By R. Bruce Striegler

Senators want to make it more expensive to go Canadian

It’s called the Harbor Maintenance Tax (HMT), but for federal politicians from Washington State, it is an obstruction to business for their ports and they want it scrapped. Democratic senators Maria Cantwell and Patty Murray, longtime foes of the U.S. Harbor Maintenance Tax, are once again targeting the tariff with a proposal that would penalize Canadian ports. The senators want to replace the Harbor Maintenance Tax charged on containers of cargo that come into the United States by sea. Instead, they would charge a fee on all containers that originate internationally, even if they come by rail or truck from Canada or Mexico. That means for example, when containers are unloaded in Prince Rupert, B.C. onto a U.S.-bound train or transport truck, before the shipments could cross the border, they would be subject to the tax.

The Maritime Goods Movement Act for the 21st Century (S.1509), which was introduced by Senator Murray in September, would address one of the biggest competitive issues facing the ports of Seattle and Tacoma. It was hailed by local port commissioners as long overdue. Quoted in published reports, Port of Tacoma Commissioner Constance Bacon said, “It’s hard to believe that our own country is making it hard for us to compete.” Under the Cantwell-Murray proposal, funds collected could be available to ports nationwide for a variety of maritime infrastructure projects not just dredging, and ports could use all the money instead of just half, as is now the case.

“Canada’s success is laudable,” said Peter McGraw, a spokesman for Port of Seattle, referring to the federal government’s Asia Pacific Gateway strategy, which has resulted in big investments in Canadian ports. “We’re years behind Canada in developing a national freight strategy and this remains a huge concern for us.”

The HMT fee, based upon the value of goods shipped by container through U.S. ports, was originally collected on exports as well as imports, creating a fund for maintenance dredging of American federal navigation channels. In 1998 the U.S. Supreme Court found collection of export fees violated the Commerce Clause of the U.S. Constitution, declaring those fees unconstitutional, leaving the tariff only applicable to imports. In the 2012 fiscal year, the tax generated more than $1.6 billion in revenue and the surplus in the Harbor Maintenance Trust Fund has grown to more than US$7 billion. The tax has long been a thorn in the side of American west coast deepwater ports since harbours such as Tacoma or Seattle don’t see much of the fund, and they need huge investments for infrastructure improvements to beat back the advances made by Port Metro Vancouver and Port of Prince Rupert. The American ports point out that from the $1.6 billion only about $848 million went back for maintenance across the U.S.

Revisiting an issue that began in 2011

Claims of being disadvantaged have been heard before. The proposed law is an extension of a campaign that began in 2011 to address what some American industry segments, politicians and the affected ports see as an unfair advantage for their Canadian counterparts. The senators characterize this as an issue that threatens an estimated 10,000 jobs in their state, claiming shippers are diverting a lot of U.S.-bound container traffic to Canada to dodge the American per-container tax on imports through American ports. For Canadian port executives, who have argued that foreign shippers choose Canadian ports for numerous reasons beyond the American tax, such a levy could amount to a hefty tariff. In a Canadian Press report, Wendy Zatylny, Executive Director of the Association of Canadian Port Authorities says, “We’re very much opposed to this legislation. It’s not a fair piece of legislation.” She continued, noting, “Shippers have made their decisions to ship through Canadian ports not because of any kind harbour maintenance tax, but simply because of increased efficiencies. The Canadian ports have worked very hard to bring in innovations that speed up the process, so what we’re seeing are the benefits of that.”

Although not related to the senators statement, but in an indication of the Canadian response, in early September officials from Port Metro Vancouver and federal ministers of International Trade and National Revenue announced $49.9 million worth of infrastructure investments to improve marine container inspection capacity and improve efficiencies at the Vancouver port. The money is to construct two new container examination facilities to meet anticipated growth through Deltaport at Roberts Bank and will open in the summer of 2015, followed by a second inspection facility on Burrard Inlet, later that fall.

In the Canadian Press story, Zatylny pointed out that another piece of legislation already working its way through Congress, the Water Resources Development Act, addresses the biggest concerns raised by Cantwell and Murray. That bill has bipartisan support and essentially authorizes the Army Corps of Engineers to study and construct water infrastructure projects, including at critical U.S. ports. “It’s actually meant to address some of the issues they’re trying to get at regarding funding to ports,” she said. “It enables the full spending of the Harbor Maintenance Fund, tops it up, and broadens the terms so that money can be used for infrastructure at ports, and for improving efficiencies that go beyond just dredging. And it does so without imposing any fees on Canada or Mexico.”

U.S. Federal Maritime Commission investigates and reports in 2012

Following earlier complaints by ports, shippers and politicians, the U.S. Federal Maritime Commission investigated and in July 2012, released its report into the movement of containers into the U.S. through Canadian ports, presenting a comprehensive look at the issue. Central to the investigation and subsequent report, was the Harbor Maintenance Tax. The report says this may be a reason shippers are going to through Canada instead of the U.S., but not a significant one.

“We believe that $109 is a reasonable approximation of the average weighted HMT charged per forty foot equivalent (FEU) at U.S. ports. If U.S. importers were relieved from paying this tax or, equivalently, if a fee of this magnitude was imposed at the border on U.S. bound containers having used Canada’s west coast ports, a portion of the U.S. cargo that comes through the ports of Vancouver and Prince Rupert likely would revert to using U.S. west coast ports,” at the same time noting that only 2.6 per cent of west coast U.S. bound imports were coming through Canada.

Among its voluminous pages, the report states, “Prince Rupert is not a viable port for cargo originating from, and destined for, large swaths of the United States. While Chicago and Memphis are important industrial areas, and do represent the destination for a considerable portion of U.S. imports, we spoke with importers who indicated that they have distribution centers located all over the country, and cargo destined for these locations in places like Pennsylvania, California, or Texas would likely never be routed through Prince Rupert. Likewise, Prince Rupert’s claims of rapid transit times only currently apply for cargo being sourced from northern and central China, Japan, and Korea.” The report concluded that the solution may rest with the U.S. government making further investments in port infrastructure, citing Prince Rupert as a specific example.

“Maintaining the competitiveness of the U.S. ports requires in part, improving port infrastructure. Prince Rupert, for example, is geared toward handling intermodal rail traffic and has on-dock rail facilities that allow fewer moves with the cargo. The design of the Port of Prince Rupert allows a single crew to move the cargo from ship to train and then move the train to the switching yard. In other ports, there are separate gangs that discharge the cargo, move the cargo to rail sidings, and then to switching yards to be consolidated with other flatcars.” The report adds that some shippers choose to use Prince Rupert to diversify access to the U.S. markets to avoid issues with natural disasters and work stoppages along one corridor. In terms of the cost of shipping, the committee found that Prince Rupert is less costly than all other west coast ports, in part due to the absence of a harbour maintenance tax, but that may be cancelled out by other factors.

The 2012 Maritime Commission report included this damning statement, “Currently, many U.S. ports, highways, and bridges are slowly decaying due to lack of investment and strategic long-term planning. Our closest competitors, Mexico and Canada, have national transportation policies that ensure that their ports, highways, and bridges, all of which play important roles in the intermodal transportation of commerce, are sustained. Our country’s decisions regarding infrastructure investments today will directly impact our ability to compete in a global economy for years to come.”

Some trade analysts don’t see the U.S. tax as a significant issue in the movement of cargo to Canadian ports, particularly Prince Rupert, with several suggesting that for the two senators, it’s more likely about political posturing. Seattle Post Intelligencer columnist Joel Connelly noted Cantwell’s concerns over Washington State’s share of the west coast container market, which declined from 18 per cent twelve years ago to 15 per cent in 2012, while the share handled by Vancouver and Prince Rupert has risen to almost 14 per cent from eight per cent over the same period.

Senate Bill S.1509 was referred to the Senate Finance Committee, and it is generally expected that it will not progress further.