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U.S. Drops Jones Act Rulemaking

Concerns have intensified that foreign-flag ships engaged in transporting specialist equipment for the construction or modification of offshore installations on the U.S. Outer Continental Shelf would be denied permission to trade under the Jones Act.

Ironically, this fear comes about because U.S. Customs and Border Protection has withdrawn rulemaking under way since 2009, which could have installed a blanket ban on foreign ships.

On paper, this could be construed as a victory for operators of foreign tonnage, whose lobbies had strongly opposed CBP’s proposal. However, experts said the result now could be the opposite, leading to a quiet backdoor rejection of foreign ships, in view of CBP’s new intention of ruling on such requests on a case-by-case basis in the absence of any rulemaking.

“I am waiting for the other shoe to drop,” said regulatory consultant Dennis Bryant.

The Jones Act requires “transportation of merchandise between points in the U.S.” to be conducted only on a U.S.-built vessel, owned at least 75% and crewed by U.S. citizens.

As oil business grew in the Gulf of Mexico, CBP routinely began considering specific instances of marine offshore work not to be “transportation of merchandise." Since 1976, CBP has issued about two dozen “rulings” to operators of foreign-flag tonnage, allowing them to work legally in the U.S. Gulf.

CBP has allowed foreign tonnage to do work such as dive support, pipe laying, pipe repair, and installation of wellheads. In some rulings, items transported were deemed “equipment of the vessel", similar to ships’ stores and anchors, and thus not “merchandise." It was claimed in certain quarters that appropriate Jones Act ships for some specific purposes were simply not available.

These rulings were not official “waivers” of the Jones Act. However, each ruling set a precedent for work in that category to be performed by all non-U.S. aspirants.

Things turned on their head in July 2009, when CBP revoked a ruling it had issued in February that allowed a wellhead assembly known as a Christmas Tree to be transported on a foreign ship.

The Offshore Marine Service Association, a trade body committed to defending the Jones Act, was at the vanguard of a domestic campaign to get CBP to change its policy completely. CBP did just that, by publishing in the Customs Bulletin a proposed modification that would revoke its own prior rulings and shut the door on foreign ships.

However, the fact that this proposal was published in the Customs Bulletin and not the Federal Register returned to haunt CBP. The latter action would have required a review by the Office of Management and Budget. Amid industry criticism, CBP in September 2009 withdrew the proposal, but said it remained under study. It submitted a similar draft for OMB review in March this year.

CBP and the Department of Homeland Security have now abandoned the idea altogether, apparently realizing that OMB approval would not be forthcoming. Blank Rome partner Jonathan Waldron, who represented foreign-flag trade bodies in opposing the proposal, said the reversal appears influenced by “concerns from the Office of the U.S. Trade Representative and other federal agencies that CBP’s proposal could have serious foreign trade implications."

Mr. Waldron said the prospect of case-by-case CBP rulings now makes it even more important for foreign-flag operators and their lawyers to do thorough research. Finding the business and deploying the ships without doing due diligence, in hopes of a favourable CBP ruling later, is simply not an option.

“Since the revocation of the 2009 Christmas Tree ruling, CBP has not issued any rulings involving this matter at all. This leaves the offshore industry in a state of flux and uncertainty until CBP determines the policy it will follow moving forward,” Mr. Waldron added.

"U.S. Drops Jones Act Rulemaking," by Rajesh Joshi first appeared in Lloyd's List on Monday, December 13, 2010.  To view this article online, visit www.lloydslist.com