Puerto Rico and the Jones Act (1920)
Puerto Rico has a lot of great aspects and many things holding it back, and one of the most frequently discussed (somewhere after the “status question” of becoming a state, remaining a territory, or becoming independent in some way) is probably the Jones Act. There are some other people who have done much better analyses of the Jones Act than I can in 30 minutes, too — specifically, Colin Gabrow at Cato Institute is probably the world expert on the topic.
The Jones Act (Merchant Marine Act of 1920) does a few things. It was designed to encourage/protect a domestic American shipping industry (for defense reasons, and also economic protectionism), and through cabotage provisions restricts vessels transporting freight between US ports to be US built (and of US materials), US crewed, US flagged, and US maintained. For these purposes, Puerto Rico is a US port, so freight shipments between Florida and Puerto Rico must use US vessels.
There are a lot of misconceptions about Jones Act restrictions. It’s perfectly fine for a foreign ship to sail into San Juan and discharge/pick up freight for other foreign destinations. A foreign ship can make multiple stops at different US ports; it just can’t transport freight between US ports. There are similar restrictions on passenger ships (most relevantly cruise ships), but these are in a different law — since most of these ships are foreign, cruise itineraries always include a foreign port stop in the middle of the journey.
The provisions of the Jones Act primarily affect Puerto Rico and Hawaii (it doesn’t apply to USVI, American Samoa, or CNMI, and Guam somewhat exempted.). Hawaii is rich enough that, while Jones Act adds substantial costs, it’s probably not as serious a hinderance to their economy (although Hawaii’s inclusion also hurts Guam), but it definitely increases costs. It also applies to the rest of the US, but most other parts of the US have land transport as an alternative (and in the case of Alaska, there’s a long history of the Jones Act being specifically used against it when it was a territory; Alaska does pay higher shipping to/from Seattle, but fishing restrictions to US ships might more than make up for it.)
The Jones Act raises costs of shipping for Puerto Rico in two main areas.
First, there’s a general increase in shipping costs of all things, as only US ships can handle US to Puerto Rico shipping. Most products consumed in Puerto Rico are produced in the US, so they would need to be transported on US ships. Puerto Rico could import more products from outside the US, but that’s bad for the US, and the local market is much more closely tied to the rest of the US than it is to any other foreign state. We have CVS, Walgreens, a bunch of fast food chains, Walmart, Costco, etc., most of our cars are American spec and usually American made (including US-built Toyotas, Mercedes, etc.), and Puerto Rico at 3mm relatively poor people isn’t a big enough market to really be an attractive trading partner for most big international companies directly, especially when it’s easier to just handle distribution through Florida.
This increased shipping cost is basically a tax, but for almost all products, sea shipping is so cheap that even doubling the cost of sea shipping for the 1200 mile journey from the US doesn’t add that much expense, especially as these products have already been shipped 10-20k miles from China or Europe, or overland from the rest of the US. For most products, price is increased by maybe 1-2% tops, and often less than that. It’s unfair and unreasonable to have this law in place, but it’s not responsible for Puerto Rico’s economic woes.
The second area, where the Jones Act really does screw Puerto Rico, is when a product is unavailable in Puerto Rico because it must be shipped on US ships which do not exist. Specifically, natural gas in the United States (and available at LNG terminals on the Gulf Coast, already used for export) is incredibly inexpensive compared to world prices. LNG is exported around the world (and is currently keeping the lights/heat on in Europe since Russian supplies are no longer available. This is easily done to foreign destinations because the Jones Act doesn’t apply, but shipping from the US to Puerto Rico would need to be on a US LNG carrier, and there are no US manufactured LNG carriers, and no easy way to construct them.
Electricity in Puerto Rico is quite expensive ($0.25/KWh, compared to less than half that through most of the US — our prices are comparable to Hawaii, and 4x higher than in WA State where I previously lived.). Part of this is due to the aging infrastructure for distribution, part is due to corruption, part is due to governmental incompetence, but a lot is due to primary generation costs being high. Plus, we’re using coal (!!!) and diesel (expensive). Puerto Rico does have natural gas fueled generation, but has to ship in LNG from Trinidad and Tobago at 4x or more the US price (and also the contracts are corruptly rigged…).
Puerto Rico has no voting power in Congress, so there are really two solutions to this.
One, Puerto Rico could try for a publicity campaign in Congress, probably not possible until the next time Republicans control the White House and at least one house of congress, since Jones Act is strongly supported by pro-union parts of the Democratic party. This has been tried in the past, but never works. The most limited possible change to the law which would help Puerto Rico would be a one-time exemption on LNG tanker purchase by US operators and flagging/crewing as US vessel; it’s solely the construction of the vessel which is effectively impossible today. Of course, a broader end to the Jones Act would be ideal.
Second, Puerto Rico’s government could actually do something. Buy or contract an internationally-constructed LNG tanker, flag it as a vessel of the Puerto Rico National Guard, and operate it as a Government vessel to purchase and transport LNG from the US, with a PRNG Naval crew. With sufficient publicity, it would be hard for the US Government to challenge this, and it might stand up in court (Jones Act does not apply to government vessels; Texas or Louisiana could do this as well.) There would likely be legal challenges, but it might be sufficient to get the Jones Act invalidated, or to inspire legislative action (or Presidential action), but who knows.