CBP Backpeddles on Jones Act Interpretation

Both OMSA and IMCA expect the matter to be revisited soon.

In a four page document dated 15 September 2009, the DHS arm of U.S. Customs and Border Protection has withdrawn its proposed modification and revocation of ruling letter relating the Customs position on the application of the Jones Act to the transportation of certain merchandise and equipment between coastwise points. After receiving 141 comments in response to its July 17th notice, CBP has declined to go forward with the proposal, but at the same time, promised that a new notice on the matter “will be published in the Customs Bulletin in the near future.”

The CBP General Notice went on to say, “Based on substantive comments CBP received, both supporting and opposing the proposed action, and CBP’s further research on the issue, we conclude that CBP’s interpretation of T.D. 78-387 and T.D. 49815(4) and its application to the rulings cited within the proposed action should be reconsidered.” The July 17th proposed action, when it originally came out, drew immediate attention and angst from foreign registered tonnage operating in the U.S. Gulf and the oil firms engaging their services. In this case, the CBP administers the Jones Act as it applies to offshore energy operations. The proposal on the table – now withdrawn for the time being – involved plans to revoke or modify as many as 20 rulings to restore the (alleged) original intent of the Jones Act as it applies offshore.

The implications of the case are far reaching and somewhat obvious, even to the casual observer. The CBP proposal, had it gone through as it was originally worded, might have amounted to a windfall for U.S. shipyards, mariners and domestic-based marine operations. At the same time, the International Marine contractor’s Association (IMCA) raised the question of what would happen to offshore energy production, in the interim, assuming immediate implementation to the CBP proposal. They also pointed out that oil companies had invested millions in the foreign-flag fleets – not in violation of Jones Act laws – but simply in compliance with federal guidelines that have been in place for decades. Beyond this, the very short window for comments provided by CBP alarmed foreign operators who felt that the proposal would be rammed through in short order. In the end, this did not happen.

Reaction today from both IMCA and the Offshore Marine Services Association (OMSA) was swift. OMSA’s Ken Wells, whose organization represents U.S.-flag assets, said, “We are disappointed.” He told MarEx today that his group and others had been meeting with oil interests in the U.S. Gulf to ensure that there would be a smooth transition in the event that CBP had followed through on their proposed action and also pointed out that U.S. assets were, “sitting at the dock in Fourchon, LA fully capable of doing this offshore work.” Wells further claims that the United States boasts the largest OSV fleet in the world. He added, “This week’s announcement does not give us comfort. Nor should it give energy companies comfort, either.”

The International Marine Contractors Association (IMCA), representing foreign-registered vessels active in American waters, had another take on the matter. In London, IMCA’s Hugh Williams told MarEx simply, “IMCA was pleased to learn that the proposed modifications were withdrawn as we believe they would have had a significant negative impact for the United States offshore oil and gas industry. We continue to urge dialogue between the industry and CBP to develop an agreed way forward. To that end IMCA is always available.” It is IMCA's position that CBP went far beyond the original intent of OMSA's petitions.

The proposal to revoke or modify at least 20 additional rulings issued over a span of more than 30 years, and to re-interpret a key Ruling from 1939 came on suddenly in July. But the proposed rule change, which at one point appeared to be moving through the system at the speed of light, has suddenly been put on the back burner. Neither side expects the matter to go away completely. Ultimately, however, OMSA expects to win this one. To that end, OMSA’s Ken Wells finished up by saying, “We think that Customs has a good handle on the Jones Act.” Clearly, he is hoping that CBP’s next announcement will support that confidence. – MarEx.

Read our August 13th coverage of this issue, entitled, ”CBP, IMCA and OMSA: Oh, My!” by clicking HERE.