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CBP drops plan to tighten Jones Act rules on offshore equipment

Aug 29, 2017 03:48 PM
In early 2009, U.S. Customs and Border Protection ruled that subsea “Christmas trees” used in oil drilling should be considered “vessel equipment,” not merchandise. The ruling allowed for the units to be moved and installed by foreign-flag vessels.

Courtesy Dana Petroleum

In early 2009, U.S. Customs and Border Protection ruled that subsea “Christmas trees” used in oil drilling should be considered “vessel equipment,” not merchandise. The ruling allowed for the units to be moved and installed by foreign-flag vessels.

U.S. Customs and Border Protection (CBP) has withdrawn a proposal to revoke or modify certain interpretations of the Jones Act that impact domestic vessel operators, particularly exemptions related to equipment carried for offshore oil and gas companies.

After reviewing more than 3,000 public comments, CBP in May decided to keep in place exemptions and the chance for waivers that allow the nation’s oil operators to use foreign-flagged vessels and crews in the Gulf of Mexico and other U.S. waters. This shift conforms to the Trump administration’s America First energy plan announced early this year.

On Jan. 18, CBP proposed revising nearly 30 Jones Act rulings, made over the past 40 years, about what constitutes “vessel equipment.” The agency planned to re-evaluate rulings interpreting the act’s applications to pipe and cable laying, well stimulation, subsea construction and other operations.

The proposal, made in the last days of President Obama’s administration, would have eliminated CBP exemptions allowing foreign crews to do work intended for Americans under the Jones Act, formally known as the Merchant Marine Act of 1920. U.S. offshore oil and gas operators warned that such a move would cause companies to leave the Gulf of Mexico and head to foreign sites.

On Feb. 8, CBP extended a public comment period that began in January to April 18. In the flood of comments received, domestic maritime interests contended that stricter CBP interpretations of coastwise laws would create jobs and stimulate the Gulf Coast’s economy. Oil operators, however, complained about a lack of Jones Act-qualified vessels to do the work they needed.

In a March analysis, the Offshore Marine Service Association (OMSA), a trade group based in New Orleans, said more than $2 billion had been invested in U.S. shipyards since 2009 to build or retrofit 31 vessels to meet those needs. These modern, high-spec boats provide an array of subsea services and can perform work on the Outer Continental Shelf previously handled by foreign vessels, OMSA said.

In addition to OMSA, the American Maritime Partnership and the Shipbuilders Council of America supported the CBP’s January proposal.

In the CBP’s May 10 notice, Glen Vereb, director of the Border Security and Trade Compliance Division, wrote that based on the substantive comments that CBP received and further research on the issue, “we conclude that the agency’s notice of proposed modification and revocation of the various ruling letters relating to the Jones Act should be reconsidered. CBP is withdrawing its proposed action, relating to the modification … and revision of rulings determining certain articles are vessel equipment.”

Jones Act disputes about what constitutes vessel equipment have been ongoing, according to Keith Hall, a Louisiana State University law professor and director of the school’s Mineral Law Institute.

“Under the Jones Act, vessels don’t have to be U.S.-flagged and owned to engage in offshore oil and gas construction activity, such as drilling and installation of equipment onto the seabed, but those boats cannot carry merchandise between points in the United States,” he said. “The CBP has consistently concluded that a prohibition on the transport of merchandise doesn’t apply to transport of  ‘vessel equipment,’ which includes items ‘essential to the mission of the vessel’ carrying them.”

“As a separate matter, even if the Jones Act applies, companies can request a waiver of the requirement that a U.S.-flagged vessel be used,” Hall said. “But it’s my impression that such waivers are difficult to obtain.”

Companies’ bottom lines are at stake in Jones Act disputes. “Foreign-flag vessels don’t have to comply with many regulations affecting U.S.-flag vessels and thus can operate at lower daily rates,” said Dean Sutherland, maritime attorney with Jeansonne & Remondet in New Orleans and an adjunct professor at LSU’s Hebert Law Center. U.S. oil companies hire foreign vessels and crews more cheaply than their domestic counterparts to stay profitable.

After the CBP’s May 10 announcement, the American Petroleum Institute, a Washington-based trade group, said the customs agency had decided not to impose potentially serious limits on the energy industry’s ability to operate safely and economically. Responsible development of oil and gas resources is critical to a forward-looking policy to meet the nation’s energy needs, the API said.

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