21st Century Port Infrastructure Policy is a Protectionist Throwback

August 28, 2013

Recently, Senators Patty Murray (D-WA) and Maria Cantwell (D-WA) have proposed significant alterations to the US’ port maintenance and funding regime. The United States has long maintained a “Harbor Maintenance Tax” (HMT) to finance exactly that: harbor maintenance. Each cargo container faces an additional 0.125 percent import tariff, usually about $100 to $200 per container, which can become very expensive for major importers. Funds raised by the HMT are then pooled together nationally, and used to fund dredging of navigation channels.

In principle, user fees like this are a good way to finance infrastructure. We have written previously on the importance of using tolls, or gas taxes if necessary, to fund infrastructure, instead of general fund revenues. The same is true for ports: it makes sense to finance them from taxes levied on harbor traffic.

However, the current HMT system is, as Senators Murray and Cantwell note, deeply flawed. Pooling all user fees for distribution back out to harbors generally makes little sense: ports should be able to hold on to the revenues they raise. Furthermore, the current HMT law places narrow rules on uses of HMT revenues, such that they are used exclusively for dredging of harbors. Harbors requiring less dredging, then, are disadvantaged, despite actually being naturally cheaper-to-maintain ports. Finally, a large amount of HMT revenues go unused, and so the HMT fund has accumulated over $7 billion in surpluses, leading to calls for mandatory spending of all receipts.

Murray and Cantwell’s Maritime Goods Movement Act (MGMA) aims to solve these problems. It would allow a portion of levied funds to be kept by harbors to use on other maintenance needs or environmental projects. Its primary motive, however, relates to trade diversion. A recent Federal Maritime Commission report suggested that large amounts of trade may be diverted to ports in Canada and Mexico, then shipped into the US by truck and rail, in order to avoid the HMT. The MGMA would levy a fee on those goods being re-exported to the US from Canada and Mexico, thus encouraging importers to route directly through US ports.

Concerns about trade diversion are justified. These effects, created by uneven taxation and trade regimes across jurisdictions, can be pronounced and costly. That said, the solution to trade diversion created by import taxes like the HMT is not more import taxes.

A better solution would be to do as Canada has already begun to do since the 1990’s: allow port authorities autonomy in financing and require them, in order to maintain their legal charters, to become self-sufficient. A better harbor funding policy would be to allow ports to levy maintenance and dredging fees as they see necessary, and then allow them to dispose of revenues raised as they deem fit. This would serve to create cost competition between US ports, which benefits American consumers.

Furthermore, concerns about maritime shipping diversion due to tax differences may be overblown. The port of greatest concern to Senators Murray and Cantwell, Prince Rupert Port Authority, is increasing numerous fees in 2013, which will reduce whatever disparities do exist. Prince Rupert is likely gaining on west coast ports more due to its closer proximity to East Asian sources, better rail access, and easier labor relations than a small tax difference. Murray and Cantwell’s proposal has some good features, such as allowing ports to keep some revenues and use them more freely, but is a protectionist response to what is really a problem of domestic taxation. A policy granting greater autonomy to ports and reducing the tax burden on imports would be better.

For more on transportation funding, click here.

For more on international taxes, click here.

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