Proposed Changes Jones Act W&s Summary
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Maritime & Admiralty Practice July 2009
Customs Proposes Significant Jones Act Changes in the Gulf of Mexico U.S. Customs and Border Protection (CBP) issued a notice on July 17, 2009 that has far-reaching potential impacts for the repair and supply of rigs, pipelines, and cables in the U.S. Gulf of Mexico. Public comments on the notice are due on Aug. 16, 2009, and the notice can be found at http:// www.cbp.gov/xp/cgov/trade/legal/bulletins_decisions/bulletins_2009/.
The Jones Act and the U.S. Gulf of Mexico U.S. coastwise laws governing the transportation of goods, commonly referred to as the “Jones Act,” restrict the movement of “merchandise” to qualified U.S.-flag vessels between “points” in the United States. The Jones Act applies to the U.S. Gulf of Mexico by virtue of the 1953-enacted Outer Continental Shelf Lands Act or OCSLA.
CHARLOTTE CHICAGO GENEVA HONG KONG LONDON LOS ANGELES MOSCOW NEW YORK NEWARK PARIS SAN FRANCISCO WASHINGTON, D.C.
www.winston.com
OCSLA extended all federal laws, including the Jones Act, to “all installations and other devices permanently or temporarily attached to the seabed” on the U.S. outer continental shelf (OCS) that are “for the purpose of exploring for, developing, or producing resources” from the OCS. As a result, the movement of supplies and equipment from the continental United States to most exploration or production rigs located on the OCS is generally governed by the Jones Act.
Prior CBP Rulings Regarding Vessel “Equipment” The issue of what constitutes “merchandise” has been the subject of a number of CBP rulings over many years and is the central subject of the recent CBP notice. CBP determined as early as 1939 (in another trade context not involving the OCS) that vessel “equipment” is not merchandise. CBP determined that vessel equipment is, among other things, “portable articles necessary and appropriate for the navigation, operation or maintenance of the vessel and for the comfort and safety of the persons on board.” Over time, CBP has issued many rulings that have interpreted the vessel “equipment” standard to apply to the carriage of items needed “in furtherance of the primary mission of the vessel” and “necessary for the accomplishment of the mission of the vessel.” For example, in a 1997 ruling, CBP determined that the carriage of umbilicals to be laid out on the seabed between a production manifold and a fixed production platform could be accomplished with a foreign-flag vessel because the umbilicals constituted vessel equipment “essential to completion of the mission of the vessel.”
The CBP Notice The CBP notice, if it is put into effect following public comment, would substantially alter a number of rulings that depend on the rationale that certain items are “vessel equipment” because they
2
are “essential to completion of the mission of the vessel.” CBP has proposed “to limit the definition of equipment, as it relates to the transportation of merchandise under . . .[the Jones Act], to articles necessary and appropriate for the navigation, operation, or maintenance of the vessel itself and the safety and comfort of the persons on board . . .”. The emphasis is in the CBP notice. In so doing, CBP has proposed re-relying on a 1976 ruling as its touchstone of how to interpret the Jones Act in the context of a vessel making repairs and utilizing or landing items that may be deemed “vessel equipment.” In the 1976 ruling, CBP addressed a number of facets relating to the proposed operation of a foreign constructed, diving support work barge in U.S. waters. Among other things, CBP determined that the transportation of pipeline burial tools for the use of the crew of the work barge to accomplish pipe laying operations would be done by the foreign constructed barge. Similarly, materials expended during the course of underwater inspection and repair operations used by the vessel crew were also not “merchandise”. On the other hand, anodes installed on a sub sea pipeline or offshore drilling platform would have to be transported to the foreign work barge in a coastwisequalified vessel if they came from the United States.
Relying on this 1976 ruling, CBP proposes in its July 17 notice that it – recognized that allowing foreign-flagged vessels to transport merchandise from one U.S. point and install that merchandise at another point on the OCS on the condition that it merely be accomplished ‘on or from that vessel’ would be contrary to the legislative intent of . . . [the Jones Act] CBP therefore proposed expressly to revoke, modify, and amend about 20 rulings issued from 1989 to 2008 that are inconsistent with its 1976 ruling. In addition, CBP has indicated that there may be other affected rulings of which it is unaware and that CBP “intends to revoke and/or modify all other previously issued ruling letters with findings that are inconsistent with this notice.”
Conclusion The July 17 CBP notice has the potential to cause significant dislocations in the U.S. Gulf of Mexico given its wide-ranging impact. As indicated at the outset, the CBP notice is a proposal, not a final notice, and public comments submitted by Aug. 16, 2009 will be taken into account by CBP.
CBP also concluded in 1976 that only a qualified U.S.-flag vessel could transport machinery or production equipment to an offshore production platform but that the transportation of wellhead equipment, valves, and valve guards can be done by a foreign vessel “provided that such materials are of de minimis value or necessary to accomplish unforeseen repairs or adjustments and are usually carried aboard the work barge as supplies.”
If you have any questions about the matters discussed in this client briefing, please contact:
Washington, D.C. Constantine G. Papavizas Bryant Gardner
[email protected] [email protected]
(202) 282-5732 (202) 282-5893
These materials have been prepared by Winston & Strawn LLP for informational purposes only. These materials do not constitute legal advice and cannot be relied upon by any taxpayer for the purpose of avoiding penalties imposed under the Internal Revenue Code. Receipt of this information does not create an attorney-client relationship. No reproduction or redistribution without written permission of Winston & Strawn LLP. © 2009 Winston & Strawn LLP.
Customs Proposes Significant Jones Act Changes in the Gulf of Mexico U.S. Customs and Border Protection (CBP) issued a notice on July 17, 2009 that has far-reaching potential impacts for the repair and supply of rigs, pipelines, and cables in the U.S. Gulf of Mexico. Public comments on the notice are due on Aug. 16, 2009, and the notice can be found at http:// www.cbp.gov/xp/cgov/trade/legal/bulletins_decisions/bulletins_2009/.
The Jones Act and the U.S. Gulf of Mexico U.S. coastwise laws governing the transportation of goods, commonly referred to as the “Jones Act,” restrict the movement of “merchandise” to qualified U.S.-flag vessels between “points” in the United States. The Jones Act applies to the U.S. Gulf of Mexico by virtue of the 1953-enacted Outer Continental Shelf Lands Act or OCSLA.
CHARLOTTE CHICAGO GENEVA HONG KONG LONDON LOS ANGELES MOSCOW NEW YORK NEWARK PARIS SAN FRANCISCO WASHINGTON, D.C.
www.winston.com
OCSLA extended all federal laws, including the Jones Act, to “all installations and other devices permanently or temporarily attached to the seabed” on the U.S. outer continental shelf (OCS) that are “for the purpose of exploring for, developing, or producing resources” from the OCS. As a result, the movement of supplies and equipment from the continental United States to most exploration or production rigs located on the OCS is generally governed by the Jones Act.
Prior CBP Rulings Regarding Vessel “Equipment” The issue of what constitutes “merchandise” has been the subject of a number of CBP rulings over many years and is the central subject of the recent CBP notice. CBP determined as early as 1939 (in another trade context not involving the OCS) that vessel “equipment” is not merchandise. CBP determined that vessel equipment is, among other things, “portable articles necessary and appropriate for the navigation, operation or maintenance of the vessel and for the comfort and safety of the persons on board.” Over time, CBP has issued many rulings that have interpreted the vessel “equipment” standard to apply to the carriage of items needed “in furtherance of the primary mission of the vessel” and “necessary for the accomplishment of the mission of the vessel.” For example, in a 1997 ruling, CBP determined that the carriage of umbilicals to be laid out on the seabed between a production manifold and a fixed production platform could be accomplished with a foreign-flag vessel because the umbilicals constituted vessel equipment “essential to completion of the mission of the vessel.”
The CBP Notice The CBP notice, if it is put into effect following public comment, would substantially alter a number of rulings that depend on the rationale that certain items are “vessel equipment” because they
2
are “essential to completion of the mission of the vessel.” CBP has proposed “to limit the definition of equipment, as it relates to the transportation of merchandise under . . .[the Jones Act], to articles necessary and appropriate for the navigation, operation, or maintenance of the vessel itself and the safety and comfort of the persons on board . . .”. The emphasis is in the CBP notice. In so doing, CBP has proposed re-relying on a 1976 ruling as its touchstone of how to interpret the Jones Act in the context of a vessel making repairs and utilizing or landing items that may be deemed “vessel equipment.” In the 1976 ruling, CBP addressed a number of facets relating to the proposed operation of a foreign constructed, diving support work barge in U.S. waters. Among other things, CBP determined that the transportation of pipeline burial tools for the use of the crew of the work barge to accomplish pipe laying operations would be done by the foreign constructed barge. Similarly, materials expended during the course of underwater inspection and repair operations used by the vessel crew were also not “merchandise”. On the other hand, anodes installed on a sub sea pipeline or offshore drilling platform would have to be transported to the foreign work barge in a coastwisequalified vessel if they came from the United States.
Relying on this 1976 ruling, CBP proposes in its July 17 notice that it – recognized that allowing foreign-flagged vessels to transport merchandise from one U.S. point and install that merchandise at another point on the OCS on the condition that it merely be accomplished ‘on or from that vessel’ would be contrary to the legislative intent of . . . [the Jones Act] CBP therefore proposed expressly to revoke, modify, and amend about 20 rulings issued from 1989 to 2008 that are inconsistent with its 1976 ruling. In addition, CBP has indicated that there may be other affected rulings of which it is unaware and that CBP “intends to revoke and/or modify all other previously issued ruling letters with findings that are inconsistent with this notice.”
Conclusion The July 17 CBP notice has the potential to cause significant dislocations in the U.S. Gulf of Mexico given its wide-ranging impact. As indicated at the outset, the CBP notice is a proposal, not a final notice, and public comments submitted by Aug. 16, 2009 will be taken into account by CBP.
CBP also concluded in 1976 that only a qualified U.S.-flag vessel could transport machinery or production equipment to an offshore production platform but that the transportation of wellhead equipment, valves, and valve guards can be done by a foreign vessel “provided that such materials are of de minimis value or necessary to accomplish unforeseen repairs or adjustments and are usually carried aboard the work barge as supplies.”
If you have any questions about the matters discussed in this client briefing, please contact:
Washington, D.C. Constantine G. Papavizas Bryant Gardner
[email protected] [email protected]
(202) 282-5732 (202) 282-5893
These materials have been prepared by Winston & Strawn LLP for informational purposes only. These materials do not constitute legal advice and cannot be relied upon by any taxpayer for the purpose of avoiding penalties imposed under the Internal Revenue Code. Receipt of this information does not create an attorney-client relationship. No reproduction or redistribution without written permission of Winston & Strawn LLP. © 2009 Winston & Strawn LLP.
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