Coast Guard Issues Revised Lease Financing Proposal

Monday, August 26, 2002
The Coast Guard has issued a supplemental notice of proposed rulemaking (SNPRM) that makes technical changes to its proposed requirements for lease financing of vessels in the domestic coastwise trade. While the proposal makes clear that the Coast Guard recognizes its obligation to implement the 1996 statute that eased lease financing requirements for Jones Act vessels in a way consistent with congressional intent, the SNPRM does not appear to completely close loopholes that have become apparent since the statute was first enacted. In enacting the lease financing requirements, Congress made clear that its objective was to broaden the sources of investment capital available to domestic vessel operators, and not to undermine the basic principle of U.S. maritime law that vessels operated in the domestic trade be built in U.S. shipyards, crewed by U.S. seamen, and operated and controlled by American citizens. However, in 2000, Australia's largest towing company used the lease financing provision to gain a foothold in the Jones Act trade, in clear contravention of congressional intent. Since that time, use of the lease financing loophole has expanded, further endangering the Jones Act. This spring, a U.S. corporation providing marine transportation services to the offshore drilling industry reincorporated in Bermuda to avoid U.S. tax liability. Using the same loophole as the Australian towing giant, the firm is now seeking to evade the Jones Act as well, using the same type of transactions to control vessels it is no longer qualified to own outright. While the SNPRM provisions would appear to have prevented the Australian acquisition, they would not likely have stopped the latter transaction, based on preliminary analysis by AWO and the Maritime Cabotage Task Force (MCTF). Securing prompt issuance of a Coast Guard rule that establishes procedures for use of the lease finance provision in a way consistent with congressional intent and cabotage principles is a top priority of AWO and MCTF. AWO and MCTF are reviewing the SNPRM and will submit comments detailing specific technical changes that still must be made to avoid weakening the integrity of the Jones Act. Comments on the SNPRM are due October 8. AWO members are encouraged to submit comments urging the Coast Guard to implement the lease financing provision while maintaining the integrity of the Jones Act. Source: AWO Letter
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