Rishi Maharaj: Dear Vancouver, the cruise lines don't come for the mountains
B.C. doesn't have a cruise industry. It has a lucrative tax-and-labor law evasion industry, and this year gives us a chance to do better
By: Rishi Maharaj
Few industries have taken as many punches during the COVID-19 pandemic as cruise lines. Sure, airlines have had a tough go but we all anticipate using their services once again and they have continued to serve essential travel over the last year. The cruise industry went from a treasured part of the tourism economy to persona non grata in about two weeks. “Diamond Princess” once represented a luxury travel experience. Now it is associated with the horror of being locked in a windowless stateroom for weeks while trying to avoid an outbreak of a mysterious disease.
With vaccination rates climbing around the developed world, cruises are back for 2021. On May 24, major cruise lines — including Carnival, Holland and Celebrity — announced the resumption of their season from the continental U.S. to southeast Alaska.
But the 2021 Alaskan cruise season will be unlike any that came before it. Cruises bringing mostly American passengers to Alaska will not call at Canadian ports, since Canada remains closed to large cruise ships until 2022. That left businesses in popular port cities like Vancouver and Victoria bemoaning the loss of over 1.3 million annual passenger arrivals and an estimated $1.8 billion of revenue.
You could be forgiven for looking at this situation and thinking that Canada has taken a principled stand against an industry that poses a threat to public health. But the reality of why Alaskan cruises often originate or stop in Vancouver or Victoria is more complex and involves an arcane piece of legislation that the U.S. Congress amended in May 2021 to enable Alaska cruises to resume.
An over-100-year-old U.S. law called the Passenger Vessel Services Act requires that passengers travelling between U.S. ports must do so on U.S.-built, U.S.-flagged, and U.S.-owned vessels. It outlaws cabotage, which is the provision of domestic transportation services by foreign carriers. The concept is hardly unique — most countries, Canada included, do not welcome cabotage, whether by air, rail or ship.
Part of the reasoning behind anti-cabotage rules is pure economic protectionism. For instance, it seems likely that if foreign airlines could fly between Toronto and Vancouver, Air Canada would be a much less valuable company. But there are other more defensible reasons to outlaw cabotage. The PVSA rules seek to ensure that American companies who pay U.S. wages, hire U.S. residents, follow U.S. safety regulations and pay U.S. corporate taxes on their profits do not have to compete with companies flying flags of convenience like that of the Bahamas, where such rules are considerably more lax and corporate tax is conveniently zero.
At least, that is how the PVSA works in theory. One of the law’s long-standing exemptions is that foreign-flagged vessels can transport passengers from foreign ports to American ones — a necessary rule to facilitate travel written at a time when transoceanic travel was exclusively by ship. And that, friends, is why so many Alaska cruises call at Vancouver or Victoria.
It isn’t because Stanley Park and Butchart Gardens are so beautiful.
It is because originating or stopping in Canada is the difference between operating out of a tax haven where the maritime safety regulations fit on the back of a Post-It note — as every major cruise line does — and operating out of the U.S. where you have to deal with such inconveniences as minimum wage and compensating workers injured on the job.
For decades, Canada has been an eager accomplice to the industry’s regulatory arbitrage. This is no secret. In calling for the Canadian government to reopen to cruises, the Greater Victoria Harbour Authority wrote that “there is little doubt that satisfying the PVSA requirement is a primary factor in itinerary planning.”
A 2011 report on the economic costs and benefits of cruise ship visits to Victoria prepared for the James Bay Neighbourhood Association advocated for a tax on cruise passengers to compensate for environmental damage, but acknowledged that any such levy must be limited in scale so as not to “[provide] ammunition to the cruise ship lobby that already presses for the repeal of the U.S. Passenger Vessel Services Act (PVSA), thereby permitting Alaska-bound cruises to avoid calling at a B.C. port.”
Interested parties in Canada are surprisingly clear-eyed about the game here. We let foreign cruise lines escape U.S. regulatory and tax liability, and in return we get to sell trinkets to their customers. We are to the cruise industry what the Netherlands and Ireland are to the “Double Irish with a Dutch Sandwich” tax evasion maneuver used by tech giants. In 2019, Carnival Corp. (registered in Panama), paid just 2.32 per cent of its profits in income tax. Royal Caribbean (registered in Liberia) paid 1.4 per cent. Norwegian (registered in Norway — just kidding, the Bahamas) paid 2.07 per cent.
Occasionally, though, we flatter ourselves into thinking that Canada’s west coast is a cruise destination in its own right and not just a way to lower the tax bill while avoiding pesky labour rules. The B.C. government has spent millions developing cruise terminal facilities in Nanaimo to cash in on more port calls from vessels bound for Alaska, yet in 2019 only three vessels stopped there. And that shouldn’t surprise anyone. British Columbia doesn’t have a cruise industry, we have a regulatory arbitrage industry.
Or at least, we did. On May 25, U.S. President Joe Biden signed into law the Alaska Tourism Restoration Act, which temporarily exempts these anti-cabotage restrictions. The bill’s exemption will expire on February 28, 2022.
But rather than gnashing our teeth over being spurned by the Americans, we should take this as an opportunity to further develop tourism industries on the west coast that employ Canadians and contribute to the Canadian tax base.
I live on the coast of B.C. and know the beauty of this place first-hand. Cruising the Inside Passage is something every Canadian should experience in their life, but we needn’t be handcuffed to the foreign mega-cruise industry and its dismal environmental and labour record in doing so.
Developing sustainable tourism is an important part of how we transition away from a mindset that sees the coast primarily as a place to exploit once-abundant fisheries and forests. I, for one, will not miss the cruise ships in 2021.
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