competitors, railroads and pipelines, are carrying more. Domestic ships have lost market share to land modes even though ships have economic advantages. Ocean carriers do not need to acquire and maintain rights-of-way like railroads and pipelines. They can move much more cargo per trip and per gallon of fuel than trucks and railroads. Although ships are slower than truck and rail modes, many shippers are willing to sacrifice transit time for substantially lower costs, as long as delivery schedules are reliable.
The Jones Act fleet is almost entirely engaged in domestic trade routes where overland modes are not an option, serving Alaska, Hawaii, and Puerto Rico. In other words, it operates in markets where shippers have little alternative. Although the Jones Act can be said to have preserved a nucleus of a U.S. maritime industry, it has not succeeded in meeting the stated policy goal of sustaining a growing merchant marine that carries an increasing proportion of the nation's commerce.
In the Merchant Marine Act of 1936 (P.L. 74-835, Section 101), Congress amended the policy goals articulated in the 1920 Act by adding the phrase "providing shipping service on all routes essential for maintaining the flow [of commerce] at all times," and also added the word "safest" to the policy goal of having the best equipped and most suitable types of vessels. At present, the Jones Act fleet does not appear to achieve either of these goals

			Ship Designs Missing from the Fleet

One can also question whether the policy objective of having "the best equipped and most suitable types of vessels" has been achieved. Not all ship designs are represented in the Jones Act fleet. "Project cargo" or "heavy-lift" vessels are often used to carry oversized pieces of equipment such as smaller vessels, ship engines and modules, wind turbine parts, and power generation equipment. They would be useful for moving dredging fleets to project sites. There have not been any such vessels in the Jones Act fleet in recent decades. The Department of Defense has used "national defense" waivers of the Jones Act (see below) to move radar systems and newly built vessels on foreign-flag heavy-lift vessels. This type of cargo typically does not generate regular shipments in any one region; thus these ships would likely need to extend their market reach beyond the United States to include the international market. However, the higher cost structure of Jones Act operators is an obstacle to competing for international shipments.
Two dry bulk ships are in the oceangoing Jones Act fleet, and they appear to be mostly inactive, possibly because they are nearly 40 years old. This is twice the economic life of a ship in the global fleet (where ships are typically sent for scrapping between 15 and 20 years of age). The sole Jones Act-qualified chemical tanker was built in 1968. No LNG tankers are in the Jones Act fleet despite new domestic markets as a result of the shale gas boom. The lack of sufficient Jones Act-qualified tanker capacity to move booming shale oil production coastwise added to pressure for lifting the crude oil export ban in 2015.

			Seagoing Barges

In response to the high cost of U.S.-built and U.S.-crewed ships, the U.S. market has developed a unique vessel design, a seagoing barge called an articulated tug barge (ATB). MARAD estimates that over 150 ATBs are operating in the Jones Act trades. While ATBs are more capable than flatwater barges in handling sea swells (with a hinge between the tug and barge), they are still less capable than ships in handling heavy sea states. They are less reliable and less efficient over longer voyages because they are slower and smaller than tanker ships, and the notch between the barge and tug creates more resistance through the water than a single hull. Since ATBs sail closer to the coasts, they could pose a higher risk of grounding and provide less time to prevent spilled oil from reaching shorelines. ATB crews are not qualified to sail sealift ships. ATBs now carry more cargo (predominantly oil) on coastal voyages than does the tanker fleet (see Figure 2 ).

			Age of Fleet Raises Safety Concerns

The El Faro was a Jones Act general cargo ship that sank in a hurricane in 2015. Because the ship was built in 1975, it was required to have only open lifeboats rather than the closed lifeboats with auto launchers required on ships built since 1983. After its sinking, the Coast Guard forbade its sister ship of the same age from sailing, and in congressional testimony noted concern about the condition of the rest of the U.S.-flag fleet:
We looked a little further beyond this particular incident, caused us to look at other vessels in the fleet and did cause us concern about their condition.… And the findings indicate that it is not unique to the El Faro . We have other ships out there that are in substandard condition.… You know, some of our fleet—our fleet is almost three times older than the average fleet sailing around the world today. Just like your old car, those are the ones likely to breakdown. Those are the (inaudible) one—the ones that are more difficult to maintain and may not start when I go out, turn the key.
Substantiating the Coast Guard's concern, in February 2019, the crew of the 46 year-old Jones Act containership Matsonia found a crack in the hull when looking for the source of an oil sheen in Oakland harbor.
The Jones Act fleet today is relatively young compared to its prior composition because of shipbuilding undertaken after the large increase in shale oil production and before the lifting of the oil export ban. In part, new ships were needed to comply with tighter emissions requirements in the newly created North American emission control area. Today, just over one-third of the Jones Act oceangoing fleet (35 ships) is 21 years old or older, down from two-thirds (64 ships) in 2007.

		The Great Lakes Fleet

Jones Act-compliant vessels operating in the Great Lakes are considerably older than the oceangoing fleet. The Great Lakes fleet consists of 33 dry bulk ships and several large barges carrying mostly iron ore, limestone, and coal used in steelmaking, and cement. The U.S. fleet of 1,000-foot freighters, the largest ships operating on the Great Lakes, was built between 1972 and 1981. The second-largest class of ships, around 700 feet in length, is older, with some of the vessels having originally been built in the 1940s or 1950s; a number of these were rebuilt in the 1970s. According to the U.S. Lake Carriers Association, ships operating in freshwater, such as the Great Lakes, can have longer lives than oceangoing vessels. Jones Act-compliant Great Lakes ships are much narrower for their length compared to the global dry bulk fleet because of the dimensions of the Soo Locks in Michigan. Domestic tonnage on the Great Lakes has declined steadily since the 1950s, and is now about half what it was then.
The Canadian Great Lakes fleet illustrates the effect that vessel import policy can have on a domestic fleet. Canada's fleet was of similar age as the Jones Act fleet, with the youngest ship having been built in 1985, before Canada imposed a 25% tariff on newly constructed imported ships. While this import tariff was in effect, no new ships were added to the Canadian fleet. In 2010, Canada repealed the import tariff, and since then over 35 new dry bulk ships have been constructed in other countries specifically for service on the Great Lakes. These vessels cannot carry cargo between U.S. points.

		Inland River Fleet

Thousands of tugs and barges carry mostly dry and liquid bulk commodities on the nation's inland rivers. The fleet includes several thousand tugs or pushboats that push the barge tows, about 20,000 dry cargo barges, and several thousand tank barges that carry liquid bulk cargoes. Tonnage is dominated by the export of corn and soybeans and domestic movement of coal. Since 1990, overall tonnage on the system has been flat or declining slightly. One of the two leading manufacturers of river barges ceased operation in April 2018 in response to the fall-off in demand for coal deliveries by barge.

		The Dredging Fleet

The Dredging Act of 1906 (P.L. 59-185, 34 Stat. 204) requires that vessels engaged in dredging in U.S. waters be U.S.-built, -operated, and -crewed. The 1906 act was prompted by dredging work then being carried out in Galveston Bay, TX, after a calamitous 1900 hurricane. It required all dredge vessels henceforth to be U.S.-built. In 1988, Congress amended the Jones Act to define "merchandise" transported domestically by vessel to also include any valueless material ( P.L. 100-329 ). This change effectively required that dredge spoil be transported in Jones Act-qualified vessels.
According to one study, the ban on foreign-built dredgers and foreign operators raises the cost of dredging U.S. harbors substantially. According to U.S. Army Corps of Engineers figures, while federal spending on navigation dredging has increased over the last decade by several hundred million dollars per year, the spending increase has not resulted in a larger volume of material being dredged from U.S. harbors. In addition to a limited supply of dredging vessels, increases in the cost of fuel, steel, and labor, as well as more stringent environmental requirements, are factors that may be causing cost increases.
The U.S. privately owned fleet is much older and smaller, both in terms of the capacity of individual vessels and the total size of the fleet, compared to the four leading European dredging firms that perform work worldwide (except in U.S. waters). Each of the four European firms has a fleet of hopper dredges, the preferred type for dredging coastal harbors, whose total capacity is around three to four times the capacity of the entire U.S. hopper fleet. Three-quarters of the U.S. privately owned hopper dredge fleet is over 20 years of age, while about three-quarters of the European fleet is under 20 years. When the Army Corps bids harbor work requiring a hopper dredge, one of the four U.S. firms is the sole bidder over a third of the time. When the Army Corps schedules dredging projects for an upcoming year, it has periods when an insufficient number of dredges can perform the work. In addition to the dredge vessel, dredging projects involve a number of support vessels. One study found that mobilization and demobilization of the equipment in the U.S. market can amount to more than one-third of total project costs. Foreign firms use heavy-lift vessels to transport their dredge fleets to the next project. As indicated earlier, no such vessels are available in the Jones Act fleet.

		Offshore Supply Vessels

The size of the OSV fleet can change significantly with changes in the oil market. In 2017, the offshore supply vessel fleet consisted of about 1,800 vessels, working mainly in the Gulf of Mexico. Over the last decade, annual construction averaged 32 vessels, but ranged between 4 and 53 vessels. Foreign-built vessels are relied upon for construction of rigs in deeper waters. These vessels need dynamic positioning propulsion systems to keep the vessel in place while performing the construction work, as the waters are too deep for anchoring. As mentioned above, similar vessels are lacking in the Jones Act fleet for installing wind towers in deeper waters.

	The Jones Act and Sealift Capability

As with the commercial aspirations stated in the maritime policy of the Jones Act, there are also perceived shortcomings with respect to the domestic fleet's ability to serve as a naval auxiliary in times of war or national emergency. Since 1920, Congress has enacted programs that designate other fleets for sealift support, but the merchant mariners crewing Jones Act ships are still identified as contributing to the pool of mariners available to crew the sealift fleet. The shrinking size of the U.S. mariner pool puts in doubt its ability to sufficiently crew a reserve sealift fleet, as discussed further below. In 2014 ( P.L. 113-76 ), Congress directed the Department of Transportation and the Department of Defense to develop a national sealift strategy. This has yet to be issued.

		Sealift Crews

The crews of Jones Act oceangoing ships are arguably the most salient and immediate element that could be called upon to support military sealift. Jones Act mariners typically have six months of shore leave per year, and those mariners on shore leave would be expected to crew a reserve fleet of government-owned cargo ships kept on standby for military sealift purposes (the Ready Reserve Force, or RRF). The Jones Act crew of oceangoing ships consists of about 3,380 merchant mariners, which is about 29% of the total mariner pool of 11,678 mariners that MARAD estimates would be required to crew the government-owned reserve fleet while still concurrently being able to operate the commercial fleet. The remaining pool of mariners would come from (1) the U.S.-flag privately owned international fleet enrolled in the Maritime Security Program (MSP) consisting of 60 ships and 2,386 commercial mariners, and (2) the Military Sealift Command (MSC) fleet of government-owned ships consisting of about 120 ships and 5,576 mariners.
While MARAD estimates that there is a sufficient commercial mariner pool to crew the reserve sealift fleet during a surge lasting up to 180 days, a more prolonged sealift effort would start to entail crew rotations, and MARAD estimates a shortfall of about 1,800 mariners in that scenario. That the mariner pool is barely sufficient to sustain an immediate surge and is insufficient for a longer sealift effort has been a consistent finding of sealift officials for decades, even in previous periods when the mariner pool was much larger than it is today. For instance, this was the same finding by the Department of Defense Transportation Command (TRANSCOM) in 2004, when the RRF consisted of 59 ships and the mariner pool was 16,900. And in 1991, when the RRF consisted of 96 ships and the mariner pool was 25,000 (more than twice the size that it is today), the then MARAD Administrator testified that the mariner pool was barely sufficient to crew the reserve sealift fleet.

		Sealift Ships

While the Jones Act's statement of maritime policy indicated a desire for a commercial fleet that also could provide sealift in times of war, since then three other fleets of ships have been established for purposes of military sealift: the RRF, MSC, and MSP. These ships are predominantly foreign-built. The RRF, a concept that originates in a 1954 act of Congress (P.L. 83-608), today consists of 46 ships that can sail upon either 5 or 10 days' notice and are on standby with a skeleton crew of about 600 commercial mariners (13 per ship), but would require an additional 1,200 mariners to sustain its operation once activated. The MSC fleet is controlled by TRANSCOM and has a subset of about 50 ships that carry military cargoes in port-to-port voyages similar to those undertaken by commercial ships. MSC ships are mostly crewed by civilian mariners who are federal employees. The MSP ships, a fleet established by Congress in 1996 ( P.L. 104-239 ), receive an operating subsidy of about $5 million per vessel per year to cover the additional cost of American crews and rely heavily on government cargoes (military and food aid) that pursuant to "cargo preference" law are reserved for them. As per long-standing agreements between MARAD, acting as advocate for the U.S. maritime industry, and the Department of Defense, the military is to utilize MSP ships and exhaust that capacity before it utilizes MSC ship capacity.
While Jones Act operators are required to purchase more costly U.S.-built ships, the military sealift fleet is largely composed of more economical foreign-built ships. Jones Act operators are competing in the commercial marketplace while the sealift fleet is not. Instead of relying on the Jones Act commercial fleet to provide oceangoing shipbuilding capability, the sealift fleet could be required to be built domestically. The higher cost of the domestically built sealift fleet would be shared nationally, as is the case with other defense assets. Lower-cost coastwise ships would be more price-competitive with railroads, pipelines, and ATBs, thereby enlarging the mariner pool available for sealift support and increasing repair and maintenance work for U.S. shipyards. The sealift ships could also be designed to military specifications rather than be in conflict with commercial needs (see below).

			Divergence in Design of Commercial and Sealift Ships

The military seeks cargo ships with flexible capabilities: ships not so large that they could face draft restrictions in some overseas harbors, ships with ramps or onboard cranes so that they can still unload cargo at underdeveloped or damaged ports, and ships that can carry a wide variety of cargo types and sizes. The majority of the military sealift fleet consists of product tankers for carrying fuel and roll-on/roll-off (Ro/Ro) ships that have ramps for moving tanks, trucks, and helicopters. It also consists of container ships used for moving ammunition and other supplies.
The military's preference for versatility is in conflict with the commercial fleet's trend toward more specialized and larger ships, a trend driven by the need for ships with the lowest operating cost. General cargo and break-bulk ships capable of carrying a wide variety of cargo types and sizes and that were typically equipped with their own onboard cranes have been largely replaced by container ships without onboard cranes. Thus, commercial mariners may no longer have experience operating cargo cranes, as might be required in foreign ports where shore-based cranes are out of service or are not available.
The largest container ships require 45 to 50 feet of water below the waterline, far more depth than many ports can provide. Ro/Ro ships have been replaced by "pure car carriers" that maximize the number of passenger cars they can carry, but may be less useful for military purposes. Cost pressures have induced commercial carriers to install engines that minimize fuel costs by operating at lower speeds and cannot achieve the higher speeds desired for military sealift ships. In addition, more stringent sulfur emission regulations recently enacted have prompted ship operators to convert to LNG-fueled engines, a fuel not globally available, or to install scrubbers, equipment that takes up cargo space and has no military utility. Licensing of engine crews is specific to engine type. Thus, a growing disparity exists between the military's ideal vessel designs and those of commercial carriers, as well as in the skill sets of the crew.

		Shipbuilding and Repair Industrial Base

Besides the deep-sea ship crews, another purported Jones Act contribution to military sealift is preservation of a shipyard industrial base with the knowledge and skills to build and repair ships. The Merchant Marine Act of 1970 (P.L. 91-469) added as an additional objective of U.S. maritime policy to have a merchant marine "supplemented by efficient facilities for building and repairing vessels." U.S. shipyards typically build only two or three oceangoing ships per year, and none for export, so they do not achieve economies of scale. There may be gaps of several years in between orders for container ships. In recent years, the demand has been sufficient to sustain one shipyard that builds only commercial ships. However, this yard stated that its employment had fallen below 100 people and that it had no vessels under construction or on order as of March 31, 2019. The other shipyard that builds commercial ships also relies heavily on Navy orders.
A larger number of shipyards build smaller vessels such as tour boats, ferries, tugs, barges, and offshore supply vessels. Around 1,000 barges are built in a typical year. These vessels also fall under the Jones Act domestic build requirement and are rarely built for export. However, the shipyards building smaller vessels lack dry docks of sufficient size to repair large ships. The government-owned sealift fleet is 44 years old on average, and many of the vessels are in need of repair. According to the Maritime Administrator, there is an insufficient number of large dry docks to service the sealift fleet, delaying their readiness to sail. Some of the reserve fleet has failed Coast Guard safety inspection, and some ships have too much steel rusted from their hulls to be seaworthy. For example, while sailing to a readiness exercise, a hole was found in the hull of one of the ships. According to TRANSCOM, the Navy's plan to recapitalize the reserve fleet includes building new vessels in domestic shipyards, repairing ships in the current fleet to extend their service life out to 60 years, and purchasing used, foreign-built ships. The Navy has found that repairing the vessels has thus far been three times more expensive and has taken twice as long as originally projected. It therefore is contemplating the need to accelerate the purchase of used, foreign-built ships because building new ships in U.S. yards is estimated to be 26 times more expensive and thus not affordable.
In addition to the Jones Act, the Tariff Act of 1930 is intended to support U.S. shipyards by assessing a 50% duty on the price of any nonemergency repairs on U.S. flag ships done in foreign shipyards. A 2011 MARAD study found that many U.S.-flag international trading ships have repairs performed in foreign yards because, even with the 50% duty, the total cost is less than if the repairs were performed in a domestic shipyard. A U.S.-flag operator confirms that this is still the case in 2018.

			Appendix. Exemptions and Waivers

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The Jones Act, which refers to Section 27 of the Merchant Marine Act of 1920 (P.L. 66-261), requires that vessels transporting cargo from one U.S. point to another U.S. point be U.S.-built, and owned and crewed by U.S. citizens. The act provides a significant degree of protection for U.S. shipyards, domestic carriers, and American merchant sailors. It is a subject of debate because some experts point out that it leads to high domestic ocean shipping costs and constrains the availability of ships for domestic use. The Jones Act has come into prominence amid debates over Puerto Rico's economic challenges and recovery from Hurricane Maria in 2017; in the investigation into the sinking of the ship El Faro with 33 fatalities during a hurricane in 2015; and in discussions about domestic transportation of oil and natural gas. The law's effectiveness in achieving national security goals has also been the subject of attention in conjunction with a congressional directive that the Administration develop a national maritime strategy, including strategies to increase the use of short sea shipping and enhance U.S. shipbuilding capability.
The Jones Act of 1920 was not the first law requiring that vessels transporting cargo domestically be U.S.-built, owned, and crewed. It restated a long-standing restriction that was temporarily suspended during World War I. Since 1920, Congress has enacted provisions that could be said to tighten Jones Act requirements as well as provisions that exempt certain maritime activity from the requirements. In 1935, Congress forbade Jones Act-qualified vessels that were sold to foreign owners or registered under a foreign flag to subsequently requalify as Jones Act-eligible (P.L. 74-191). This provides additional protection from competition for Jones Act carriers if coastal shipping demand increases, because it can take around two years to construct a new ship. In 1940, Congress expanded the Jones Act to include towing and salvage vessels (P.L. 76-599). In 1988, Congress specified that waterborne transport of valueless material required use of a Jones Act-qualified vessel, such that transport of dredge spoil or municipal waste would fall under the law (P.L. 100-329). Generally, dredging and towing vessels, as well as Great Lakes ships, have occasioned less debate about the Jones Act than oceangoing ships and offshore supply vessels.
Congress has enacted numerous exemptions or exceptions to the Jones Act. In some cases, Congress has enacted an exemption if there are no Jones Act-qualified carriers interested in providing service in a particular market (for example, passenger travel to and from Puerto Rico). Congress has allowed waivers of the Jones Act for national defense reasons, which most often have been executed to speed fuel deliveries to a region after a natural disaster disrupted normal supply lines.
Regulatory interpretations of the Jones Act have been significant in defining what constitutes a "U.S.-built" vessel, what constitutes "transportation" between two U.S. points, and what are "U.S. points." The Coast Guard has determined that a U.S.-built vessel can be assembled with major foreign components such as engines, propellers, and stern and bow sections. This interpretation has been consistent from the late 1800s. Customs and Border Protection (CBP) has determined that cruise ship voyages that involve visits to foreign ports in addition to a domestic port are not domestic transportation and therefore not subject to the Jones Act. This interpretation also dates to the late 1800s. CBP's interpretations of what constitutes domestic transportation and U.S. points are significant to the offshore oil industry, as some of the vessels supporting that industry must be Jones Act-compliant while others need not be.
By long-standing agreement, the military is to utilize U.S.-flag commercial ships for sealift before it utilizes government-owned vessels in its reserve fleet. Jones Act mariners are expected to crew sealift ships when needed, and thus the decades-long shrinkage of the oceangoing Jones Act fleet and mariner pool has been raised as a concern. The Department of Defense is planning to buy more used foreign-built ships for sealift rather than building them in the United States for cost reasons. It also has found that repairing its current fleet in U.S. shipyards is three times more expensive and has taken twice as long as estimated.
Much of the commercial fleet is relatively old, raising safety concerns. Some useful types of ships are missing from the Jones Act-qualified fleet, such as heavy-lift vessels, liquefied natural gas (LNG) tankers, and deepwater offshore construction vessels. Both situations appear to some observers to be contrary to the policy goal of the Jones Act, which is to "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 times of war or national emergency."


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T he federal government has two major tools for affecting the macroeconomy: fiscal policy and monetary policy. These policy interventions are generally used to either increase or decrease economic activity to counter the business cycle's impact on unemployment, income, and inflation. This report focuses on fiscal policy; for more information related to monetary policy, refer to CRS Report RL30354, Monetary Policy and the Federal Reserve: Current Policy and Conditions , by Marc Labonte.

	What is Fiscal Policy?

Fiscal policy is the means by which the government adjusts its budget balance through spending and revenue changes to influence broader economic conditions. According to mainstream economics, the government can impact the level of economic activity, generally measured by gross domestic product (GDP), in the short term by changing its level of spending and tax revenue. Expansionary fiscal policy—an increase in government spending, a decrease in tax revenue, or a combination of the two—is expected to spur economic activity, whereas contractionary fiscal policy—a decrease in government spending, an increase in tax revenue, or a combination of the two—is expected to slow economic activity. When the government's budget is running a deficit, fiscal policy is said to be expansionary: when it is running a surplus, fiscal policy is said to be contractionary.
From a policymaker's perspective, expansionary fiscal policy is generally used to boost GDP growth and the economic indicators that tend to move with GDP, such as employment and individual incomes. However, expansionary fiscal policy also tends to affect interest rates and investment, exchange rates and the trade balance, and the inflation rate in undesirable ways, limiting the long-term effectiveness of persistent fiscal stimulus. Contractionary fiscal policy can be used to slow economic activity if policymakers are concerned that the economy may be overheating, which can cause a recession. The magnitude of fiscal policy's effect on GDP will also differ based on where the economy is within the business cycle—whether it is in a recession or an expansion.

	Expansionary Fiscal Policy

During a recession, aggregate demand (overall spending) in the economy falls, which generally results in slower wage growth, decreased employment, lower business revenue, and lower business investment. Recessions occur for a number of reasons, but as seen during the most recent recession from 2007 to 2009, they can result in serious negative consequences for both individuals and businesses. However, the government can replace some of the lost aggregate demand and limit the negative impacts of a recession on individuals and businesses with the use of fiscal stimulus by increasing government spending, decreasing tax revenue, or a combination of the two. Government spending takes the form of both purchases of goods and services by the government, which directly increase economic activity, and transfers to individuals, which indirectly increase economic activity as individuals spend those funds. Decreased tax revenue via tax cuts indirectly increases aggregate demand in the economy. For example, an individual income tax cut increases the amount of disposable income available to individuals, enabling them to purchase more goods and services. Standard economic theory suggests that in the short term, fiscal stimulus can lessen the negative impacts of a recession or hasten a recovery. However, the ability of fiscal stimulus to boost aggregate demand may be limited due to its interaction with other economic processes, including interest rates and investment, exchange rates and the trade balance, and the rate of inflation.

		Potential Offsetting Effects to Expansionary Fiscal Policy

			Investment and Interest Rates

To engage in fiscal stimulus by either increasing spending or decreasing tax revenue, the government must increase the size of its deficit and borrow money to finance that stimulus. This can lead to an increase in interest rates and subsequent decreases in investment and some consumer spending. This rise in interest rates may therefore offset some portion of the increase in economic activity spurred by fiscal stimulus.
At any given time, there is a limited supply of loanable funds available for the government and private parties to borrow from—a global pool of savings. If the government begins to borrow a larger portion of this pool of savings, it increases the demand for these funds. As demand for loanable funds increases, without any corresponding increase in the supply of these funds, the price to borrow these funds, also known as interest rates, increases. Rising interest rates generally depress economic activity, as they make it more expensive for businesses to borrow money and invest in their firms. Similarly, individuals tend to decrease so-called interest-sensitive spending—spending on goods and services that require a loan, such as cars, homes, and large appliances—when interest rates are relatively higher. The process through which rising interest rates diminish private-sector spending is often referred to as crowding out . However, the degree to which crowding out occurs is partially dependent on where the economy is within the business cycle, either in a recession or in a healthy expansion.
During a recession, crowding out tends to be smaller than during a healthy economic expansion due to already depressed demand for investment and interest-sensitive spending. Because demand for loanable funds is already depressed during a recession, the additional demand created by government borrowing does not increase interest rates as much, and therefore does not crowd out as much private spending as it would during an economic expansion.
In addition to fiscal policy, the government can influence the business cycle through the use of monetary policy, which is implemented by the Federal Reserve. The Federal Reserve is an independent government agency charged with maintaining stable prices and maximum employment through its monetary policy. The Federal Reserve can influence interest rates throughout the economy by adjusting the federal funds rate, a very short-term interest rate faced by banks. Decreasing interest rates reduces the cost to businesses and individuals of borrowing funds to make new investments and purchases. Conversely, increasing interest rates raises the cost to businesses and individuals of borrowing funds to make new investments and purchases. The Federal Reserve can conduct monetary policy in a complementary nature to fiscal policy, offsetting the rise in interest rates by decreasing the federal funds rate. Alternatively, the Federal Reserve can pursue a policy that offsets stimulus, pushing interest rates up by increasing the federal funds rate.

			Exchange Rates and the Trade Balance

Another potential consequence of government fiscal stimulus is an increase in the value of the U.S. dollar and a subsequent increase in the trade deficit, which mitigates some portion of the rise in economic activity resulting from the fiscal stimulus. As discussed above, fiscal stimulus can cause interest rates to rise. In a global context where interest rates are rising in the United States relative to the rest of the world, demand for investment inside the United States is likely to increase among investors around the world as they seek out higher rates of return. The greater demand for investment in the United States is likely to temper the increase in interest rates resulting from fiscal stimulus. However, foreign investors must first exchange their own currency for U.S. dollars to invest in the United States. The increased demand for U.S. dollars increases the value of a U.S. dollar relative to other foreign currencies. As the U.S. dollar appreciates in value, domestic demand for imported goods increases because a U.S. dollar can now buy more goods and services abroad, but foreign demand for U.S. goods and services decreases because they are now relatively more expensive for foreigners. The end result is generally an increase in the U.S. trade deficit, as exports decrease and imports from abroad increase in the United States. An increasing trade deficit, all else equal, means that consumption and production of domestic goods and services are falling, partly offsetting the increase in aggregate demand caused by the stimulus.
As discussed above, however, during a recession interest rates are less likely to rise, or are likely to increase to a lesser degree, due to an already depressed demand for investment and spending within the economy. Without rising interest rates, or if they increase to a lesser degree, the associated increase in the trade deficit is also likely to be smaller. In addition, if the Federal Reserve engages in similarly stimulative monetary policy, it may be able to mitigate some of the anticipated increase in the trade deficit by further preventing an increase in interest rates.

			Inflation

As discussed above, the goal of fiscal stimulus is to increase aggregate demand within the economy. However, if fiscal stimulus is applied too aggressively, or is implemented when the economy is already operating near full capacity, it can result in an unsustainably large demand for goods and services that the economy is unable to supply. When the demand for goods and services is greater than the available supply, prices tend to rise, a scenario known as inflation. A rising inflation rate can introduce distortions into the economy and impose unnecessary costs on individuals and businesses, although economists generally view low and stable inflation as a sign of a well-managed economy. As such, rising inflation rates can hinder the effectiveness of fiscal stimulus on economic activity by imposing additional costs on individuals and interfering with the efficient allocation of resources in the economy.
The Federal Reserve has some ability to limit inflation by implementing contractionary monetary policy. If the Federal Reserve observes accelerating inflation as a result of additional fiscal stimulus, it can counteract this by increasing interest rates. The rise in interest rates results in a slowing of economic activity, neutralizing the fiscal stimulus, and may help to slow inflation as well.

		Fiscal Expansion Multipliers

Economists attempt to evaluate the overall impact of fiscal stimulus on the economy by estimating fiscal multipliers , which measure the ratio of a change in economic output to the change in government spending or revenue that causes the change in output. A fiscal multiplier greater than one suggests that for each dollar the government spends, the economy grows by more than one dollar. A multiplier may be larger than one if the initial government stimulus results in further spending by private actors. For example, if the government increases spending on infrastructure projects as part of its stimulus, directly increasing aggregate demand, numerous contractors and construction workers will likely receive additional income as a consequence. If those workers then spend a portion of their new income within the economy, it further increases aggregate demand. Alternatively, a fiscal multiplier of less than one suggests that for each dollar the government spends, the economy grows by less than one dollar, suggesting the expansionary power of the fiscal stimulus is being offset by the contractionary pressures discussed above.
Estimates of fiscal multipliers vary depending on the form of the fiscal stimulus and on which economic model the economist uses to measure the multiplier. For example, a 2012 academic research article estimated fiscal multipliers for various forms of stimulus utilizing several different prominent economic models from the Federal Reserve Board, the European Central Bank, the International Monetary Fund (IMF), the European Commission, the Organisation for Economic Co-operation and Development (OECD), the Bank of Canada, and two models developed by academic economists. The authors found varying estimates (see Table 1 ) for different forms of fiscal stimulus ranging from 1.59 for cash transfers to low-income individuals to 0.23 for reduced labor income taxes. Based on these estimates, increasing government spending on consumption by 1% of GDP would result in a 1.55% increase in GDP, and decreasing labor income taxes by 1% of GDP would result in a 0.23% increase in GDP.
The magnitude of fiscal multipliers likely depends on where the economy is in the business cycle. As discussed above, during a recession fiscal stimulus is less likely to result in offsetting contractionary effects—such as rising interest rates, trade deficits, and inflation—resulting in a larger increase in economic activity from fiscal stimulus. Accordingly, another academic research article attempted to estimate fiscal multipliers depending on whether the economy was in an expansion or a recession, and found that the multiplier for government spending was between 0 and 0.5 during expansions and between 1.0 and 1.5 during recessions.

		Long-Term Considerations Regarding Fiscal Stimulus

Persistently applying fiscal stimulus can negatively affect the economy through three main avenues. First, persistent large budget deficits can result in a rising debt-to-GDP ratio and lead to an unsustainable level of debt. Second, persistent fiscal stimulus—particularly during economic expansions—can limit long-term economic growth by crowding out private investment. Third, rising public debt will require a growing portion of the federal budget to be directed toward interest payments on the debt, potentially crowding out other, more worthwhile sources of government spending.
Some economic research has suggested that relatively high public debt negatively impacts economic growth. For example, one academic research paper suggested that for developed countries, a 10-percentage-point increase in the debt-to-GDP ratio is associated with a 0.15- to 0.20-percentage-point decrease in per capita real GDP growth.

			Unsustainable Public Debt

As noted, persistent fiscal stimulus can result in a rising debt-to-GDP ratio and lead to an unsustainable level of public debt. A rising debt-to-GDP ratio can be problematic if the perceived or real risk of the government defaulting on that debt begins to rise. As the perceived risk of default begins to increase, investors will demand higher interest rates to compensate themselves.
The tipping point at which public debt becomes unsustainable is difficult to predict. A continually rising debt-to-GDP ratio is likely to lead to an unsustainable level of debt over time. The threshold at which a nation's debt becomes unsustainable depends on a number of factors, such as the denomination of the debt, political circumstances, and, potentially most importantly, underlying economic conditions. A change in these circumstances may shift a nation's debt to unsustainable without the underlying amount of debt changing at all. To date, it does not appear that the United States has an immediate concern with respect to unsustainability; however, the U.S. debt-to-GDP ratio is projected to continually rise under current policy.

			Decreased Business Investment

Persistent fiscal stimulus, and the associated budget deficits, can decrease the size of the economy in the long term as a result of decreased investment in physical capital. As discussed previously, the government's deficit spending can result in higher interest rates, which generally lead to lower levels of business investment. Business investment—spending on physical capital such as factories, computers, software, and machines—is an important determinant of the long-term size of the economy. Physical capital investment allows businesses to produce more goods and services with the same amount of labor and raw materials. As such, government deficits that lead to lower levels of business investment can result in lower quantities of physical capital, and therefore may reduce the productive capacity of the economy in the long term.
As discussed earlier, some of the increase in interest rates and decline in domestic investment resulting from fiscal stimulus will likely be offset by additional investment in the United States from abroad. The inflow of capital from abroad is beneficial, as it allows for additional investment in the United States economy. However, in exchange for these investment flows, the United States is now sending a portion of its national income to foreigners in the form of interest payments. With a larger portion of investment flows coming from abroad, rather than from within the United States, a larger portion of the U.S. national income will be sent abroad.

			Crowding Out Government Spending

Rising public debt may also be of concern due to its associated interest payments. All else equal, an increase in the level of public debt will result in an increase in interest payments that the government must make each year. Rising interest payments may displace government spending on more worthwhile programs. In 2019, interest payments on the debt are projected to be about 1.8% of GDP, or about $382 billion. By 2029 interest payments on the debt are expected to increase significantly, rising to about 3.0% of GDP or about $921 billion.

	Withdrawing Fiscal Stimulus

As the economy shifts from a recession and into an expansion, broader economic conditions will generally improve, whereby unemployment falls and wages and private spending increase. With improving economic conditions, policymakers may choose to begin withdrawing fiscal stimulus by decreasing the size of the deficit or potentially by applying contractionary fiscal policy and running a budget surplus. As discussed in the previous section, policymakers may choose to withdraw fiscal stimulus for a number of reasons. First, persistent fiscal stimulus when the economy is near full capacity can exacerbate the negative consequences of fiscal stimulus, such as decreasing investment, rising trade deficits, and accelerating inflation. Second, decreasing the size of the budget deficit slows the accumulation of public debt.
The government can withdraw fiscal stimulus by increasing taxes, decreasing spending, or a combination of the two. When the government raises individual income taxes, for example, individuals have less disposable income and decrease their spending on goods and services in response. The decrease in spending reduces aggregate demand for goods and services, slowing economic growth temporarily. Alternatively, when the government reduces spending, it reduces aggregate demand in the economy, which again temporarily slows economic growth. As such, when the government reduces the deficit, regardless of the mix of fiscal policy choices used to do so, aggregate demand is expected to decrease in the near term. However, withdrawing fiscal stimulus is expected to result in lower interest rates and more investment; a depreciation of the U.S. dollar and a shrinking trade deficit; and a slowing inflation rate. These effects tend to spur additional economic activity, partly offsetting the decline resulting from withdrawing fiscal stimulus. Whether the decrease in aggregate demand is problematic for overall economic performance depends on the state of the overall economy at that time.

		Potential Offsetting Effects to Withdrawing Fiscal Stimulus

			Investment and Interest Rates

Withdrawing fiscal stimulus is likely to put downward pressure on domestic interest rates, which encourages additional spending and investment, increasing economic activity. When the government decreases its budget deficit, the demand for loanable funds decreases because the government reduces the amount of those funds it is borrowing. The decrease in demand for loanable funds decreases the price to borrow those funds (i.e., interest rates decline). Declining interest rates encourage increased business investment into new capital projects and consumer spending into durable goods by reducing the cost of borrowing.

			Exchange Rates and the Trade Balance

Withdrawing fiscal stimulus is also expected to result in a depreciation of the U.S. dollar and an improved trade balance with the rest of the world. Assuming the shrinking deficit causes a decline in U.S. interest rates relative to interest rates abroad, individuals in the United States and abroad would rather make investments outside of the United States to benefit from those higher interest rates. Individuals shifting their investments outside the United States must first exchange their U.S. dollars for foreign currency, which decreases the value of the U.S. dollar relative to foreign currencies. As the U.S. dollar depreciates, foreign goods and services become relatively more expensive for U.S. residents and U.S. goods and services become relatively less expensive for foreign individuals. This generally results in an improved trade balance as foreign demand for U.S. goods and services (exports) increases and domestic demand for foreign goods and services (imports) decreases.

			Inflation

When fiscal stimulus is withdrawn, aggregate demand for goods and services in the economy also tends to shrink, which is expected to slow inflation. Economists generally view relatively low and stable inflation as beneficial for economic growth, because businesses and consumers are relatively certain about the future price of goods and can make efficient decisions with respect to investment and consumption over time.

		Fiscal Contraction Multipliers

The ultimate impact on the economy of withdrawing fiscal stimulus depends on the relative magnitude of its effects on aggregate demand, interest rates and investment, exchange rates and the trade deficit, and inflation. The same fiscal multipliers discussed earlier in the " Fiscal Expansion Multiplier " section can be used to estimate the impact of withdrawing fiscal stimulus by simply reversing the sign for each multiplier. As shown in Table 1 , decreasing government spending on consumption by 1% of GDP is expected to reduce real GDP by 1.55% after the first year, compared to no change in fiscal policy. Alternatively, increasing labor income taxes by 1% of GDP is expected to reduce real GDP by 0.23% after the first year.
Again, monetary policy can be used alongside fiscal policy to affect the overall impact on the economy. For example, the Federal Reserve could lower interest rates to spur aggregate demand as the federal government withdraws fiscal stimulus in an effort to offset the decline in aggregate demand resulting from the shrinking deficit. This could allow the government to withdraw fiscal stimulus without decreasing aggregate demand or economic activity.

	Fiscal Policy Stance

As shown in Figure 1 , the federal government has generally been running a budget deficit for much of the past 30 years—save for two short periods in the 1960s and 1990s. This suggests that the federal government has been applying some level of fiscal stimulus to the economy for much of the past three decades, although the level of stimulus has increased and decreased over time. However, simply examining the overall budget deficit to judge the level of fiscal stimulus can be misleading, as the levels of federal spending and revenue differ over time automatically due to changes in the state of the economy, rather than deliberate choices made each year by Congress. During economic expansions, tax revenue tends to increase and spending tends to decrease automatically, as rising incomes and employment result in higher average incomes and therefore greater individual and corporate income tax revenues. Federal spending on income support programs, such as food stamps and unemployment insurance, tends to fall as fewer people need financial assistance and unemployment claims fall during economic expansions. The combination of rising tax revenue and falling federal spending tends to improve the government's budget deficit. The opposite is true during recessions, when federal spending rises and revenue shrinks. These cyclical fluctuations in revenue and spending are often referred to as automatic stabilizers. Therefore, when examining fiscal policy, it is often beneficial to estimate the budget deficit excluding these automatic stabilizers, referred to as the structural deficit , to get a sense of the affirmative fiscal policy decisions made each year by Congress.
As shown in Figure 1 , budget deficits tend to increase during and shortly after recessions (denoted by grey bars) as policymakers attempt to buoy the economy by applying fiscal stimulus. This can be seen explicitly by viewing the structural deficit/surplus, as this only shows affirmative changes in fiscal policy made by Congress. The budget deficit then tends to shrink as the economy enters into recovery and fiscal stimulus is less necessary to support economic growth. However, in recent years, the federal budget has bucked this trend. After the structural deficit peaked in 2009 at roughly 7.5% of GDP, it began to decline through 2014, falling to about 2.0% of GDP. Beginning in 2016, in spite of relatively strong economic conditions, the structural deficit has started to rise again, nearing 4.0% of GDP in 2018.
Given that the economy is arguably at or exceeding full employment currently, the increase in fiscal stimulus since 2016 is notable. As discussed earlier, expanding fiscal stimulus when the economy is not depressed can result in rising interest rates, a growing trade deficit, and higher inflation. As of publication of this report, interest rates and inflation do not appear to have been affected by the additional fiscal stimulus; interest rates are at historic lows and inflation shows no signs of acceleration. The trade deficit has been growing in recent years; however, it is not clear that this growth in the trade deficit is a result of increased fiscal stimulus.

Output:
Fiscal policy is the means by which the government adjusts its spending and revenue to influence the broader economy. By adjusting its level of spending and tax revenue, the government can affect the economy by either increasing or decreasing economic activity in the short term. For example, when the government runs a budget deficit, it is said to be engaging in fiscal stimulus, spurring economic activity, and when the government runs a budget surplus, it is said to be engaging in a fiscal contraction, slowing economic activity.
The government can use fiscal stimulus to spur economic activity by increasing government spending, decreasing tax revenue, or a combination of the two. Increasing government spending tends to encourage economic activity either directly through purchasing additional goods and services from the private sector or indirectly by transferring funds to individuals who may then spend that money. Decreasing tax revenue tends to encourage economic activity indirectly by increasing individuals' disposable income, which tends to lead to those individuals consuming more goods and services. This sort of expansionary fiscal policy can be beneficial when the economy is in recession, as it lessens the negative impacts of a recession, such as elevated unemployment and stagnant wages. However, expansionary fiscal policy can result in rising interest rates, growing trade deficits, and accelerating inflation, particularly if applied during healthy economic expansions. These side effects from expansionary fiscal policy tend to partly offset its stimulative effects.
The government can use contractionary fiscal policy to slow economic activity by decreasing government spending, increasing tax revenue, or a combination of the two. Decreasing government spending tends to slow economic activity as the government purchases fewer goods and services from the private sector. Increasing tax revenue tends to slow economic activity by decreasing individuals' disposable income, likely causing them to decrease spending on goods and services. As the economy exits a recession and begins to grow at a healthy pace, policymakers may choose to reduce fiscal stimulus to avoid some of the negative consequences of expansionary fiscal policy, such as rising interest rates, growing trade deficits, and accelerating inflation, or to manage the level of public debt.
In recent history, the federal government has generally followed a pattern of increasing fiscal stimulus during a recession, then decreasing fiscal stimulus during the economic recovery. Prior to the "Great Recession" of 2007-2009 the federal budget deficit was about 1% of gross domestic product (GDP) in 2007. During the recession, the budget deficit grew to nearly 10% of GDP in part due to additional fiscal stimulus applied to the economy. The budget deficit began shrinking in 2010, falling to about 2% of GDP by 2015. In contrast to the typical pattern of fiscal policy, the budget deficit began growing again in 2016, rising to nearly 4% of GDP in 2018 despite relatively strong economic conditions. This change in fiscal policy is notable, as expanding fiscal stimulus when the economy is not depressed can result in rising interest rates, a growing trade deficit, and accelerating inflation. As of publication of this report, interest rates have not risen discernibly and are still near historic lows, and inflation rates show no sign of acceleration. The trade deficit has been growing in recent years; however, it is not clear that this growth in the trade deficit is a result of increased fiscal stimulus.