UNCLE SAM is richer this week by $86 million. Thanks should go first to Arco, the giant Los Angeles-based oil firm, which ponied up the money, and second to Transportation Secretary Elizabeth Dole, whose steadiness under pressure put through the policy that enables the government to accept it.
For, as you might expect, Arco is not giving the government an $86 million charitable contribution. What Arco is doing is paying back to Uncle Sam the cost of a shipbuilding subsidy. What it is getting in return is the right to use the tankers the government originally subsidized in trade between two U.S. ports. The Jones Act -- part of the complicated tangle of maritime laws that raises prices for consumers and provides tidy windfalls for a handful of well-placed beneficiaries -- requires that all trade between U.S. ports be carried in ships registered under the U.S. flag, except for those built with U.S. subsidies. Arco is the first shipowner to take advantage of Secretary Dole's policy of allowing owners to give back their subsidies and enter the Jones Act trade.
Unsurprisingly, there was a lot of loud -- and contradictory -- outcry against this policy. The most lucrative Jones Act shipping today is the carriage of Alaska oil to West Coast ports, and most of it is transported in small, old ships which meet the old Jones Act terms. Mrs. Dole, by opening up the trade to larger, more efficient ships such as Arco's, has helped to reduce prices paid by consumers.
Jones Act beneficiaries have lobbied long and hard to keep previously subsidized ships out of their little market, and have claimed that there just isn't enough business for the big tankers anyway. Arco, a publicly held and profitable company, is betting $86 million that they're wrong. We suspect it's a good bet. More needs to be done to open up the shipping business. But with Uncle Sam already $86 million richer, so far so good.