On May 10, 2017, the US Customs and Border Protection agency (CBP) announced that it was withdrawing its January 18, 2017 Proposed Modification and Revocation of Ruling Letters Relating to Customs Application of the Jones Act to the Transportation of Certain Merchandise and Equipment Between Coastwise Points. According to CBP, in light of comments received on the proposed modification, the agency will now reconsider the issue.
The Jones Act, passed in 1920 as the Merchant Marine Act, was intended to protect the US maritime industry and states, in relevant part, 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 was “built in and documented under the laws of the United States and owned by persons who are citizens of the United States.” 46 U.S.C. § 55102.
CBP’s proposed modification would have significantly expanded the scope of “merchandise” under the Jones Act, sweeping in all repair materials regardless of their value or whether the materials were necessary to address unforeseen repairs. This would have dramatically reduced capability and increased cost to service and repair offshore operations, as currently there is a dearth of U.S.-built, U.S.-flagged vessels available to perform the necessary operations in U.S. waters.
The now-withdrawn notice also proposed to redefine the term “equipment,” an important concept under the Jones Act, which would have dramatically narrowed the existing exemption for vessel materials. In essence, the long-standing view that exempted equipment “necessary to the operation of a vessel” would have been written out of CBP policy.
The practical impact of the withdrawn proposal would have been to significantly curb offshore activity in the US, including limiting the installation and repair of offshore oil and gas, wind power and transmission cable components. These industries currently rely, to varying degrees, on foreign or foreign-built vessels, due to the lack of Jones Act-compliant vessels available to perform many of the functions integral to offshore operations. Further, the cost of building or chartering Jones Act-compliant vessels is significantly higher than for their foreign-flagged counterparts. Others within the US maritime industry, including domestic shipbuilders and marine laborers, however, supported the proposed changes, which they advanced as a job-creating catalyst for their respective industries.
Although CBP has indicated that it is reconsidering whether to move forward with the modification, in the interim, the long-standing interpretations of “merchandise” and “vessel equipment” will remain in effect.