Discussion: (0 comments)
There are no comments available.
View related content: Economics
It’s no secret that special interests regularly shape policy in Washington, costing taxpayers money and sacrificing honest policy debate to reward particular industries. The most recent example comes in the form of two objectionable provisions slipped into the Coast Guard and Maritime Transportation Act of 2014, recently passed by the House and now in committee in the Senate. The passage of this bill with these sections would not only divert scarce U.S. food-aid resources toward a handful of cargo-ship owners and away from the 2 million or so hungry people abroad, but would also foreclose future public debate on the issue.
Using food-aid funds to support the maritime industry is so ridiculous that Jon Stewart’s “The Daily Show” satirized the idea this past fall. Yet the maritime industry seeks to take advantage of the fact that this bill routinely passes Congress with little attention, and often by a voice vote, by inserting two sections aimed at protecting their interests.
Section 318 increases cargo preference requirements for food aid authorized under the Farm Bill. Cargo preference restricts a share of U.S. government shipments of international food aid to U.S.-flagged vessels. These anti-competitive restrictions, which enable much more expensive shipping rates than competitor vessels would charge, generate windfall profits to a few, mainly foreign companies who operate U.S.-flagged vessels through domestic subsidiaries.
Section 316 would eliminate expert consultation and public comment requirements on the impact of cargo preference, choking off public oversight and reinforcing the capacity of special interests to enrich themselves. Congress appears poised not only to increase these pork-barrel benefits but also to curtail public discussion of its impacts on global food security, taxpayer cost or anything else.
The bill proposes to increase – from 50 to 75 percent – the minimum tonnage of international food aid that must ship on U.S.-flagged vessels, reversing a reform enacted in the 2012 surface transportation authorization act. As a result, the cost of shipping food aid will increase by at least $75 million. Our study found that food aid shipped under cargo preference costs taxpayers 46 percent more, on average, than competitively awarded ocean freight shipments, confirming similar estimates over the years by the Government Accountability Office.
Why does cargo preference increase costs? Vessel owners emphasize the added expense of complying with U.S. regulations, such as that 75 percent of the ship’s mariners are U.S. citizens. But two other reasons likely account for much of the cost difference. First, when the government restricts competition, the price of services inevitably goes up and more so the greater the restriction. Second, many of the ships used in agricultural cargo preference are old and inefficient. Average costs on those older, non-militarily useful vessels are 48 to 64 percent higher than on newer U.S.-flagged ships. That’s why ship owners demand anti-competitive restrictions.
Proponents claim that paying a cargo preference freight premium helps to maintain a fleet of U.S.-flagged vessels, thereby advancing national security and protecting American maritime jobs. Yet the Pentagon finds that food-aid cargo preference has no tangible effect on U.S. maritime security and the Obama administration and the Department of Homeland Security strongly object to the proposed provisions on similar grounds. This is not surprising, since 70 percent of food-aid cargo preference vessels are not militarily useful.
The industry similarly claims that cargo preference creates jobs. Yet the 2012 reforms that reduced cargo preference coverage from 75 to 50 percent do not appear to have led to a single vessel ceasing service nor to the loss of any mariner jobs. And this type of indirect subsidy is so inefficient that any job created comes at a taxpayer cost of about $100,000. Direct payments under the Maritime Security Program – $3.1 million per vessel per year – are a far more effective method to support merchant mariners and maritime readiness than a cargo preference system that mainly rewards the owners of non-militarily useful ships that sail under a U.S. flag expressly to tap easy cargo-preference money.
Given a fixed food-aid budget, added ocean freight costs would translate into feeding 2 million or so fewer children and women affected by natural disasters and war. An honest policy debate would weigh the (at most minimal) gain in jobs and considerable profits to ship owners against the cost of abandoning malnourished children and their families around the world. The passing of this bill, however, would expressly stifle such debate.
We strongly support employment creation and military readiness. But legislation that would take food out of the mouths of hungry people to line the pockets of foreign ship owners is just lobbyist-led highway robbery on the high seas.
Barrett is the David J. Nolan Director and Stephen B. and Janice G. Ashley Professor at the Charles H. Dyson School of Applied Economics and Management at Cornell University and is a contributor to the American Enterprise Institute’s Agriculture Policy Research program. Lentz is currently an assistant professor of international relations at Bucknell University and will join the faculty at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin in the fall.
There are no comments available.
1150 17th Street, N.W. Washington, D.C. 20036
© 2015 American Enterprise Institute for Public Policy Research