Payment for maintenance of America’s ports and waterways has been a thorny but driving political issue since our nation’s founding. The necessity of an efficient port system cannot be disputed. Early on, that necessity gave birth to the Army Corps of Engineers by way of the General Survey Act of 1824, with dredging costs being paid out of the General Treasury. But like most things political and expensive, publicly financed port and waterway work eventually found its way to Congressional debate floors. In the1980s, the country’s economic mentality leaned toward charging users, especially foreign ones, for U.S. government-provided services, prompting Uncle Sam to impose the Harbor Maintenance Tax (HMT) as part of the Water Resources Development Act of 1986.
At first, HMT obligations applied to all cargo moving into or out of U.S. seaports; was derived by cargo values; and paid 40% of maintenance costs of deep-draft channels. In 1990, Congress bumped up the HMT more than threefold (to 0.125% of cargo value) so as to pay 100% of port dredging expenses. In 1998, in Shoe Corporation v. United States, the U.S. Supreme Court held HMT unconstitutional to the extent it applied to exports, as Article IX of the U.S. Constitution prohibits taxes on exports (no, HMT wasn’t just a “user fee” collected as an ad valorem tax).
So here we are in 2012, with foreign shippers and/or U.S. importers paying sometimes hefty HMT costs to land their freight in U.S. ports. Is the revenue at least helping the quality of those ports? HMT revenues are deposited into a trust fund out of which maintenance costs are supposed to be paid. But that’s apparently not how it works in practice. Since 2003, collected HMT revenues have outpaced actual maintenance funding, producing a “surplus” in the trust fund to the tune of some $6.4 billion and growing. Much of the expended revenue goes not to paying for waterway maintenance, but to equalizing the federal deficit.
But what about HMT’s economical impacts on America’s ports and other aspects of international trade? Some port organizations, related service providers, state and local government agencies, and others claim a trend toward foreign shippers choosing to land their ocean freight in Canadian ports. By doing so, those shippers avoid the HMT and take advantage of a Canadian rail system which our friends up north are strategically developing to run freight from its western seaports into the American Midwest. The Canadians also allegedly subsidize their relevant ports to encourage the ocean cargo diversion. At a minimum, the complainers urge, Canadian government policies violate the spirit of NAFTA by artificially impacting trade, and those impacts will be devastating if allowed to continue.
Others, most notably the Canadians, disagree. They claim only about 2.5% of U.S.-bound imports land in Canada, and only about 10% of North American cargo ever sees a Canuck port - period. In the context of the costs shippers and importers pay to ship freight across one of the two big ponds, HMT is only a small consideration in the determination of which seaport gets the business. Canadian ports quickly point out that they are a day or two shorter sailing time from some Far Eastern originations than their closest U.S. competitors; have certain equipment and service options that U.S. ports can’t always offer; have liner options U.S. ports sometimes lack; often have export cargo arriving vessels are interested in fetching to maximize their own profitability; and have been congratulated on their time-efficient security programs. And should the Canadians really be penalized in this era of deregulated, market-driven shipping just because they’re building a new railroad infrastructure?
The issue percolated enough stateside over the past few years to prompt industry, marine terminal operators, and a couple influential Washington State senators to ask the U.S. Federal Maritime Commission (FMC) to hear out the aggrieved entities through a “notice of inquiry” proceeding. Some 80 players chimed in on the issue, loudest among them being the Pacific Northwest ports, early this year. FMC’s report to Congress is expected this summer.
But what can we expect FMC to do about HMT and the general situation? The agency can always study circumstances and spit out economic conclusions to the legislature, but it certainly can’t unilaterally eradicate HMT or create a new tax on imports entering the U.S. by rail (although it could push for such in its report). Slapping a tax on U.S. entries from Canada also might violate Uncle Sam’s treaty obligations within the World Trade Organization, and prompt retaliatory measures from Canada. Do we really want to get in a tiff like that with a major trading partner?
HMT raises a host of questions and rightfully is the subject of a good deal of scrutiny. It needs to be revamped, or eradicated, for a number of reasons. One such reason might prove to be Canadian cargo diversion, at least on some level. But treating that one alleged symptom alone won’t cure the problem, and probably would create others we don’t need.
Ref: Water Resources Development Act of 1986 (P.L. 99-662).
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