U.S. Customs and Border Protection recently withdrew its proposed changes to the Jones Act that would have deemed foreign flagged vessels banned from operation in the U.S. waters.
The Jones Act, passed in 1920, prevents foreign-flagged ships from shipping merchandise between points in the United States. The U.S. Customs and Border protection had in mid-January issued a document in which it proposed to revise several rulings and amendments to the Jones Act.
While the foreign-built and flagged ships have been prevented from transporting merchandise between the U.S. coastwise points, over the years exceptions have been made for construction vessels working in the offshore oil and gas industry.
The foreign construction vessels have been allowed to carry aboard pipeline repair material; anodes; pipeline connectors; wellhead equipment, valves, and valve guards; damaged pipeline; and platform repair material. This was not seen as a Jones Act violation because the goods have been seen as a necessary equipment.
Had the proposal made in January by U.S. Customs and Border Protection materialized, foreign-flagged vessels would not have been able to carry any of the “items” listed above, and would be violating law if they did.
However, the CBP earlier this month withdrew its proposal, citing “many substantive comments CBP received, both supporting and opposing the proposed action.”
While the International Marine Contractors Association was pleased, as expected, the U.S. offshore and maritime bodies were not happy about the decision, claiming that the move would harm the domestic maritime jobs.
On that note, Offshore Energy Today has interviewed Aaron Smith, President and CEO of the Offshore Marine Service Association, a U.S. organization representing more than 225 member companies, including approximately 100 firms that own and operate marine service vessels.
Q: What is your perspective on the recent decision by U.S. Customs and Border Protection (CBP) to withdraw their revocation notice?
Smith: CBP’s decision is not only disappointing – it is alarming. It is an admission that this Administration is wavering in enforcing the law. In 2009, CBP recognized that for decades it had issued flawed interpretations of the Jones Act and issued a notice for revocation. CBP withdrew that proposal–never saying those flawed interpretations were correct–and stated a new notice would be coming in the near future. Eight years later, CBP issued a similar notice, revoking the same flawed interpretations of the Jones Act. Yet, once again it has withdrawn that notice while maintaining their position that the interpretations are legally incorrect. As such, the Administration is declaring they will bow to foreign interests instead of enforcing the law — the Jones Act.
This decision not only contradicts the law – it threatens the ability of U.S. companies to thrive and U.S. mariners to be employed. At a time when our Administration is focused on “putting America first,” it certainly is concerning to see the Administration likewise concede to foreign interest groups that have lobbied and influenced the enforcement of our own laws intended to protect national and economic security interests.
Q: What do you think was the main factor influencing CBP to withdraw its proposal?
Smith: American author Carl Sandburg has a saying, “If the facts are against you, argue the law. If the law is against you, argue the facts. If the law and facts are against you, pound the table and yell like hell.”
Those in opposition did just this because the facts and the law were not on their side.
A report funded by the American Petroleum Institute argued that the revocation of these letter rulings would disrupt offshore drilling activities because of its impact on heavy lift and pipe/reel lay operations. However, this is an inaccurate statement. The revocation notice issued in 2017 was carefully drafted to have no impact on these operations and the inclusion of these operations into that report calls into question all conclusions and estimates reached in the report. The 2017 Notice does not prevent foreign vessels from serving as a stationary platform for installation, repair or drilling operations nor does it prohibit foreign vessels from engaging in pipe-lay operations. Those are the facts.
The Jones Act is the law of the land, which has been upheld by every modern President. The letter rulings under consideration were not law, regulations or even policy. Rather they were CBP responses to private letters seeking an interpretation of the Jones Act. These letter rulings were previously issued in an opaque and private manner between the requesting party and CBP, intended to only govern the specific and individual request. The Jones Act specifically requires that goods moving between one U.S. point and another be moved on vessels that are U.S.-built, U.S.-owned and U.S.-crewed. CBP has now twice stated these rulings are contrary to the law, so the question is, will the Administration follow the law?
Q: The Offshore Marine Service Association, among others, has said that the move would damage the domestic maritime industry? Can you elaborate?
Smith: The Jones Act is, and always has been, an effective “Buy American, Hire American,” Statute. By this, the proper enforcement of the Jones Act would have restored more than 3,200 American jobs, increase wages and earnings for workers in the region by over $155 million and generate over $700 million in regional economic output. These are all opportunity costs lost.
Beyond these lost opportunity costs, this decision by CBP creates an environment of financial uncertainty for U.S. companies and mariners operating in the Gulf Coast. Over the past eight years, the offshore services industry has invested more than $2 billion to provide the necessary vessels to support work in the Gulf region. With this decision, these vessels will continue to be tied up to the docks and workers sent home while foreign vessels continue to unlawfully perform the work with foreign fleets. And going forward, I doubt if another offshore construction vessels is built in the United States until there is certainty that the law of the land will be enforced.
Q: American Petroleum Institute said in its recent report that the enactment of the proposed changes would lead to loss of thousands of U.S. jobs, drop in oil production and “diminished” government revenue. What do you say of these statements?
Smith: The American Petroleum Institute centered its report on distorted facts to enable them to continue to skirt U.S. law. By wrongfully including heavy lift and pipe-lay operations into their analysis, API reached conclusions that are not relevant for this specific revocation notice. Therefore, the inclusion of these operations calls into question all conclusions and estimates in their report because these conclusions are largely based on their misguided factors.
The only relevant economic impact is the adverse impact that CBP’s erroneous ruling have had for decades on U.S. ship owners, mariners and shipyards.
Q: Also, the IMCA has claimed the current U.S. fleet is not qualified to support activities in the U.S. offshore deepwater market on its own? How would you respond?
Smith: Following the 2009 Notice, U.S. companies invested more than $2 billion to ensure that offshore oil and gas exploration and production would not be affected by proper enforcement of the Jones Act. As a result, 31 vessels have been built to perform the kind of work addressed in these letter rulings. This work is predominantly the purview of multipurpose support vessels (MPSVs). According to the IHS Petrodata Construction Vessel database, there were on average 20 subsea construction/IMR vessels working in the Gulf Coast region over the past 5 years. With 31 such vessels, U.S. companies are ready to perform the activities dominated by foreign vessels for the past several decades.
Q: You’ve called for President Trump to “to take immediate action to return these jobs to American mariners and this work to American companies.” Can he do it, will he do it, and how?
The domestic maritime industry supports President Trump’s agenda to “Buy American; Hire American” and be a “law and order President”. As our President, he certainly is empowered and committed to driving this agenda and enforcing the American rule of law. At this important juncture, our industry calls on him to enforce his agenda and not let foreign companies be put first above American companies and workers.
Unfortunately, foreign interests jeopardized his agenda and the enforcement of the law of the land.
The President can take many immediate steps to ensure American mariners are not harmed and the law is enforced. These options–all spelled out in the Administrative Procedures Act or other relevant law–range from Executive Orders, to expedited rule makings, to another 1625 process. However, all of these steps require the President to prioritize the law and American mariners over foreign interests.
Q: President Trump would have to choose between two scenarios: Revocation enforcement which API claims would result in loss of oilfield jobs or no revocation which the domestic maritime industry claims would result in the loss of the U.S. mariners’ jobs. Is there some other scenario where both “parties” could be pleased?
I disagree it is a choice. As said, the API position is based upon a distortion over what revocation covers. As such, President Trump can–and should–prioritize U.S. jobs, shipbuilding capability, and the rule of law while not risking oilfield jobs. OMSA depends on a healthy domestic offshore energy market. Thus, we would not support a proposal that endangers that market. While the 2017 Notice does not impact heavy-lift vessels, OMSA and other members of the Jones Act community have offered a statutory solution to help address the flexibility desired by heavy lift vessel operators to move as part of their installation activity. This proposal provides a Jones Act compliant solution by providing a limited waiver to heavy lift vessels transporting merchandise within 500 meters of the intended place of delivery. When conducting these operations, the foreign vessel’s marine crew must be U.S. citizens and operator must pay U.S. taxes.
This solution would not only alleviate all doubt about the impact of the 2017 Notice but also put America back on track for growing our energy independence.