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Jones Act – Effective Barrier?

April 7, 2016 Charlie Papavizas

Chair, Maritime Practice Group

Washington, DC, USA

cpapavizas@winston.com

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Agenda

• Jones Act Basics • Developments • Politics • Conclusion

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Jones Act -- Basics

• Jones Act = U.S. Merchant Marine Act, 1920 • Policy goes back to 1789

• Jones Act and related laws restrict U.S. commerce to -- • U.S. citizen owned • U.S. citizen operated • U.S.-built vessels

• Penalties are significant including the potential forfeiture of the cargo carried or the value of the cost of the transportation

Sen. Wesley L. Jones

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Jones Act -- Basics

• The Law • “a vessel may not provide any part of the transportation of

merchandise by water, or by land and water, between points in the United States to which the coastwise laws apply, either directly or via a foreign port, unless the vessel . . .[is a qualified US-flag vessel].”

• Waivers • Waivers are very difficult to obtain and require a national

defense finding unless granted by Congress in special legislation

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Jones Act -- Basics

• U.S. Outer Continental Shelf Lands Act (OCSLA) extends Jones Act to “points” on the U.S. outer continental shelf for oil and gas related exploration, development and production

• Specifically, "to all artificial islands, and all installations and other devices, permanently or temporarily attached to the seabed”

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Jones Act Review – Notable Exceptions

• Express • Not everything a vessel can carry

constitutes “merchandise” – exceptions include: • Sea stores

• Empty cargo containers

• Stevedoring equipment

• Vessel equipment

• Implicit • Where no transportation is involved –

e.g. drilling, construction • Pipe laying and cable laying • Research (including seismic activities)

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Jones Act Review – Vessel Equipment

• Historically, CBP focused on a vessel’s function and whether the “equipment” was necessary to that function

• Items found in the past to be “vessel equipment” – • Exhibit hall structure on a barge • And, especially, a number of items deployed from construction

vessels such as pipeline connectors, cement, risers, etc.

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Jones Act Review – Vessel Equipment

• CBP in 2009 confirmed that a subsea tree picked up in the U.S. and installed by a foreign construction vessel on the U.S. OCS was not a Jones Act movement

• Later CBP withdrew ruling throwing whole area into uncertainty

• Administrative processes have not reached definitive conclusion

Picture source: offshoretechnology.com

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Jones Act -- Developments • Dynamically positioned foreign vessel to

transfer with its crane and install a topside on a SPAR • Topside delivered to vessel by JA qualified

barge

• Foreign vessel would have to move under its own propulsion to rotate its crane with the suspended topside

• CBP twice found this to be a Jones Act violation • Despite de minimis movement of the barge

• Coast Guard and BSEE wrote to CBP on September 1, 2015 re offshore crane vessels • “we do request that CBP’s Jones Act

determination take safety concerns into consideration”

Picture sources: shipseller.net and madasbadgers.co..uk

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Jones Act -- Developments

• In 2014, CBP requested the business community to provide anonymous information regarding Jones Act violations • At least six penalty cases have been brought by CBP

• Penalties in the millions of dollars

• Administrative decisions apparently reached in 2015 rejecting foreign owner’s arguments

• Industry has caught the attention of Congress, including – • December 2015 Omnibus Appropriations Act which provides that –

“CBP is urged to levy penalties, as appropriate, for previously documented violations of the Jones Act” and “continue working with the Offshore Marine Service Association to investigate potential violations”

• March 2016 Senate hearing where Sen. Cassidy admonished CBP Dep. Commissioner for not imposing harsher penalties

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Jones Act -- Politics • Greatest threats have generally

arisen during times of crisis, e.g. • Deepwater Horizon

• Puerto Rico financial crisis

• Or, where there has been economic dislocation, e.g. • Farmer/railroad capacity issues in

the 1990’s

• Crude oil exports/Northeast refiners • E.g. recent statements by American

Fuel and Petrochemicals Manufacturers

• But, efforts have generally been disorganized

Picture source -- www.hawaiifreepress.com

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Jones Act -- Politics

• In contrast, support for Jones Act is well organized and persistent • E.g. “Venerable Jones Act

Provides An Important Barrier To Terrorist Infiltration Of The Homeland” Lexington Institute (March 24, 2016)

• Jones Act has survived by adapting over time

• International trade negotiations are the Jones Act wild card

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Conclusion