THE INNOCUOSLY NAMED Cargo Preference Bill, which currently holds the tin medal for worst bill of the year, is about to come to a vote in the House. It's the legislation, if you remember, that would require an ascending proportion of American oil imports to arrive in U.S. - flag ships. We earlier noted the lavish scale of the campaign contributions to President Carter and nearly half of Congress that greased the ways for this legislation. We also noted the dismay of the Treasury and State Departments, who warned Mr. Carter about the inflationary effects and the treaties that it would violate. We observed that, according to the administration, it will cost more jobs than it can provide. But there's more than that wrong with it.
The reason for the bill is, of course, that freight rates on a U.S. - flag ship are wildly higher than on similar ships under any other registry. American shipbuilders, ship operators and unions all engage in practices that drive costs sky high, and they stay in business only through legislation that forces freight onto their vessels. But a curious thing is happening. Under long-standing laws, they are now beginning to get more of the oil trade than they can handle.
For years, the Jones Act has restricted coastal trade, from one American port to another, to U.S. - flag ships. With the opening of the Alaskan pipeline, the whole flow is guaranteed to tankers under the U.S. flag. With the temporary surplus on the West Coast, some of that oil is currently carried to Panama in big tankers, then transshipped - expensively - to smaller ones that can get through the canal.
Present law also says that half of any American government purchase has to be delivered in U.S. - flag ships. The government is now beginning to buy oil for the strategic reserve, and those deliveries will reach more than half a million barrels a day next year. Half of that oil will arrive in ships under the U.S. flag, at a cost next year of $200 million more thanit would could to use any other tankers.
The strategic reserve, plus the Alaskan trade, will strain the limits of the tanker fleet under U.S. flag. Under the pressure of this rapidly rising load, rates for the U.S.-flag tankers are already rocketing upward. To add cargo preference legislation now would send the rates spiraling altogether out of control.
A case can be made for subsidizing the U.S. merchant marine. But when Congress votes the usual maritime subsidies, it sets a limit. Cargo preference rules are different. They say that shippers have to use the legally protected tankers, however high the cost goes. That cost is a subsidy paid directly by the consumer to the maritime industry and, unlike the congressional appropriations, there's no limit to it. That's why this kind of protectionism is objectionable and dangerous in principle, whereas conventional subsidies are not. When the legislation comes to the floor, everyone will politely call it the Cargo Preference Bill. But its real name is the Blank Check Bill of 1977 and Forever After.