As with many other countries, the United States has laws and regulations in place to govern cabotage in order to protect its domestic shipping industry and preserve domestically owned shipping infrastructure for national security purposes, among other reasons. The primary law governing wholly domestic shipping in the United States is the Jones Act, which restricts the transportation of merchandise between US points, commonly referred to as cabotage, to properly registered US-flagged vessels.

Jones Act

Enacted in 1920 as Section 27 of the Merchant Marine Act, the act provides that:

"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 - (1) is wholly owned by citizens of the United States for purposes of engaging in the coastwise trade; and (2) has been issued a certificate of documentation with a coastwise endorsement under Chapter 121 or is exempt from documentation but would otherwise be eligible for such a certificate and endorsement. 46 U.S.C.§55102."

The Jones Act and its implementing federal regulations prohibit foreign-flagged vessels from transporting merchandise between US coastwise points, including:

  • US ports;
  • US territorial waters; and
  • certain points on the Outer Continental Shelf.

CBP enforcement

Although this restriction appears clear, its application has been complex. US Customs and Border Protection (CBP) is tasked with enforcing the coastwise trade laws. CBP publishes decisions and rulings on the real-world applications of these restrictions, which provide an authoritative resource on the permissibility of various specific activities. These rulings are a public record and form a body of decisions that can be relied on for the interpretation and application of the Jones Act.

Over the years, a number of CBP rulings have addressed the ability of foreign-flagged vessels to conduct certain activities relating to the offshore energy industry. In particular, prior CBP rulings concluded that non-coastwise vessels could permissibly transport the following materials between US coastwise points:

  • pipeline repair material;
  • anodes;
  • pipeline connectors;
  • wellhead equipment, valves and valve guards;
  • damaged pipeline; and
  • certain platform materials.

These rulings were based on an interpretation that these materials constituted vessel 'equipment' rather than 'merchandise'.

Prior CBP rulings also concluded that non-coastwise vessels could be involved in:

  • emergency repair operations;
  • operations applicable to underwater portions of a platform; and
  • activities involving de minimis amounts of merchandise.

Proposed modifications

CBP recently issued a notice of proposed modifications and revocations of its prior letter rulings relating to the above activities. The effect would require that the above activities be conducted by qualified vessels with coastwise endorsements under the Jones Act regulations. CBP notice states that the proposed modifications to its rulings:

  • better align the rulings with federal statutes and regulations that were promulgated or amended after their initial issuance; and
  • clarify the proper reasoning underlying its conclusions reached in the rulings.

The modifications and revocations proposed by CBP are not yet in force; the proposal has been released for public comment until April 18 2017. After the comment period closes, there will be a minimum of 30 days for agency review of the comments, followed by a further delay of at least 60 days before the ruling can be finalised.

Comment

The proposed CBP modifications could alter which vessels are permitted to conduct numerous activities in connection with the US offshore energy industry. Vessel owners and others involved in the marine energy industry should follow these developments closely, as they could have a significant impact on permissible activities and future opportunities for foreign and US-flagged vessels.

For further information please contact please contact Michael Harowski at Fowler Rodriguez by telephone (+1 504 523 2600) or email (mharowski@frfirm.com). The Fowler Rodriguez website can be accessed at www.frfirm.com.

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