What’s Next? The U.S. Customs and Border Protection’s Withdrawal of Its Jones Act Proposal Relating to Equipment of a Vessel

Mainbrace | June 2017 (No. 3)

Jonathan K. Waldron, Matthew J. Thomas, and Patricia M. O’Neill

Background

In the last days of the Obama administration, U.S. Customs and Border Protection (“CBP”) proposed a major change in coastwise policy in its 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 (the “Notice”). The Notice, which was published in the CBP Customs Bulletin, proposed the modification of HQ 101925 (October 7, 1976), a seminal letter ruling upon which CBP and the industry have relied on for over 40 years when applying the Jones Act to vessels engaged in offshore construction, maintenance, and repair activities. (See CBP Customs Bulletin and Decisions, Vol. 51, No. 3, January 18, 2017, available here.)

The Notice also proposed to revoke over 20 other letter rulings, issued pursuant to the 1976 ruling, and related to oil and gas activities offshore under the Jones Act upon which the industry has relied on for decades. Specifically, for more than 40 years following the 1976 Ruling, CBP ruled on numerous occasions that non-coastwise qualified vessels could carry a variety of offshore equipment and supplies from U.S. ports to offshore sites for installation by that vessel, on the basis that those articles were “equipment of the vessel” and not “merchandise” subject to the Jones Act.

The CBP Notice on January 18, 2017, would have extended the reach of the Jones Act restrictions to certain categories of equipment and supplies carried by foreign-flag offshore construction vessels, including ROVs, pipe, cable, jumpers, flowlines, manifolds, umbilicals, and other components that have long been held not to be merchandise within the purview of the Jones Act when installed from such a vessel. The Notice’s significance was heightened by the fact that CBP has not promulgated detailed regulations guiding the application of the Jones Act to the offshore sector, but has instead developed a practice to issue case-by-case interpretive rulings, upon which the Jones Act regime has evolved and which have become a key part of the law and precedent (i.e., a sort of regulatory common law).

The Notice was issued under the CBP Customs Bulletin process, pursuant to which, CBP may issue interpretive rules and decisions, including modifications and revocations. 19 U.S.C. § 1625. The Customs Bulletin process mandates that, “[i]n the absence of extraordinary circumstances, within 30 calendar days after the close of the public comment period, any submitted comments will be considered and a final modifying or revoking notice or notice of other appropriate final action on the proposed modification or revocation will be published in the Customs Bulletin.” 19 C.F.R. § 177.12. Any decision issued by CBP then goes into effect 60 days following the issuance of a CBP decision. The Notice initially requested comments from the public to be submitted within 30 days; however, CBP subsequently extended the deadline by 60 days, with the comment period ending on April 18, 2017.

On May 10, 2017, based on the over 3,000 comments received in response to the Notice—both supporting and opposing the Notice—CBP published its Withdrawal of 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 (the “Withdrawal Notice”). According to the Withdrawal Notice, which was also published in the Customs Bulletin, “Based on the many substantive comments CBP received, both supporting and opposing the proposed action, and CBP’s 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. Accordingly, CBP is withdrawing its proposed action relating to the modification of HQ 101925 and revision of rulings determining certain articles are vessel equipment under T.D. 49815(4), as set forth in the January 18, 2017 notice.” (See CBP Customs Bulletin and Decisions, Vol. 51, No. 19, May 10, 2017, available here.)

Impact of the Withdrawal Notice on Current Jones Act Rulings and Enforcement

CBP has indicated that it may pursue a rulemaking published in the Federal Register to address the issues set forth in the Notice. A similar approach was pursued by CBP in 2009, but was withdrawn before a proposed rule was published. Thus, whether CBP will seek a rulemaking remains unclear. In the meantime, however, the Withdrawal Notice preserves the status quo of the CBP letter rulings that were subject to the Notice on January 18, 2017. Specifically, the letter rulings remain in effect and applicable to current offshore operations, as they were prior to the CBP Notice on January 18, 2017. CBP and industry stakeholders remain generally in the same position as prior to the CBP’s 2009 Notice.

While the CBP’s revocation or reversal of these rulings was withdrawn, there remains a question of whether enforcement actions going forward will evolve to take a more restrictive approach to the construction, installation, and repair operations conducted by foreign-flag vessels as described in the Notice. Generally, the penalty for violating the Jones Act is seizure and forfeiture of the merchandise or, alternatively, an amount equal to the value of the merchandise or the actual cost of the transportation—whichever is greater. The penalty may be assessed against any person transporting the merchandise, or causing it to be transported, which would include the importer, consignee, master, vessel agent, or vessel owner.

Conclusion

With the publication of the Withdrawal Notice, the longstanding CBP letter rulings applying the coastwise laws to foreign-flag offshore construction, maintenance, and repair vessels will not be modified or revoked, and thus their validity as a guiding precedent for offshore operators should remain unaffected for now. However, given the uncertainty with regard to CBP’s future actions, stakeholders should seek guidance from legal counsel with regard to future operations and investments potentially affected by this decision and future CBP initiatives in this area.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s