The Jones Act, a collection of U.S. maritime laws, and other marine legislation, imposes a variety of limitations on foreign participation in the U.S. domestic maritime industry. These restrictions, coupled with the national security, defence-related prohibitions of the Byrnes-Tollefson amendment, which precludes the acquisition and repair of ship hull structures by non-U.S. entities, effectively limit Canadian participation in U.S. shipping activities.
Despite continued calls, both within the U.S. and internationally, for reform of its maritime laws, the United States continues to maintain the U.S. Jones Act and its cabotage and cargo preference restrictions. Canada has been particularly vocal in seeking the liberalization of these restrictions in the context of trade negotiations, such as the NAFTA and the WTO.
Although in the past the U.S. allowed for two exceptions to its Jones Act provisions, there is no indication it intends to alleviate further the current restrictions in its maritime laws. Under the first exception, Canadian yacht producers benefited from a waiver, exemption, for foreign passenger vessels carrying fewer than 12 people. Second, following NAFTA negotiations, the U.S. undertook to clarify interpretation of allowable ship repair levels done outside the U.S., an action which benefits Canadian shipyards by allowing the replacement in Canada of up to 7.5% of the hull and superstructure of a vessel and up to 10% with pre-authorization.
Canada participates in various international bodies which provide regular opportunities to raise concerns regarding the Jones Act. The most recent example was at an informal meeting at the World Trade Organization in November 2003 where members had the opportunity to question U.S. officials on the Jones Act in advance of the WTO’s 2003 review of the act. The U.S. responded that neither congress nor the administration was prepared to consider changes to the legislation, and no amending action was likely in either the short or long term.
Issues relating to the Jones Act are discussed regularly at shipbuilding and industrial marine advisory committee, SIMAC, meetings. Industry stakeholders have recommended that the Government of Canada take stronger measures to gain an exemption for Canadian shipyards under the Jones Act. The Government of Canada continues to be ready to explore any bilateral or multilateral route to reduce or eliminate this barrier to market access.
The Canadian shipbuilding and industrial marine industry must be able to compete globally if it is to achieve growth. Accordingly, the government has developed the structured financing facility (SFF) to encourage shipowners to commission new building projects in Canada. Upon qualification and project approval, the SFF provides financing cost support of up to 15 % of the cost of the project to shipowners who commission new buildings or overhaul existing vessels at Canadian shipyards. This support is applied in a manner that is consistent with the guidelines established by the Organization for Economic Cooperation and Development, OECD, understanding on export credits for ships.
It is recognized that there are systemic subsidization and overcapacity issues in the global market that inhibit the ability of Canadian shipbuilders to compete on a “level playing field”. The Government of Canada is participating in the OECD shipbuilding negotiations in an effort to achieve an international agreement prohibiting government subsidization of the shipbuilding industry. Such an agreement would enhance the competitive position of Canadian shipbuilders over the medium to long term by reducing trade distortions in the global shipbuilding market.
