Recent developments have indicated that the United States Customs and Border Protection Agency (CBP) is reviewing its interpretations and existing ruling letters in connection with the coastwise trade laws of the U.S. Companies operating in the territorial waters and Outer Continental Shelf of the U.S. could be affected by any change by CBP to these interpretations. This includes offshore construction companies, oil companies, drilling contractors and vessel operators engaged in the development of energy resources in the Gulf of Mexico and other U.S. offshore energy locations.
Existing Jones Act Interpretations
By definition, the coastwise trade of the U.S. involves the carriage of merchandise or passengers between two points in the United States. The coastwise trade laws are sometimes collectively referred to as the 'Jones Act.'
Only U.S. flag vessels with a coastwise endorsement are permitted to transport merchandise or passengers in the coastwise trade. Thus foreign flag vessels and non-coastwise qualified U.S. flag vessels must continually exercise caution when operating in the territorial waters and Outer Continental Shelf of the U.S. to ensure compliance with the restrictions imposed by the Jones Act.
In order to assist owners of foreign flag and non-coastwise qualified vessels in their compliance with the Jones Act, CBP has issued numerous ruling letters indicating, among other issues, its interpretation of what activities are prohibited by the Jones Act and what items constitute merchandise or passengers and are thus subject to the restrictions of the Jones Act.
Under the existing rulings, many items such as ROVs, dive support equipment, drilling rigs and other similar items are classified as equipment of the vessel when these items are deemed necessary for the 'mission' of the vessel. Items classified as vessel equipment are not considered merchandise and can be transported by foreign flag and non-coastwise qualified vessels between U.S. points without violating the Jones Act.
Proposed Changes by Customs and Border Protection
On July 17, 2009, CBP issued a notice (Notice) proposing to modify and revoke numerous ruling letters regarding merchandise and vessel equipment. The proposed changes would have modified existing interpretations related to pipelaying and the installation of pipeline connectors.
Changes were also proposed to narrow the interpretation of what items should be classified as vessel equipment from items necessary to the mission of the vessel to items necessary for the operation of the vessel. The proposal would have reversed more than three decades of precedent on foreign flag and non-coastwise qualified vessels serving the offshore oil and gas industry in the U.S.
Revocation of the Proposed Changes and Looking Forward
The proposed Notice attracted considerable attention from both U.S. and foreign companies engaged in the offshore energy industry. During the 30-day comment period provided by the Notice, CBP received comments from 128 companies raising questions and issues related to the proposed interpretation. As a result of the numerous questions and issues raised in connection with the potential effect on the offshore energy industry, CBP officially withdrew the Notice on Oct. 1, 2009.
Although it has withdrawn the changes proposed by the Notice, CBP and its parent agency, the Department of Homeland Security, have indicated they will be reviewing all relevant legal authorities. It is anticipated that a new proposal concerning revisions to CBP's interpretation of the Jones Act will be published for review and comment once this internal review is completed.
This Firm acted as counsel to two of the companies affected by the Notice and was involved in the drafting of these clients' responses to the Notice and the submission of a separate response by an industry-wide working group in which our clients are active.