WHEREAS, interstate ocean shipping is a vital economic link between the seven (7) noncontiguous domestic jurisdictions of the United States and the contiguous forty-eight (48) mainland states of the union; and

WHEREAS, Section 27 of the Merchant Marine Act of 1920 (P.L. 66-261)(46 U.S.C. § 55102), commonly known as the Jones Act, is a federal cabotage law that restricts the surface carriage of cargo by water between coastwise points in the United States to vessels that are U.S.-built, U.S.-flag, U.S.-owned and U.S.-crewed; and

WHEREAS, the coastwise laws of the U.S. including the Jones Act embrace four (4) of the seven (7) noncontiguous domestic jurisdictions, namely, the State of Alaska, the Territory of Guam, the State of Hawaii and the Commonwealth of Puerto Rico, while the Territory of American Samoa, the Commonwealth of the Northern Mariana Islands (CNMI), and the Virgin Islands of the United States (USVI) are fully exempt from the Jones Act as a result of the international treaties associated with their annexation to the U.S.; and

WHEREAS, there is historical exemption from the U.S.-build requirement of the Jones Act for all commercial vessels engaged in the domestic Guam trade (46 U.S.C.§ 12111) known as the “Guam Exemption” and the other three (3) noncontiguous jurisdictions embraced by the coastwise laws, namely Hawaii, joined by Alaska and Puerto Rico, are seeking a more limited, similar, exemption; and

WHEREAS, the Guam Exemption is of limited utility to Guam because the natural westbound trade lane from the U.S. West Coast to Guam passes through Hawaii making it difficult for ocean common carriers to mount financially viable voyages without carrying cargo to both Hawaii and Guam effectively binding Guam’s interstate trade to the U.S.-build requirement despite its exemption and prompting Guam to support the limited extension of their exemption to Hawaii; and

WHEREAS, in recognition of inefficacity of the Guam Exemption alone, the 32^nd Legislature of Guam, First Regular Session, adopted on April 15, 2014, by a twelve to three bipartisan floor vote, Resolution 138-32 (COR) calling on their Congresswoman Madeleine Bordallo to introduce federal legislation to also exempt Alaska, Hawaii and Puerto Rico from the U.S. build requirement of the Jones Act; and

WHEREAS, the late U.S. Senator Daniel K. Inouye inserted a limited exemption from the U.S.-built requirement of the vessel documentation laws granting three large foreign-built U.S.-flag cruise ships a coastwise endorsement to operate in the Hawaii trade into the Omnibus Appropriations Act of 2003, known as the “Hawaii Cruise Trade Exemption” (P.L. 108-7, Div. B, title II § 211)recognizing that U.S. shipyards could not successfully construct large specialist cruise ships after the failure of an earlier program to do just that and which Senator Inouye sponsored, known as “Project America” contained in the Department of Defense Appropriations Act for Fiscal year 1998 (P.L. 105-56 § 8109); and

WHEREAS, the noncontiguous jurisdictions have an interest the ocean transportation of liquefied natural gas (LNG) that requires specialist tanker ships known as “LNG Carriers” none of which have been built in the U.S. since the 1970’s and new construction in the U.S. would be cost prohibitive and potentially result in failure as did Project America denying Hawaii and Puerto Rico access to U.S. LNG sources and blocking Alaska LNG from domestic markets unless the noncontiguous trades are exempted from the U.S.-built requirement; and

WHEREAS, Alaska is committed to developing its natural gas reserves on the North Slope including the Point Thompson conventional field with estimated reserves of 236 trillion cubic feet (TCF) and building a gas pipeline to and a liquefaction plant at the tidewater to export LNG to Asia, the U.S. West Coast and Hawaii and needs a U.S. build exemption to fulfill Governor Bill Walker’s goal to accelerate efforts to bring Alaska’s gas to market including domestic ones; and

WHEREAS, Puerto Rico’s Ecoeléctrica operates an LNG import terminal at Peñuelas with a 160,000 cubic meter storage capacity and Excelerate Energy L.P. is developing the Aguirre Offshore GasPort near Guayama to supply the Puerto Rico Electrical Power Authority (PREPA)’s Aguirre Power Plant both importing LNG from Trinidad, but Governor Alejandro Garcia Padilla would prefer to substitute lower cost U.S. LNG and needs a ship build exemption to realize that goal; and

WHEREAS, The Federal Reserve Bank of New York issued on June 29, 2012, Report on the Competitiveness of Puerto Rico’s Economy, in which they found “the Jones Act does indeed have a negative effect on the Puerto Rican economy,” and recommended, “A temporary exemption from the Jones Act—for a period of perhaps five years . . . .to determine if this exemption should be made permanent;” and

WHEREAS, the World Economic Forum (WEF) in collaboration with Bain & Company and the World Bank, issued on January 23,. 2013, Enabling Trade Valuing Growth Opportunities, found “The most restrictive example (of cabotage) is the United States Jones Merchant Marine Act of 1920” and “such barriers actually damage local economies and saddle businesses and consumers with significant costs;” and

WHEREAS, the U.S. Government Accountability Office (GAO) issued on March 14, 2013, Characteristics of the Island's Maritime Trade and Potential Effects of Modifying the Jones Act (GAO-13-260), found that for the contract carriage of liquid bulk (such as oil and other fuels) and dry bulk (such as fertilizer, animal feed and grains) cargoes “a limited number of qualified Jones Act vessels may be available at any given time to meet shippers’ needs;” and

WHEREAS, Representative Pedro Rafael Pierluisi Urrutia, Resident Commissioner of Puerto Rico to the U.S., introduced on July 25, 2013, the “Puerto Rico Interstate Commerce Improvement Act of 2013” (H.R. 2838) to exempt self-propelled ships carrying bulk cargoes in the Puerto Rico trade from the U.S. build requirement of the Jones Act in conformity with the aforementioned GAO Report, and found acting alone to effect Jones Act reform without support from other jurisdictions he could not move his measure forward; and

WHEREAS, the Governor’s Hawaii State Refinery Task Force’s Final Report adopted April 9, 2014 recommended inter alia the State seek a Jones Act exemption allowing foreign flag tankers in the Hawaii trade to mitigate the effects of a permanent closure of the State’s two small petroleum oil refineries; and

WHEREAS, the average age of containerships employed in the noncontiguous common carrier trades is thirty years compared to the international average of twelve years, resulting in very high operating costs incurred by older ships and international maritime insurance data show that accident rates increase with increasing ship-age spiking after twenty years; and

WHEREAS, Horizon Lines Inc., once the largest common carrier in the noncontiguous trades operating a fleet of 15 Jones Act container ships now averaging 37 years old, is scheduled to become defunct in 2015 by terminating its Puerto Rico service, selling its Hawaii service to Pasha Hawaii Transport Line Inc. and its Alaska service to Matson Inc., after earlier withdrawing from Guam service in November 2011, because Horizon could not afford to replace its ageing ships in U.S. shipyards and their exit will cause an erosion of competition at the margins through further industry consolidation and make the trades less subject to competition.; and

WHEREAS, the U.S.-build requirement of the Jones Act creates an artificial scarcity of major capital ships, erects substantial barriers to entry domestic trades, and severely restricts the contestability of the domestic ocean transportation markets; and

WHEREAS, major U.S. ship construction is typically four to five times the cost than ships built in Japan or South Korea and U.S. ship production is very limited – building an average of less than three deep draft merchant ships annually in the U.S. since the mid-1980’s – putting the major U.S. shipbuilding yards at a distinct disadvantage in terms of economies of scale adversely affecting their ability to apply new technology, expertise and experience in the construction of large modern oceangoing ships as compared to their international peers; and

WHEREAS, the high cost and low production of the U.S. shipbuilding industry has resulted in an ageing and inefficient deep-sea Jones Act fleet that disproportionately and adversely affects Hawaii and the other noncontiguous jurisdictions; and

WHEREAS, foreign and U.S.-built ships alike are designed and built to the universal standards established by the nearly 50 international conventions and agreements, and numerous protocols and amendments administered by the United Nation (UN)’s International Maritime Organization (IMO), which have been ratified by the United States and made part of U.S. law; and

WHEREAS, the United States Coast Guard (USCG) inspects all foreign-built ships seeking to become registered vessels of the United States to ensure that they comply with all U.S. ship construction, safety laws and regulations; and

WHEREAS the U.S.-build requirement of the Jones Act for large oceangoing ships in noncontiguous domestic trades is not essential for the national defense of the United States because the remaining seven domestic shipbuilding yards capable of constructing large oceangoing ships mainly build naval ships and produce so few merchant ships each year that this activity does not represent sufficient shipbuilding capacity to address the mobilization needs of a major war time contingency and sustains only a limited industrial base unable to support ongoing naval construction programs due to excessively high costs; and

WHEREAS, granting an exemption to the U.S.-build requirement allows aging ships to be more quickly and economically replaced by less expensive, safer and more fuel efficient ships in accordance with efforts to conserve resources and protect the environment; and

WHEREAS, more than half of the large oceangoing Jones Act fleet is employed in the coastwise noncontiguous domestic trades, thus imposing more than 50% of the additional cost burden of operating Jones Act ships on less than 2% of the U.S. population; and

WHEREAS, all other modes of domestic transportation in the U.S. are permitted to use foreign manufactured equipment for commercial operation without restriction including aircraft, railroad cars and locomotives, trucks, automobiles and mass transit vehicles; and

WHEREAS, in December 1994, the United States signed the Organization for Economic Cooperation and Development (OECD)’s final act of the “Agreement Respecting Normal Competitive Conditions in the Commercial Shipbuilding and Repair Industry” (known as the OECD Shipbuilding Agreement) that would allow certain foreign built ships in the domestic Jones Act trades, but it has not been ratified by the U.S. Congress; and

WHEREAS, the U.S. domestic build provisions of the Jones Act do not comply with ongoing Multilateral Trade Negotiations (MTN) that began under the General Agreement on Tariffs and Trade (GATT) and continues with the World Trade Organization (WTO); and

WHEREAS, U.S.-build requirement of the Jones Act is an absolute merchandise import restriction contrary to international trade agreements; and

WHEREAS, the residents of Hawaii and the other coastwise noncontiguous jurisdictions subsidize an inefficient and commercially uncompetitive U.S. major ship building industry; and

WHEREAS, the exemption described herein is a limited and narrowly targeted reform of the Jones Act that would not change the existing U.S.-flag, U.S.-ownership and U.S.-crew provisions of the Jones Act as they currently apply to the coastwise noncontiguous domestic trades, would not allow foreign seamen or foreign ship-owners in any domestic trade where they are not currently allowed, would not apply to the domestic tug and barge industry anywhere in the U.S. including in the Jones Act noncontiguous jurisdictions, would not affect any domestic shipping along the coasts of the contiguous U.S. mainland, in the intercoastal trades, on the inland waterways or on the Great lakes, and would not negatively impact any maritime industry jobs in the noncontiguous jurisdictions; and

WHEREAS, the passage of federal legislation exempting the noncontiguous domestic trades from the U.S.-build requirement for large self-propelled ships would revitalize U.S.-flag shipping by allowing foreign-built ships into, removing barriers to entry and encouraging more effective competition in those trades, and generally making more U.S.-flag merchant ships available to support military sealift operations; and

BE IT RESOLVED by the Senate of the Twenty-eighth Legislature of the State of Hawaii, Regular Session of 2015, that this body respectfully requests the Congress of the United States to pass legislation granting an exemption from the U.S.-build requirement of the Jones Act in the noncontiguous domestic trade of Hawaii for large self-propelled oceangoing ships (Alaska and Puerto Rico support and seek the same exemption); and

BE IT FURTHER RESOLVED that the Hawaii State Senate respectfully requests the President of the United States and his administration to support the congressional legislation requested herein; and

BE IT FURTHER RESOLVED that Hawaii's congressional delegation is urged to work with their colleagues from Alaska, Guam and Puerto Rico to introduce in Congress federal legislation that would exempt the Hawaii and other noncontiguous trades from the U.S.-build requirement of the Jones Act for large oceangoing ships; and

BE IT FURTHER RESOLVED that the Hawaii congressional delegation is urged to request Congress to exempt Hawaii, along with Alaska and Puerto Rico, from the U.S.-build requirement of the Jones Act for large self-propelled oceangoing ships; and

BE IT FURTHER RESOLVED that Hawaii Governor David Ige is urged to work with his fellow governors from Alaska, Guam and Puerto Rico to support federal legislation that would exempt the Hawaii and other noncontiguous trades from the U.S. build requirement of the Jones Act for large oceangoing ships; and

BE IT FURTHER RESOLVED that certified copies of this Resolution be transmitted to the President of the United States, the President of the United States Senate, the Speaker of the United States House of Representatives, the Secretary of the United States Department of Transportation, members of Hawaii's congressional delegation, members of Alaska, Guam, and Puerto Rico’s congressional delegations, and the Governors of Alaska, Guam, Hawaii and Puerto Rico.

	OFFERED BY:	_____________________________

Report Title:

Jones Act; Request Congressional Exemption from the U.S.-build requirement of the Jones Act in the noncontiguous domestic trade of Hawaii for large self-propelled oceangoing ships, joined by Alaska and Puerto Rico

THE SENATE	S.R. NO.	10
TWENTY-EIGHTH LEGISLATURE, 2015
STATE OF HAWAII