Tariffs on Cruise Lines?

The Pride of America, the only US flagged cruise ship, in Hawaii. Image from Wikipedia.

Cruise ships haven’t had good news in 2020. Many of the first COVID patients in the US, including the people in my area, caught the disease while onboard a cruise vessel. Then cruise lines wanted federal money under the CARES act, even though they aren’t incorporated in the United States, and thus don’t pay US taxes. Combined with the difficulty in cleaning a ship while underway, and cruise lines are facing a difficult return to normal. If stock price is any indication, Carnival Cruise line plummeted from 50 dollars a share in January to almost 8 dollars in April, and is currently sitting around 17 dollars.

Cruise lines have found unique ways to evade US laws and taxes. All but one cruise ship is flagged outside the United States. The flag of the cruise ship allows it to sail in international waters, and dictates what sort of domestic laws apply while onboard. Most cruise ships are flagged in Liberia, Bahamas or Panama. Each of these nations have weak labor laws with limited ability to enforce them. Cruise lines don’t have a minimum wage and get away with significantly lower safety standards. Worse still, if a crime is committed onboard, its notoriously hard to prosecute. A study from the University of Florida found that:

The Cruise Line International Association claims that cruise ships are inherently secure because ships offer a controlled environment with limited access. “However, there has been some startling statistics between 2003 and 2005: 24 people were reported missing and 178 people reported a claim against sexual assault. Additionally, the FBI has opened investigations on 305 cruise-based crimes, from 2000-2005” (Porter, 2006, p.597). The CLIA compares these statistics to U.S. crime rates and harps on being the safest form of transportation and inherently secure. They fail however, to examine the context to which these statistics apply.

Given that Americans make up nearly 75% of cruise line passengers, it seems unfair to have Americans financing a system that is exploiting workers and dodging taxes. The tax dodging makes it easy to undercut any US company trying to start a competitive cruise line. Given the negative attention on cruise lines, its probably time for President Trump to threaten tariffs on the cruise industry.

Cruise ships pay a docking fee and port tariff, based on tonnage, when they dock in a US port. An easy way to encourage better behavior is to raise the port tariffs on non-US flagged vessels, as well as providing a discounted tariff to cruise lines that voluntarily follow US employment and criminal laws. You could have a high tariff, with a discount if the ship pays minimum wages, and a further discount if they follow proper US criminal proceedings. The result is a carrot and stick approach, either getting more money from the industry or enforcing better behavior on the part of the cruise line. Given that cruise lines are struggling, now is the time to negotiate a better deal.

Cruise lines have benefited from America for years under flags of convenience. Perhaps its time they follow the same rules the rest of the United States does.

This post represents the views of the author and not those of the Department of Defense, Department of the Navy, or any other government agency.