Jones Act Offshore: Navigating in 2013

By Jonathan K. Waldron and Jeanne M. Grasso
Friday, January 18, 2013

Following the hubbub created in 2009-2010 by U.S. Customs and Border Protection’s (CBP) proposed modification and revocation of certain Jones Act ruling letters pertaining to offshore operations, all was relatively quiet in 2011-2012 with respect to Jones Act offshore issues.  Indeed, in the aftermath of the tragic Deepwater Horizon incident in 2010, which included the implementation of more prescriptive regulatory and environmental requirements and a deepwater drilling moratorium, energy development offshore took a dive as vessels departed the Gulf of Mexico and headed for more friendly seas internationally.  As time passed, however, memories faded, and the regulatory offshore energy regime became more stable.  And now, the work is coming back to the Gulf—by all reports, the outlook is bright as we start 2013.  However, one thing that appears to be lurking offshore is the tightening of the screws on Jones Act enforcement.  This article will review recent developments that could adversely affect offshore operations in 2013 and the foreseeable future.
By way of background, in July 2009, CBP proposed modifying or revoking 20 Jones Act rulings issued over a span of more than 30 years involving vessels transporting specialized equipment used by the offshore oil and gas industry.  The rulings largely involved instances where CBP had made determinations as to whether certain items carried on those vessels would be considered “vessel equipment” or “merchandise.”  “Vessel equipment” and “merchandise” are two key terms of art for Jones Act interpretations—if an item is “merchandise,” only a coastwise-qualified vessel may transport the item between coastwise points; if an item is “vessel equipment,” a non-coastwise-qualified vessel may be used to transport the item between coastwise points or transport the item from a coastwise point and install the item at a different coastwise point.  CBP’s modification and revocation proposal came shortly after CBP’s revocation of the now infamous “Christmas Tree” ruling earlier in 2009, in which CBP (originally) determined that a multi-function well head assembly called a “Christmas Tree” was vessel equipment and therefore could be transported from one coastwise point to another and then installed by a foreign-flag vessel.  In its modification and revocation proposal, CBP stated that withdrawal of the “Christmas Tree” ruling was necessary pending further clarification of the definition of vessel equipment and a review of past rulings in which CBP determined certain items carried aboard a vessel were vessel equipment and not merchandise. 
Amid much controversy regarding the appropriate means by which to overturn 30 years of precedent, CBP withdrew its modification and revocation proposal and then initiated a formal rulemaking in March 2010 using the Notice and Comment procedures of the Administrative Procedure Act.  However, amid more controversy, this rulemaking was withdrawn by CBP and the Department of Homeland Security in November 2010.  
Following the decision to withdraw the rulemaking proposal, it is interesting, especially in view of the controversy surrounding whether a particular item is vessel equipment or merchandise since the revocation of the 2009 “Christmas Tree” ruling, that there have been no ruling requests related to subsea installation involving the “equipment of the vessel” exception and thus no rulings have been issued by CBP involving the transportation of vessel equipment or merchandise to points on the OCS.  Nor has CBP issued any further guidance on its own initiative to further clarify the definition of “vessel equipment” as it said it intended to do following the “Christmas Tree” ruling.
As a result, industry has continued to conduct subsea installation and repair operations offshore based on the fact that CBP’s OCS-related rulings issued over the last 30 years remain valid as precedent.  This presumption is justified because CBP withdrew all official notices that it was pursuing changes to its interpretation of Jones Act rulings.  In addition, it has become clear in the last couple of years that some segments of industry have been hesitant to submit new ruling requests for fear that CBP would not follow existing precedent.
Fast forward to the present—the way to operate offshore could change in 2013 due to pressure on CBP “to enforce the Jones Act” from Congress and the domestic industry.  Defining what enforcement of the Jones Act means in the context of offshore operations is difficult.  Does it mean adhering to precedent will continue to be acceptable?  Or does it mean that CBP will change its interpretation of the Jones Act on a case-by-case basis through enforcement actions rather than through a formal rulemaking?  Alternatively, CBP could issue new guidelines to assist industry in determining what types of activities would be in conformance with current Jones Act rulings. 
One new development is that some CBP Port Directors have started issuing penalty notices for alleged violations, with penalties ranging in the millions of dollars, relating to offshore subsea operations that occurred years ago—even before the revocation of the “Christmas Tree” ruling. 
Another development is that at least one CBP Port Director had informed industry that every offshore subsea installation or repair project requires its own ruling covering the contemplated operations to demonstrate compliance with the Jones Act.  Otherwise, if a company decides to carry out subsea installation and repair activities, even when such activities are squarely within the parameters and in conformance with numerous “equipment of the vessel” rulings issued over the years, CBP will issue a penalty for the value of the merchandise or the cost of the transportation, whichever is greater, which often will be in the millions of dollars.
This puts owners and operators in an untenable situation.  If they request a ruling in advance (which is not required), they risk obtaining an adverse ruling, irrespective of prior precedent, as a result of the political pressure now surrounding interpretation of the Jones Act as it applies offshore.  If they decide to move forward without a ruling, then the company subjects itself to a severe penalty action which they will have to defend through the CBP mitigation process. 
This is no way for the U.S. government to establish policy and it is contrary to CBP’s own policy of “Informed Compliance,” which is supposed to make sure industry knows what to expect. 
In short, fundamental fairness demands and it is incumbent upon CBP under its Informed Compliance policy to achieve consistency in interpretation of the Jones Act as it applies offshore—and not through ad hoc enforcement actions, especially when there is precedent supporting the activity in question.  In addition, it is particularly troubling that CBP would initiate such a policy when the United States is only now starting to see a recovery in the oil and gas development regime in the Gulf of Mexico in the aftermath of the Deepwater Horizon and when the United States is still trying to get its sputtering economy back on track.
In conclusion, given these developments, it is incumbent for all those involved in the offshore oil and gas industry to work together to find a way forward to ensure that we do not unnecessarily put a substantial damper on offshore development when the United States is only now beginning to achieve energy independence.



Jonathan K. Waldron, partner at Blank Rome LLP, concentrates his practice in maritime, international, and environmental law.  He is ranked by Chambers USA as a leading shipping attorney and is recognized as a leader in shipping and maritime law by Who’s Who Legal.
t: 202-772-5964
e: Waldron@BlankRome.com

Jeanne M. Grasso, partner at Blank Rome LLP, focuses her practice on maritime and environmental law for domestic and international clients. She heads Blank Rome’s Maritime Industry Team, serves on the Board of Directors of the World Ocean Council and the Advisory Board of the Smithsonian Environmental Research Center, is president of the Women’s International Shipping & Trading Association of the USA, and was recently appointed to the Marine Board of the National Academy of Sciences.
t: 202-772-5927
e: Grasso@BlankRome.com



(As published in the Jauary 2013 edition of Maritime Reporter - www.marinelink.com)

Maritime Reporter September 2014 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

Legal

UN Authorizes Ship Inspections Near Somalia For Arms, Charcoal

The United Nations Security Council authorized the inspection of boats suspected of carrying illegal shipments of charcoal or weapons to and from Somalia on Friday,

Foster Wheeler & MDM Engineering Merged

Foster Wheeler AG announced today that an indirect wholly owned subsidiary of the Company has completed the acquisition of MDM Engineering Group Limited (“MDM”)

New York, London Juxtaposed by New Maritime Event

On November 13, the newly formed New York Maritime Consortium, a coalition of leaders from New York Maritime Inc. (NYMAR), the Society of Maritime Arbitrators (SMA),

Offshore

Rederij Groen Takes Delivery of 7-Waves

Rederij Groen’s entire SRSV fleet built by Damen Maaskant Shipyards Stellendam. Dutch offshore services company Rederij Groen has taken delivery of the 7-Waves,

New Oil Field Found in British North Sea

GDF SUEZ E&P UK Ltd and BP today announced a new exploration discovery in the UK Central North Sea. The discovery, which spans GDF SUEZ operated block 30/1f

Three Dead in Offshore Platform Accident

Three workers were killed and one is still missing after an accident at one of the offshore oil and gas platforms in the Caspian Sea in Azerbaijan, Azeri state energy company SOCAR said on Thursday.

Navigation

DP World Receives 1st Scheduled Vessel at New Terminal

DP World has yesterday welcomed the first scheduled vessel to call at its new Container Terminal 3 in Jebel Ali, Dubai, as it gears up to serve customers at the state-of-the-art facility.

Sunken Barge Salvage Stops Traffic on Chicago River

The U.S. Coast Guard said it is restricting vessel traffic on the Chicago River to allow for salvage of a sunken barge. All cargo has been removed from the sunken

Maritime Reporter @ 75: The Daily Cartoon

Maritime Reporter & Engineering News was founded by John J. O'Malley (1905-1980) in 1939, and today ranks as the world's largest audited trade publication in the world serving the maritime industry,

Government Update

Gazprom to Counter Negative Global Market Trends

The Gazprom Board of Directors took note of the information on the Company's financial strategy under the conditions of negative trends in the global financial

Sea Dispute Sparks China Diplomat to Vietnam Visit

China's top diplomat to visit Vietnam again amid sea dispute   China's top diplomat will visit Vietnam next week, China said on Friday, five months after he last

A History of U.S. Oil Export Controls

On Oct. 20, 1973, King Faisal of Saudi Arabia imposed a total embargo on oil shipments to the United States among other countries in response to their support for Israel during the Arab-Israeli war.

Consulting

Technip & Fluor Bag RAPID UIO Project

Technip, in a joint venture with Fluor, was awarded an engineering, procurement and construction management contract by PRPC Utilities and Facilities Sdn. Bhd.

Vice Presidents Rejig at Caterpillar Inc

Following the previous announcement regarding two group presidents’ retirements and new responsibilities for another group president, Caterpillar Inc. (NYSE: CAT)

Northrop Grumman Sponsors Maritime RobotX Challenge

Northrop Grumman Corporation is expanding its support for science, technology, engineering and math (STEM) education across the globe by sponsoring the Maritime RobotX Challenge in Singapore, Oct.

 
 
Maritime Contracts Maritime Security Maritime Standards Naval Architecture Navigation Pipelines Port Authority Ship Electronics Ship Simulators Sonar
rss | archive | history | articles | privacy | terms and conditions | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.1914 sec (5 req/sec)