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Regulation

The Trump Administration continues to support revocation of certain Jones Act Ruling Letters, which the U.S. Customs and Border Patrol (CBP) proposed on 18 January 2017. All of the rulings to be revoked are more than a decade old.

The changes would revoke rulings allowing foreign-built vessels to transport certain equipment, such as repair pipe, between U.S. ports and oil and gas operations in U.S. waters. The comment period for the proposed changes expired 18 April 2017.

The 100-year-old Jones Act prohibits a foreign vessel from transporting merchandise between points in the United States. A violation may result in the assessment of a civil penalty equal to the value of the merchandise. A waiver may be obtained, in limited circumstances, from the Secretary of the Department of Homeland Security when it is in the interest of national defense, following a determination that there is no U.S. vessel available to engage in the transport.

Changes to the Jones Act Ruling Letters, which are backed by the American Maritime Partnership (AMP), the Shipbuilders Council of America, the Offshore Marine Service Association (OMSA), but opposed by the American Petroleum Institute (API) and the International Marine Contractors Association (IMCA), would represent a significant strengthening of the federal government's enforcement of the Jones Act.

Changes center on the definitions of "vessel equipment" versus "merchandise": the former can be carried between U.S. points by foreign vessels, but the latter must be carried aboard a Jones Act ship in coastwise trade. Proposed modifications would affect the transport and use of specialized oil and gas equipment on foreign-flag offshore vessels. Previous interpretation of the act has long allowed foreign-flagged offshore service vessels within the U.S. Exclusive Economic Zone (EEZ). For regulatory purposes, rigs fixed to the seafloor within the OCS are U.S. points; if CBP redefines production equipment as merchandise, each piece would have to be delivered to each rig by an American vessel.

Violations of the Jones Act can lead to massive fines. In April 2017, Furie Operating Alaska LLC agreed to pay a record $10 million to satisfy a civil penalty originally assessed against it by U.S. Customs and Border Protection (“CBP”) for violating the Jones Act. Furie was penalized when it transported the Spartan 151 jack-up drill rig from the Gulf of Mexico to Alaska in 2011 using a foreign flagged vessel without acquiring a waiver of the Jones Act from the Secretary of Homeland Security.

OMSA says that CBP’s proposal will return more than 3,200 jobs to the Gulf Coast and generate more than $700 million in annual economic output. AMP says that the changes would help ensure that sectors of the U.S. maritime industry “are able to operate without being unfairly disadvantaged through the use of foreign-built, foreign-crewed, and foreign-flagged vessels that are not required to abide by many U.S. laws, including tax, labor, and environmental laws.”

Meanwhile, API contends that the changes will cause the loss of 30,000 industry supported jobs in 2017 with as many as 125,000 jobs lost by 2030, mostly impacting the Gulf of Mexico states, while spurring a cumulative lost Gross Domestic Product of $91.5 billion from 2017-2030. IMCA published a report that they say dispels myths surrounding the proposed changes here.

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