Canadians have shot back in response to the Federal Maritime Commission’s notice of inquiry on the role the Harbor Maintenance Tax has on U.S.-bound cargo increasingly moving through Canadian ports.
They are saying the issue isn’t Canadian ports trying to unfairly take advantage of the average $137 per container tax that U.S. importers avoid by routing their containers through Prince Rupert or Vancouver, British Columbia.
Canadian proponents say the issue is the tax itself. Canadian ports fund their dredging individually, not through a national pool of money funded by taxes on importers, like the HMT does in the U.S.
I tend to agree. As this very well-written 2010 report from the Congressional Research Service spells out, the HMT accomplishes none of the objectives for which it was created back in the mid-1980s.
The report points out that only a third of the top 59 U.S. ports are kept fully dredged to their authorized depths, i.e. the depth they are supposed to be at. Ships can’t enter or leave without draft restrictions and this reduces the amount of cargo ships can carry and thus the cost to the shipper.
It also points out that millions of dollars in HMT revenues go toward the dredging of channels that handle no freight whatsoever. The Oregon Inlet on the Outer Banks of North Carolina is one example: No commercial cargo moves through the inlet, yet over the last decade through 2010, $60 million in importer-paid HMT funds were spent to keep the inlet dredged to its authorized depth of 14 feet, according to the report.
The beneficiaries are commercial fisherman, recreational craft and charter boat operators. Another is Yaquina Bay and Harbor in Oregon, a fishing and recreational harbor whose users pay no HMT. “No cargo has been shipped through this harbor in years,” the report said, yet it has received over $25 million in HMT funds over the same decade. It has cost importers $63 million to maintain the barge channel connecting Puget Sound to Lake Washington although no importers use it.
What the HMT does is perpetuate a system of subsidy. West Coast ports that don’t need much or any dredging — Seattle, Tacoma, Los Angeles, Long Beach — see the HMT funds their importers generate go to keep competing harbors on the Gulf and East coast dredged. The West Coast ports get back a penny on the dollar in HMT funds versus the outflow to other ports. My column this week goes into greater detail.
With only about half of HMT funds allocated in any given year for any purpose, legitimate or otherwise, it’s time to take a look at this tax and consider replacing it.