Jones Act Rulemaking Proposal Withdrawn by US Customs

Posted in Gulf Coast,Jones Act,Maritime Law,World Maritime News on December 13, 2010

WASHINGTON, DC – An Advance Notice of Proposed Rulemaking (“ANPRM”) regarding the Jones Act has recently been withdrawn by the U.S. Department of Homeland Security (“DHS”). The withdrawal of the rulemaking proposal occurred on November 15, 2010 and has to do with the transportation of merchandise and equipment by foreign-flagged vessels engaging in the support of Outer Continental Shelf (“OCS”) activities.

The ANPRM was under review by the Office of Management and Budget (“OMB”) at the time of its withdrawal. Had the rulemaking proposal not been withdrawn, it would have been published in the Federal Register, as usual.

There have been many rulings related to OCS issues in the past 30 years by the U.S. Customs and Border Protection (“CBP”). Due to precedent, most of these rulings remain valid. Still, when industry makes new requests for rulings for future projects, the CBP may review them on a case-by-case basis when they are under consideration.

The Jones Act

At issue here is the Jones Act. The Jones Act is the common name for the coastwise merchandise statute. The Jones Act restricts transportation of merchandise between destinations in U.S. coastal waters to “coastwise-qualified” vessels. A coastwise-qualified vessel is defined as one that was built in the U.S., at least 75% U.S.-owned and is U.S.-flagged.

There are a number of key points here:

1. The Jones Act deals with the transportation of merchandise and that the withdrawn ANPRM had to do with previously-issued ruling letters where the CBP had made determinations as to whether certain equipment would be considered vessel equipment or merchandise.
2. The ANPRM proposed modifying or revoking these previously-issued ruling letters.
3. At issue here is whether an item would be allowed (or not allowed) to be carried between coastwise points and used aboard non-coastwise-qualified vessels.

The proposal made by the CBP would allow it to change more than 20 rulings issued over a span of more than 30 years. One of the rulings it sought to modify was an interpretation of a previous ruling made in 1939. This ruling had been consistently interpreted by the CBP for more than 70 years and the ANPRM was seeking to change that, so obviously, the proposal the CBP was making was significant.

The CBP held the view that it had made mistakes in the past and that it needed to provide the offshore industry more consistency and clarity in its interpretive rulings. One example is a ruling that the CBP issued on February 20, 2009, which it revoked less than four months later. In the February 20th ruling, the CBP determined that multi-¬function well head assemblies called “Christmas trees” could be considered “vessel equipment” and not “merchandise” and therefore would not be in violation of the Jones Act if they would be transported and installed by foreign-flag vessels at points in U.S. coastal waters. The CBP stated in its revocation notice that the withdrawal of the February 20th ruling was necessary pending further clarification of the definition of vessel equipment (as opposed to merchandise) as well as a review of past rulings of a similar nature.

Drawing Criticism from Industry Groups

When the CBP withdrew its proposed modification and revocation notice of July 17, 2009, it was done in an atmosphere of criticism from industry groups and interested parties regarding the process by which it sought to change the rules regarding the transportation of vessel equipment in coastal waters. For this proposal, the CBP published it in the Customs Bulletin rather than in the Federal Register. This process thereby avoided review by the OMB. This process had never before been implemented for a proposal of this magnitude.

Despite broad ranging and significant implications of policy changes the proposal would have affected, this process would have resulted in a final decision by the CBP within 30 days after publication and would have become effective 60 days after issuance of the final decision.

An Offshore Industry in a State of Uncertainty

After revoking the February, 2009 “Christmas tree” ruling, the CBP has not issued any further rulings pertaining to the transportation of equipment or merchandise. Amidst the confusion on whether a particular item is vessel equipment or merchandise, the offshore industry is left to operate in a state of uncertainty.

As a result of the current state of uncertainty, parties who wish to conduct offshore operations that may involve the transportation of merchandise and/or carriage of equipment using non-coastwise-qualified vessels should first confer with counsel and the CBP for clarification.