A Port Security Funding Alternative?

January 28, 2005

Securing the nation's ports from the introduction of dangerous materials and people is certainly a national priority. Ever since President Bush signed the Maritime Transportation Security Act (MTSA) in 2002, Congress has elevated port security to a high national priority by instructing ports to meet new federal security requirements. As of July 2004, ports have complied with these new regulations by constructing fences, security cameras and other devices and employing a cadre of well-trained security personnel. However, complying with all of the requirements laid-out in MTSA is not finished. More than three years after passing MTSA Congress still needs to make good on its promise to pay for these government security mandates called for in the bill.

Achieving an adequate layer of port security isn't cheap. Both the Coast Guard and American Association of Port Authorities conclude that new port security mandates will cost the ports over $950 million each year. Fortunately, the MTSA directed Congress to pay for 50% of port security costs - about $475 million each year. However, the money appropriated to the Port Security Grant program only meets roughly 8% of these costs. The remainder of the funding comes from the owners of cargo stowed on vessels calling US ports.

Convincing Congress to increase spending on port security to meet its 50% funding obligation has been an uphill battle. Law makers on Capitol Hill frequently cite rising federal budget deficits and the ballooning of the cost of the Iraqi war as reasons to underfund its obligation to the nation's port security needs.

During the 108th Congress, several lawmakers floated various proposals aimed at addressing these unfunded federal security mandates. While interesting and even cleaver, these proposals do not have any political momentum and could even prove harmful to importers. Dana Rohrabacher (R-CA) drafted a bill that called for a container tax levied on cargo owners to help pay for port security. Another proposal drafted by the former Republican Rep. Doug Ose (CA) earmarked tariff revenue generated by a port for that port's unfunded security needs. Mr. Ose's measure had the endorsement of the American Association of Port Authorities, cruise ship operators and other powerful political entities.

However, any proposal to earmark tariff revenue for port security needs passed by Congress would never move off the President's desk. The current Administration is pursuing a multilateral trade policy aimed at reducing industrial tariffs paid by importers. By linking the needs of a high national priority to a dedicated funding source - tariff revenue - Congress and the Administration would find themselves in a difficult position of reducing tariffs. It is a safe to bet that, as Congress continues to underfund port security, other lawmakers will continue to locate sources of revenue that may prove harmful to importers.

However, thanks to a recent World Trade Organization ruling, a new potential source revenue is available that could help Congress meet its financial obligation to securing the nation's ports without harming importers. The Continued Dumping and Subsidies Offset Act of 2000, known as the Byrd Amendment, directs the proceeds of dumping duties not into the general treasury, but, rather, into the pockets of the companies that bring these trade remedy cases. World Trade Organization (WTO) has deemed this practice --in effect "rewarding" those who bring trade cases--to be a violation of the General Agreement on Tariffs and Trade.

This means Congress must repeal or amend the Byrd Amendment this year, or face the prospect of retaliation from our trading partner. Retaliation in the form of higher export tariffs on U.S. exports is expected any day. Many free traders just want the Byrd Amendment repealed, redirecting revenues to the general treasury. Others have suggested that the proposal could be amended to direct dumping revenues to some other purpose that would satisfy the World Trade Organization.

Channeling revenue collected from anti-dumping duties will greatly help Congress meet its funding obligation to port security. The revenue collected each year from anti-dumping duties is about $350 million. When added to the $150 million currently appropriated for the Port Security Grant Program, dumping duties could meet Congress' 50% obligation to fund MTSA mandates.

Will Congress do it? To date, most members of Congress don't want to touch the Byrd Amendment, but that could change as soon as exporters feel the pinch of expected retaliation. Whether Congress decides to repeal the amendment--sending the money back to the treasury, or earmark funds for some noble cause--is really up to us and how far we might want to push this idea.

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