Jones Act Research PaperIntegration of course concepts25Com.docx

Jones Act Research Paper
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W18357
SASKPOWER U.S. DEBT: HEDGING CURRENCY
EXPOSURE
Professors Walid Busaba and Saqib Khan wrote this case solely
to provide material for class discussion. The authors do not
intend
to illustrate either effective or ineffective handling of a
managerial situation. The authors may have disguised certain
names and
other identifying information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized
or otherwise reproduced in any form or by any means without
the
permission of the copyright holder. Reproduction of this
material is not covered under authorization by any reproduction
rights
organization. To order copies or request permission to
reproduce materials, contact Ivey Publishing, Ivey Business
School, Western
University, London, Ontario, Canada, N6G 0N1; (t)
519.661.3208; (e) [email protected]; www.iveycases.com.
Copyright © 2018, Ivey Business School Foundation Version:
2019-10-07
On December 19, 2002, Edward James, a member of the audit

and finance committee of the board of
directors of the Saskatchewan Power Corporation (SaskPower),
was contemplating a complex issue. The
management of SaskPower had requested the approval of its
2003 foreign exchange strategy, to manage
the long-term currency risk exposure in the utility’s U.S. dollar
debt.
SaskPower issued US$619 million of debt in the early 1990s,
with maturities ranging from 10 to 30 years.
The U.S. dollar exchange rate against the Canadian dollar had
since increased (i.e., the Canadian dollar rate
had depreciated), increasing the effective burden of the debt and
reducing the utility’s net income. By the
end of 1999, SaskPower had hedged US$112 million through
foreign currency swaps. By the end of 2001,
the translation value of the U.S. dollar debt had increased to
CA$986 million and represented more than 50
per cent of SaskPower’s long-term debt.
A change in accounting practices was implemented in 2001 in
accordance with revised Canadian Institute of
Chartered Accountants guidelines. SaskPower was required to
recognize as a gain or a loss in the current
year any translation differences in the value of its outstanding
U.S. dollar debt resulting from fluctuations in
the exchange rate during the year. This policy change led to a
significant reduction in net income in 2001,
followed by a significant increase during the first eight months
of 2002. The volatility in earnings had
complicated the task of setting rates for electricity and had
proved politically difficult to justify. An
overarching objective of the proposed foreign exchange strategy
was to eventually eliminate all currency
exposure in the outstanding U.S. dollar debt.

SASKPOWER: THE COMPANY
SaskPower was a Canadian power company established in 1929.
This crown corporation was owned by the
provincial government of Saskatchewan and governed by a
board of directors.1 It was the main producer
1 Crown corporations are wholly owned federal or provincial
organizations structured like private or independent companies.
Among them are important enterprises such as the Canadian
Broadcasting Corporation, VIA Rail, Canada Post, and the
Bank of Canada, as well as various provincial electric utilities.
Crown corporations have greater freedom from direct political
control than government departments and, as long as crown
corporations have existed, there has been debate about their
structure, accountability, and role in the economy; Allan
Tupper, “Crown Corporation,” Historica Canada, last edited
December 17, 2013, accessed October 30, 2017,
For the exclusive use of M. GRIFFITH, 2020.
This document is authorized for use only by MARQUITA
GRIFFITH in MGMT 3053 taught by JUSTIN ROBINSON,
University of the West Indies from Jan 2020 to Jul 2020.
www.iveycases.com
mailto:[email protected]
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9B18N011
and supplier of electricity in the province, with an installed
generation capacity of 4,281 megawatts. In fiscal
year 2001, SaskPower serviced 432,000 customers spread over
652,000 square kilometres across
Saskatchewan. Around 68.3 per cent of the generated power was
sold to industrial users. The company’s
distribution network was also tied to the grids of Alberta and
Manitoba and to the U.S. state of North Dakota
(although no notable sales were recorded across the border).
SaskPower’s revenues in 2001 were CA$1.126 billion, 88 per
cent of which came from sales within
Saskatchewan. Its expenses were CA$1.097 billion. The cost of

fuel and purchased power represented 43
per cent of expenses. Finance charges, which included foreign
currency translation losses related to the
U.S. dollar debt, represented 16 per cent. Expenses increased by
10 per cent relative to 2000, driven
primarily by a 22 per cent increase in the cost of fuels, namely
natural gas, and purchased power, which
was required due to low river flows and reduced electricity
generation (see Exhibit 1).
ORIGINS OF U.S. DEBT
SaskPower was a capital-intensive, vertically integrated electric
power utility. Asset replacement was
required even during slow economic times. Like most crown
corporations, SaskPower sourced debt
through the provincial treasury.2
In the 1990s, Saskatchewan was in poor financial health.
Canadian financial institutions showed little
interest in buying Saskatchewan debt, and the province faced
relatively high credit spreads over Canadian
treasuries. Therefore, the province deemed it advantageous to
borrow in the United States, where its debt
was better received and interest rates on long-term debt were
significantly lower. SaskPower made five
U.S. debt issues between 1990 and 1993, totalling US$619
million in principal, and maturing 10 to 30
years later (see Exhibit 2). The exchange rate at issue averaged
CA$1.22 per U.S. dollar, or US$0.82 per
Canadian dollar, and the debt was worth CA$755 million.
SaskPower’s all-in cost of its U.S. debt was much lower than
the typical equivalent Canadian dollar debt.
On average, it was 160 basis points lower, or 17 per cent lower,
than what the Canadian dollar debt’s all-

in cost would have been. Therefore, the U.S. dollar would need
to move up a long way before the
Canadian dollar cost of servicing the U.S. debt exceeded what
the cost would have been if SaskPower had
chosen to borrow in Canadian dollars (see Exhibit 2).
The U.S. dollar debt carried semi-annual coupon payments. The
debt was non-callable and non-
convertible. Being primarily held by institutional investors, it
had little to no market float.
ACCOUNTING POLICY CHANGE AND EXCHANGE RATE
UNCERTAINTY
At the time, the accounting standard that SaskPower followed
was the Canadian version of the generally
accepted accounting principles (GAAP). Foreign exchange
translation adjustments that resulted from
year-end revaluation of the U.S. debt were amortized over the
remaining term of the debt. The Canadian
dollar’s value deteriorated for most of the 1990s, which meant
that the U.S. dollar appreciated in value
(see Exhibit 3), creating a build-up of unrealized foreign
exchange losses. A portion of these losses was
amortized annually, although these were non-cash charges—no
additional funds were required until the
structure, accountability, and role in the economy; Allan
Tupper, “Crown Corporation,” Historica Canada, last edited
December 17, 2013, accessed October 30, 2017,
www.thecanadianencyclopedia.ca/en/article/crown-corporation.
2 SaskPower does not pay for this service; all costs are included
in the final debt rate.

www.thecanadianencyclopedia.ca/en/article/crown-corporation
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9B18N011
debt matured. The amortization was an amount of multi-million
dollars per year; however, it was offset
by significant reductions in actual finance charge payments as
SaskPower’s debt declined sharply over the
1990s. The amortized exchange losses were CA$8 million for
1999 and CA$9 million for 2000. At the
end of 1999, unamortized foreign exchange losses were CA$97
million.
In 2001, SaskPower adopted a new accounting policy in
accordance with revised Canadian Institute of
Chartered Accountants guidelines. The new policy required all
foreign currency translation differences to be
recognized and recorded as a gain or loss in the current year.
The purpose of this policy shift was to bring
Canadian accounting practices in line with those of Europe and
the United States. This change had a
significant effect on SaskPower’s financial results in 2001,
increasing finance charges by CA$31 million
and reducing net income to CA$29 million (see Exhibit 4).3
Repercussions of the accounting policy change
were rather fundamental. Stakeholders started questioning why

SaskPower had U.S. debt in the first place.
Some of the unrealized foreign exchange losses were reversed
during the first eight months of 2002. The
Canadian dollar increased from US$0.6279 on December 31,
2001 to US$0.6415 on August 30, 2002
(i.e., the U.S. dollar dropped from CA$1.5926 to CA$1.5588),
resulting in a year-to-date foreign
exchange gain of CA$15.5 million. Estimates for foreign
exchange gains for the year were approximately
CA$15 million, based on a forecast closing rate of CA$1.00 =
US$0.64. However, this estimate was
highly unreliable due to the recent volatility in the exchange
rate, the disagreement among foreign
exchange analysts on the value of the Canadian dollar, and past
forecast errors.4 With each US$0.01
change in the value of the Canadian dollar translating into a
change of approximately CA$12 million
(increase or decrease) in SaskPower’s net income, possibilities
were wide-ranging (positive or negative)
for the year’s results.
These foreign exchange gains or losses complicated the setting
of electricity rates. In most utilities, the
total asset base was allowed to earn an approved rate of return,
referred to as a “return on rate base.”
SaskPower used a less formal process but still required approval
from the government. The process
focused on the expected net income that would result from the
approved rate adjustment. Finance charges
would normally be predictable if they were based on long-term,
fixed rate debt. However, the significant
exposure to the U.S. dollar generated large, unpredictable
swings in net income, which could not be
accommodated in the rate-setting process.

PLAN OF ACTION
Market sentiment about the Canadian dollar was negative
towards the end of 2002, with expectations of
additional weakness. There was extensive discussion in the
business press of the differences between the
Canadian and American economies, where the focus was tax
policy and general fundamentals. The tone
of the discussion on the Canadian economy seemed bearish.
Given this outlook, and in order to manage
the volatility in net income caused by the U.S. debt,
SaskPower’s treasury group entertained, and then
promoted, the strategy of hedging all the U.S. debt. Currency
swaps emerged as the most appropriate
hedging tool.
CURRENCY SWAPS
3 Results for the year 2000 were restated, and CA$121 million
of unrealized exchange losses were written off against
retained earnings.
4 In 2002, between July 22–23, 2002, the Canadian dollar lost
1.87 U.S. cents in value, relative to the U.S. dollar—a loss of
3 per cent over two days.
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9B18N011
Foreign currency swaps were derivative instruments that
allowed an entity to change the currency
denomination of its assets (cash inflows) or liabilities (cash
outflows). A company, for example, could
swap the remaining interest and principal payments on an
outstanding debt for equivalent interest and
principal payments in another currency, effectively
transforming the existing debt into a comparable-
value debt that was denominated in the other currency. Currency
swaps were over-the-counter contracts
negotiated between a company and a financial institution.
A currency swap could be structured in several forms. For
example, it could involve the swapping of a
newly-issued debt for an equal-value debt in another currency.
In this case, the counterparties at the outset
exchanged the debt issue proceeds for an equivalent amount in
the other currency. Then, they exchanged
interest and principal payments over the term of the debt. A
swap could also involve the remaining interest
and principal payments on an outstanding debt, or it could
involve swapping only interest payments.

Plain vanilla currency swaps called for the exchange of fixed
interest payments in one currency for fixed
interest payments in another currency (with or without an
exchange of the principal). Currency swaps
could also involve the swapping of fixed interest payments in
one currency for floating, or adjustable,
payments in another currency. The floating payments, in this
case, would be indexed to a benchmark
short-term interest rate in the respective currency. Given the
nature of SaskPower’s assets, management
considered swapping its outstanding long-term, fixed-rate U.S.
dollar debt for Canadian dollar debt with
equal term and similarly fixed interest rates.
HEDGING OPTIONS
SaskPower’s management recommended a hedging program to
its board of directors as part of the
company’s 2003–2007 business plan. Convinced that the status
quo, or simply doing nothing, was not an
option, management provided two possible hedging options for
the company to pursue in regard to
managing its U.S. debt.
Option 1: Lock In All Remaining U.S. Debt Now
This option would eliminate the foreign exchange risk by
converting all future U.S. debt payments,
starting at the beginning of 2003, to fixed Canadian dollar
payments. In return, SaskPower would give up
the upside potential if the Canadian dollar were to appreciate.
Even though market conditions had
changed drastically since the U.S. debt was issued, the hedged
all-in costs based on swap rates in
December 2002 would have been near the costs that SaskPower
would have paid if it had originally

borrowed in Canadian dollars (see Exhibit 5).
Option 2: Phase-In Hedges Over the Period Remaining Until
December 31, 2005
This option would eliminate the foreign exchange risk before
the end of the five-year business plan.
SaskPower would be susceptible to currency movements in the
interim—the exposure would decrease as
swaps were gradually entered into—but could benefit from a
strengthening of the Canadian dollar. The
key elements of this strategy were as follows:
-in period, the company’s treasurer was to
set a target range for the quarterly foreign
exchange rate based on a consensus forecast, which
incorporated forecasts from a number of different
agencies. Swaps would then be executed when the market
exchange rate (Bank of Canada mid-noon
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9B18N011
rate) traded outside of the range. For added flexibility, the
treasurer had the discretion to execute a
swap if the exchange rate was within the target range,
depending on the time remaining in the quarter,
current market conditions, and the amount hedged to date.
e unhedged principal amounts of the first three debt issues
(maturing in 2003, 2008, and 2013),
totalling US$207 million, would be fully hedged by the end of
2003. Priority would be given to these
debt issues for two reasons: dealer spreads were tighter for
swaps with shorter maturities; and the
hedged all-in costs for these issues at the swap rates in
December 2002 would be near the original
equivalent Canadian dollar costs for these issues (see Exhibit
5). Thereafter, an annual hedging target
would be set to ensure that the remaining US$300 million debt
issues were covered by December 31
of 2005.

Whichever option was chosen, SaskPower would structure the
swaps in sums of US$25–50 million,
solicit quotes from multiple dealers, and spread the deals over
many banks to reduce credit risk.
THE DECISION
Having read the management team’s recommendations and
reviewed the data provided, James agreed
with management that a course of action needed to be taken—
doing nothing was not an option.
He pondered the details of a proposed swap for US$25 million
of the 2008 debt issue. The U.S. dollar
principal amount would be swapped for CA$35.6 million, and
the 7.125 per cent coupon rate on the U.S.
dollar principal, starting with the payment on September 15,
2003, would be swapped for an 8.875 per
cent coupon rate on the Canadian dollar principal (see Exhibit
6).
However, to ensure the most effective financial position for
SaskPower, James had to decide between
hedging option 1 or option 2.

9B18N011
EXHIBIT 1: CONSOLIDATED FINANCIAL STATEMENTS
FOR FISCAL YEAR 2001
Consolidated Statement of Income and Reinvested Earnings (in
CA$ million)
For the year ended December 31 2001 2000
(Restated)
Revenue
Electric Sales
Domestic 994 952
Export
109 128
21 Other 23
Total revenue 1,126 1,101
Expenses

Fuel and purchased power
Operating, maintenance, and administration
Depreciation and amortization
Taxes
468
254
156
26
384
264
151
24
Future asset removal and site restoration 12 14
Total Expenses 916 837
Income before finance charges 210 264
Finance Charges
Foreign exchange losses
148 131
44 27
Allowance for funds used during construction (11) (2)
Total finance charges 181 156
Net income 29 108
Reinvested earnings, beginning of year 467 428
Dividend declared (16) (69)
Reinvested earnings, end of year 480 467

9B18N011
EXHIBIT 1 (CONTINUED)
Consolidated Statement of Financial Position (in CA$ million)
As at December 31 2001 2000
(Restated)
Assets
Current Assets
Cash and cash equivalents 203 68
Accounts receivable and unbilled revenue 142 153
Materials, fuel and supplies 105 105
450 326
Property, plant, and equipment
Property, plant, and equipment
Less: Accumulated depreciation
Contributions in aid of construction
5,158
2,126
231
4,982
1,976
224
2,801 2,782

Construction in progress 270 97
3,071 2,879
Other assets 71 19
Total assets 3,592 3,224
Liabilities and equity
Current liabilities
Accounts payable and accrued liabilities
Dividend payable
234
7
205
17
241 222
Long-term debt
Recourse debt 1,918 1,661
Non-recourse debt 91 -
Equity in sinking funds (98) (77)
1,911 1,584
Other liabilities 300 291
Total liabilities 2,452 2,097
Equity
Equity advances
Reinvested earnings
660
480
660
467

Total equity
Total liabilities and equity
1,140
3,592
1,127
3,224
Source: Company documents.

9B18N011
EXHIBIT 2: BREAKDOWN OF U.S. DOLLAR DEBT
Coupon
Principal
Maturity
Issue
Settlement
Date
US$ All-in
Cost at
Issue
Estimated All-
in Cost for CA$
Debt at Issue*
US$ Rate
at Issue
Approximate
Breakeven
US$ Rate**

July 20, 1993 6.74% 8.50% CA$1.28 CA$1.47
March 22,
1993 7.25% 9.06% CA$1.25 CA$1.43
July 20, 1993 7.55% 9.25% CA$1.28 CA$1.47
December 20,
1990 9.53% 11.15% CA$1.15 CA$1.33
July 21, 1992 8.60% 9.80% CA$1.19 CA$1.35
Note:
* This is the estimated all-in-cost if SaskPower had originally
issued Canadian dollar debt. Estimates were provided in the
original deal term sheets. The rate for the 2008 issue was
interpolated based on the 10-year and 20-year Government of
Canada rates, plus a spread based on the other four issues (to
adjust for credit and issue costs).
** This is the US dollar rate that would bring the Canadian

dollar cost of the U.S. dollar debt equal to the estimated cost of
SaskPower originally issuing Canadian dollar debt.
*** US$42 million of this amount was hedged by currency
swaps, and US$8 million by coupon swaps.
**** US$70 million of this amount was hedged by currency
***** US$75 million of this amount was hedged by coupon
swaps.
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EXHIBIT 3: CANADIAN DOLLAR EXCHANGE RATE
VERSUS THE U.S. DOLLAR, 1991–2002
$0.60
$0.65
$0.70

$0.75
$0.80
$0.85
$0.90
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9B18N011
EXHIBIT 4: IMPACT OF REVISED ACCOUNTING
TREATMENT OF FOREIGN CURRENCY
TRANSLATION
Impact on Financial Results of 2001
(in CA$ million) Revised Standards
Previous
Standards Change
Finance Charges 181 150 31
Net Income 29 60 (31)
Equity 1,140 1,292 (152)
Restatement of Prior Period Financial Statements Using the
New Accounting Standards
(in CA$ millions) 2000 1999 1998 1997
2000 Annual Report
Finance Charges 138 155 169 176
Net Income 126 114 140 132

Equity 1,248 1,191 1,140 1,077
2001 Annual Report with prior years restated
Finance Charges 156 95 215 200
Net Income 108 174 94 108
Equity 1,127 1,088 977 959
Impact of Accounting Change
Finance Changes 18 (60) 46 24
Net Income (18) 60 (46) (24)
Equity (121) (103) (163) (118)
US$ per CA$1.00
Beginning of Year $0.6929 $0.6523 $0.6997 $0.7296
End of Year $0.6666 $0.6929 $0.6523 $0.6997
Change ($0.0263) $0.0406 ($0.0474) ($0.0299)

9B18N011
EXHIBIT 5: ESTIMATED ORIGINAL CANADIAN DOLLAR
ALL-IN COSTS VERSUS THE WOULD-BE
HEDGED ALL-IN COST
U.S. Dollar Debt Issue
Estimated All-in Cost for
Canadian Dollar Debt at Issue*
Would-Be Hedged
All-in Cost**
8.50% 7.697%
9.06% 9.120%

9.25% 9.195%
, 2020
11.15% 11.671%
9.80% 10.647%
Note:
* This is the estimated all-in cost were SaskPower originally to
issue Canadian dollar debt. Estimates were provided in the
original deal term sheets. The rate for the 2008 issue was
interpolated based on the 10- and 20-year Government of
Canada
rates, plus a spread based on the other four issues (to adjust for
credit and issue costs).
** The would-be hedged all-in cost was based on estimated
market swap quotes in December 2002 and based on all future
debt-related flows on the swapped flows.
*** US$42 million of this amount was hedged by currency
**** US$70 million of this amount was hedged by currency
***** US$75 million of this amount was hedged by coupon
swaps.

Page 12 9B18N011
EXHIBIT 6: U.S. DOLLAR–CANADIAN DOLLAR SWAP
AGREEMENT
Principals: US$25,000,000

CA$35,600,000
Coupon rates: 7.125% on US$ principal
8.875% on CA$ principal
Coupon frequency: Half coupon rate, paid semi-annually
First settlement date: September 15, 2003
Last settlement date: March 15, 2008
SWAP CASH FLOWS
Date SaskPower Will Receive SaskPower Will Pay
September 15, 2003 US$890,625 CA$1,579,750
March 15, 2004 US$890,625 CA$1,579,750
September 15, 2004 US$890,625 CA$1,579,750
March 15, 2005 US$890,625 CA$1,579,750
September 15, 2005 US$890,625 CA$1,579,750
March 15, 2006 US$890,625 CA$1,579,750
September 15, 2006 US$890,625 CA$1,579,750
March 15, 2007 US$890,625 CA$1,579,750
September 15, 2007 US$890,625 CA$1,579,750
March 15, 2008 US$890,625 + US$25,000,000 CA$1,579,750 +
CA$35,600,000
SASKPOWER U.S. DEBT: HEDGING CURRENCY
EXPOSURE SASKPOWER: THE COMPANY ORIGINS OF
U.S. DEBT ACCOUNTING POLICY CHANGE AND
EXCHANGE RATE UNCERTAINTY PLAN OF ACTION

CURRENCY SWAPS HEDGING OPTIONS Option 1: Lock In
All Remaining U.S. Debt Now Option 2: Phase-In Hedges Over
the Period Remaining Until December 31, 2005 THE DECISION
EXHIBIT 1: CONSOLIDATED FINANCIAL STATEMENTS
FOR FISCAL YEAR 2001 EXHIBIT 1 (CONTINUED)
Consolidated Statement of Financial Position (in CA$ million)
EXHIBIT 2: BREAKDOWN OF U.S. DOLLAR DEBT EXHIBIT
3: CANADIAN DOLLAR EXCHANGE RATE VERSUS THE
U.S. DOLLAR, 1991–2002 EXHIBIT 4: IMPACT OF REVISED
ACCOUNTING TREATMENT OF FOREIGN CURRENCY
TRANSLATION EXHIBIT 5: ESTIMATED ORIGINAL
CANADIAN DOLLAR ALL-IN COSTS VERSUS THE
WOULD-BE HEDGED ALL-IN COST EXHIBIT 6: U.S.
DOLLAR–CANADIAN DOLLAR SWAP …
2
Running head: THE JONES ACT
The Jones Act 2
The Jones Act of the Merchant Marine Act of 1920
Latissa Butler
American Public University
Dr. Wallace Burns

February 23, 2020
The Jones Act of the Merchant Marine Act of 1920
The century-old Merchant Marine law of 1920, also known as
"Jones Act" has been part of a contentious topic in the U.S for a
long time. Jones Act has seen an excessive strain in the
economy with prices of goods in many states hiking due to the
restriction of foreign ships into U.S water territorials. There has

also been a tremendous impact on the environment and internal
revenue. The limits have impacted heavily on people living in
the coasts of Hawaii, Alaska the island of Puerto Rico and
Guam as a result of the Section 27 act which only allows
"cabotage".
Conversely, the federal law has fostered domestic shipbuilding
leading to increased employment and a boost to national
security. Jones Act also allows the compensation of sailors who
might experience accidents in the line of duty. If this were to
happen, I am in support of the repealing part of the law that acts
as a burden to the American citizen.
Since its enactment to law, the Jones Act, has hit hardest on the
economy of U.S. despite the reforms done on Section 28. The
restrictions on vessels made and operated by Americans has led
to the variability in the shipping rates. The cost of transporting
commodities has risen drastically due to the lack of competition
from foreign markets, ultimately leading to an increase in prices
of goods (Washington Post, 2010). Shipping industries locally,
on the other hand, have increased the costs of the services they
offer. The move to raise the prices of the available commodities
has seen many citizens seeking for alternative means of
importing and transporting their produce from the neighboring
countries. The lack of a free market that has move to the states,
must settle for higher prices than others due to the difference in
the shipping cost. According to The International Trade
Commission's 1995 Analysis, the cost incurred during the
transportation of goods by these means apart from the sea is
also high and impact on the economy of the country. The
amount of fuel consumption during transporting goods through
road is too expensive when evaluated.
The effect of the Jones Act on the environment has also been
felt across the state. The smoke and gases released as a result of
traffic have led to the rise in temperatures in a different part of

America. Carbon emission has, in the past, contributed to high
cost incurred when managing. Additionally, the restriction has
led to a loss in the amount of foreign revenue in the U.S. Due to
this fact, a lot of bilateral agreements have failed as a result of
the Jones Act law which has consequently had an effect on the
economy of the U.S (Hoxie, Phillip, Smith & Vincent, 2019). In
my opinion, based on the impact the law has on the economy of
the country, I feel that the part that restricts the involvement
with foreign nations when it comes to trading in the U.S waters
should be repealed. I also think that, the Trump administration
should embrace capitalism, thus encouraging competition by
abolishing the section in the law that restricts foreign vessels
from doing business along the American coast.
However, federal law has also served its part in employing
many American citizens. On my part, I feel that the fact the law
allows ships to be manufactured in the country helps to engage
people living in those areas. According to John (2008), the
largest shipyard in the state contributes to the most significant
work of people. Jones Act should, therefore, retain the section
but modify it to incorporate the involvement of the foreign
nations in the process.
Additionally, the law allows the compensation of the seaman in
case of any injuries or fatalities incurred in the line of duty. The
seaman status requires the employee to pay his or her work after
three years of the damage. I consider that part of the law should
remain when repealing the act. Employer's negligence by taking
an unreasonable risk at the cost of the sailor should be dealt
with properly per the law. Moreover, by not removing this part
of the federal law, accidents on the water will be reduced since,
under this law, employers will be liable for any unseaworthy
vessels that belong to them. Therefore, the seaman status in the
Jones Act will serve to maintain discipline in the sea. For me I
consider that these two parts of the law should be kept while the
rest be repealed. They will not only create more jobs, but also

serve to protect the lives of our seamen by ensuring that any
wrong done to them by their employees is brought to judgement.
The Merchant Marine Act of 1920, also known as the "Jones
Act" has served to squeeze the economy rather than to flourish
it. The economic burden has had a toll on the lives of many
American, especially in those in coastal areas. The law which
was signed a century ago to develop the maritime industry
during World War I has outlived its usefulness in today's world.
The restriction of foreign interference in the shipping industry
has led to different economic problems in the U.S such transport
cost, revenue cost and revenue cost which has had a toll on the
side of the American citizen.

References
Hoxie, Philip G.; Smith, Vincent H. (2019). The Jones Act in
Historical Context. Retrieved from
https://www.questia.com/library/journal/1G1-593351968/the-
jones-act-in-historical-context
Isaac Shafran (2014). Dry Ports – A Global Perspective:
Challenges and Developments in Serving Hinterlands. Journal
of the Transportation Research Forum, Vol. 53, No. 1 (Spring
2014), p. 119-122. Transportation Research Forum.
http://www.trforum.org/journal
John F. Frittelli (2008). The Jones Act: An Overview. Retrieved
from
https://apus.primo.exlibrisgroup.com/discovery/fulldisplay?doci
d=alma991002205414305031&context=L&vid=01APUS_INST:0
1APUS&lang=en&search_scope=MyInst_and_CI&adaptor=Loca
l Search Engine &tab=Everything &query=any, contains, the
Jones Act &offset
Maritime Issues: Assessment Of The International Trade
Commission’s 1995 Analysis Of The Economic Impact Of The
Jones Act. (n.d.).
The Jones Act ship law has outlived its usefulness (2010).
Washington Post. Retrieved from URL:
http://www.washingtonpost.com/wp-
dyn/content/article/2010/06/24/AR2010062405500.html
TRB Special Report: The Marine Transportation System and the
Federal Role

URL: http://onlinepubs.trb.org/onlinepubs/sr/sr279.pdf
The United States, C. (1967). Amend section 27 of the Merchant
Marine Act of 1920: hearing before the Subcommittee on
Merchant Marine and Fisheries of the Committee on Commerce,
United States Senate, Ninetieth Congress, first session on S.
292. Retrieved from
http://hdl.handle.net/2027/umn.31951p00979962f
United States, C. (1924). To amend section 28 of the Merchant
marine act of 1920: Hearings...on H.R. 8091. Retrieved from
http://hdl.handle.net/2027/umn.31951d03543592e

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