Kōloa Rum Co., a Līhu‘e-based distillery that opened in 2009, filed a federal lawsuit late last month, challenging the constitutionality of the Jones Act, or Section 27 of the 1920 Merchant Marine Act.
The suit — filed Feb. 25 by in the U.S. District Court for Washington, D.C. — names Secretary of Homeland Security Kristi Noem and Acting Commissioner of U.S. Customs and Border Protection Pete Flores as defendants. They're the federal officials responsible for enforcing the Jones Act, the suit states.
Kōloa Rum, which is led by President and CEO Bob Gunter, is being represented by Pacific Legal Foundation, a national nonprofit law firm that has offices in Sacramento, California; Palm Beach Gardens, Florida; and Arlington, Virginia.
According to the suit, Kōloa Rum "challenges the enforcement of the Jones Act, which unlawfully discriminates against the ports of Hawai‘i." It contends the measure violates the port preference clause found in Article I, Section 9, Clause 6 of the U.S. Constitution, which states: "No preference shall be given by any regulation of commerce or revenue to the ports of one state over those of another: nor shall vessels bound to, or from, one state, be obliged to enter, clear, or pay duties in another."
The suit states that the distillery regularly imports raw materials like sugar, glass bottles and packaging from the Mainland, which cost more because of the Jones Act restrictions.
Because of restrictions imposed by the Jones Act, the company says in the suit that it faces "increased costs, supply chain delays and barriers to market expansion, placing it at a competitive disadvantaged compared to Mainland distilleries that do not face these shipping constraints."
As a company in Hawai‘i, the suit says Kōloa Rum Co. faces "disproportionate burdens" on its ability to operate compared to Mainland states — burdens it says are imposed by the Jones Act.
Without those restrictions, Kōloa Rum would have access to more competitively priced shipping options and better service, the suit contends. It also would be able to expand its operations and enter new Mainland markets, the suit further states.
According to the filing, Kōloa Rum ships to 36 states and several foreign countries. But even with its international sales, the company "must first ship goods to the Mainland United States due to a lack of international routes passing through Hawai‘i ports," the suit states.
"Kōloa Rum is just seeking a level playing field for its business and for other Hawaiian businesses trying to ship their goods to the U.S. Mainland," Joshua Polk, an attorney at Pacific Legal Foundation, told Aloha State Daily.
As it stands, Polk says Hawai‘i businesses like Kōloa Rum "have to pay vastly more expensive shipping costs than businesses on the Mainland, which have access to alternative shipping options like long-haul trucking or rail."
"Being stuck with Jones Act-compliant shippers means that Kōloa is at a disadvantage to even foreign companies that can ship directly to U.S. ports without needing to check the Jones Act boxes," he continued. "These enhanced costs increase the prices for Kōloa's goods, which harms its business and its customers."
Polk says although there have been calls to reform or eliminate the law, there's been no successful legislation since the act was passed in 1920 requiring that ships transporting goods between U.S. ports be U.S. flagged and built, and mostly owned and crewed by Americans.
"We recently became aware of the outsized effect the Jones Act has on non-contiguous states like Hawai‘i, where import and export costs are higher than anywhere else in the United States," he said.
U.S. Rep. Ed Case, a Democrat who represents Hawai‘i's 1st Congressional District, and Rep. James Moylan, a Republican representing Guam, have recently reintroduced three bills to amend the Merchant Marine Act of 1920, Case's office announced last month.
“Our three bills aim to end a century of federally-created, monopolistic, closed-market domestic cargo shipping to and from our isolated and shipping-dependent homes,” Case said in a Feb. 14 announcement. “In doing so, they target one of the key drivers of our astronomically high costs of living: domination of our lifelines to the outside world by a small group of federally-protected shipping companies that are shielded from any effective competition for service and rates, forcing us to pay far more for both shipping and goods than virtually anywhere else in the world.”
More information on those measures can be found here.
The lawsuit can be viewed here in its entirety.
Stephanie Salmons can be reached at stephanie@alohastatedaily.com.
