U.S. Customs And Border Protection Withdraws Proposed Changes To Jones Act Rulings

In a move hailed as a win for international offshore marine contractors and oil companies operating in the Gulf of Mexico and decried as a setback for domestic shipping interests, the U.S. Customs and Border Protection (“CBP”) has withdrawn its proposal to modify and revoke certain previous interpretations of the Jones Act relating to articles and equipment carried on vessels for use in offshore oil and gas operations. The CBP’s May 10, 2017 action halts further consideration of an action that was hotly debated and could have had a significant impact on foreign-flag vessel operations in the Gulf.

The Jones Act restricts the transportation of merchandise between points in the United States to coastwise-qualified U. S.-flag vessels. By application of the Outer Continental Shelf Lands Act, this restriction extends to structures affixed to the seabed on the U. S. Outer Continental Shelf in connection with the specified activities, including exploration for or production of oil and gas. A key exception, widely relied upon by international marine contractors and their oil company customers, relates to the transportation of “vessel equipment,” which includes articles used in “furtherance of the mission” or “fundamental to the operation of” a vessel. Carriage of this “vessel equipment” is not restricted to U.S.-flag vessels and instead may be done by foreign-flag vessels.

The CBP’s original January 18, 2017 proposal would have modified a 1976 ruling concerning the applicability of this exception to a dive support work barge engaged in the construction, maintenance, repair and inspection of offshore petroleum-related facilities. The CBP proposed to rewrite that ruling on the basis that it was inconsistent with the Jones Act. CBP also planned to revoke or modify almost 30 other rulings interpreting the applicability of the Jones Act to numerous operations including pipe and cable laying, well stimulation, lift boats, and sub-sea construction.

CBP’s retreat was perhaps foreshadowed by the agency’s February 8, 2017 extension of the comment period through April 18, 2017.  It also highlights the ongoing battle between domestic and foreign operators in the Gulf of Mexico, with the former contending that the CBP’s stricter interpretation of the coastwise laws would create jobs and stimulate economic activity in the Gulf, and the latter arguing to the contrary on both points and also citing the lack of Jones Act-qualified vessels to do the work that the foreign flagged vessels would be precluded from doing.  The move also was viewed by some as another example of the Trump administration’s reversal of executive action by the outgoing Obama administration.

This regulatory skirmish points up the need for vessel operators and the companies that employ them in the Gulf of Mexico to make sure they are complying with the complicated web of interpretations of the Jones Act when planning new projects and other operations in the Gulf.  As illustrated by Furie Operating Alaska’s recent agreement to pay a $10 million penalty, if operators overlook, or worse, as was alleged in Furie’s case, intentionally violate, the Jones Act, they do so at their peril.

Robert Stefani practices in the areas of marine finance and other financial, corporate transactions and maritime and commercial litigation and government regulation.