1 towerconference st Texas Offshore Wind Energy Roundtable Conference & Offshore Wind Law (OWL) Conference October 19-22, 2010 Houston, Texas John J. Reilly
2 WHAT IS THE JONES ACT? Important pieces of maritime legislation are: The Shipping Act of 1916 (46 App. U.S.C. 802). The Merchant Marine Act of 1920 (1920 Act) (46 App. U.S.C. 876). The Merchant Marine Act of These pieces of legislation have been supplemented by amendments to cargo preference laws and the Maritime Security Act of 1996 (P.L ). A brief legislative history is provided below.
3 HISTORY OF MARITIME POLICY IN THE UNITED STATES The foundation of maritime policy in the United States is legislation that Congress enacted to ensure sufficient sealift capacity to carry U.S. commercial and military cargo during World War I ( ) and legislation that was largely a response to the economic conditions of the Great Depression.
4 SHIPPING ACT OF 1916 Congress reacted to the threats posed to U.S. shipping by World War I by enacting the Shipping Act of 1916, which, among other things: Established the U.S. merchant marine as a naval auxiliary, and reserved certain government cargoes for U.S.-citizen ship owners. When World War I ended, the U.S. government controlled a large merchant fleet built through a significant ship construction program undertaken by the U.S. during that war. However, while the U.S. fleet was largely committed to the war relief effort, European allies placed their ships back into commercial trades. The result was reduced commercial cargoes for the over-sized U.S.- flagged commercial fleet. In response to this situation, the Congress passed the 1920 Act.
5 THE MERCHANT MARINE ACT OF 1920 The Merchant Marine Act of 1920 created government support for the U.S.-flagged merchant marine. The preamble to the 1920 Act established goals that are supposed to drive U.S. maritime policy today, albeit these goals have been modified by subsequent legislation: it is necessary for the national defense and for the proper growth of its foreign and domestic commerce that the United States shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency, ultimately to be owned and operated privately by citizens of the United States; and it is hereby declared to be the policy of the United States to do whatever is necessary to develop and encourage the maintenance of such a merchant marine.
6 THE MERCHANT MARINE ACT OF 1920 Key elements of the 1920 Act included the establishment of cabotage as a fundamental component of U.S. maritime policy and the creation of a construction loan program to aid U.S. operators in constructing ships in U.S. shipyards. In the 1930s, the Great Depression, combined with economic policies that had the effect of limiting U.S. foreign trade, nearly caused the collapse of the U.S. merchant marine. Congress responded to this circumstance and sought to prepare for possible military conflict with the enactment of the Merchant Marine Act of 1936.
7 THE MERCHANT MARINE ACT OF 1936 The Merchant Marine Act of 1936 fully acknowledged U.S. operators dependence on strong government support and included a mix of direct and indirect subsidies and marketoriented programs to promote the U.S. flag. The Merchant Marine Act of 1936 also provided an indirect subsidy in the form of the Capital Construction Fund (CCF). The CCF enables U.S. operators of U.S.-flagged merchant ships to set aside tax deferred earnings into a special account for the purpose of building ships in U.S. shipyards. The Merchant Marine Act of 1936 retreated from the commitment made in the 1920 Act to develop a U.S. merchant fleet capable of carrying the greater portion of U.S. foreign commerce in favor of the vague objective of maintaining a U.S. merchant fleet capable of carrying a substantial portion of U.S. foreign commerce.
8 SPECIFIC PROVISIONS OF THE JONES ACT Generally, the Jones Act requires that any vessel operating in the coastwise trade between two U.S. ports be U.S.-built (1) Owned by a documentation citizen (2) And operated by a crew of U.S. citizens (3) For purposes of owning a U.S.-flag vessel, an company must be organized in such a way that it qualifies as a documentation citizen (4) If it is organized as a U.S. corporation, a company must be at least seventy-five percent owned by U.S. citizens (5) Its chief executive officer and chairman of the board of directors must be U.S. citizens, and no more of its directors than a minority of the number necessary to constitute a quorum may be non-citizens
9 SPECIFIC PROVISIONS OF THE JONES ACT (6) The corporate citizenship requirements apply to all levels of a company's organization, so the seventy-five percent ownership requirement applies to a parent corporation that has a subsidiary company operating the service (7) An operator that meets these citizenship requirements may own qualified U.S.-flag vessels that were built in a U.S. shipyard (8) And apply for a coastwise endorsement to be issued to the vessel by the United States Coast Guard (9) Any vessel engaged in transportation of passengers or merchandise between U.S. ports must be issued a coastwise endorsement (10) Thus, operators that wish to expand their fleet in order to accommodate increased demand for domestic marine transportation will be restricted to purchasing vessels constructed in U.S. shipyards.
10 OTHER RELEVANT STATUTORY PROVISIONS Act of Sept. 1, 1789, ch. xi, 1, 1 Stat. 55. Coast Guard Authorization Act of 1996, Pub. L. No , 1113(d), 110 Stat. 3901, 3970 (1996), Coast Guard and Maritime Transportation Act of 2004, Pub. L. No , 608, 118 Stat. 1028, 1054 (2004). Coast Guard and Maritime Transportation Act of 2006, Pub. L. No , 308, 120 Stat. 516, 528 (2006). An Act To Complete the Codification of Title 46, Pub. L. No , 120 Stat (2006). 46 U.S.C.A (a)-(b) (West 2007). "A vessel and its equipment are liable to seizure by and forfeiture to the Government if... the vessel is employed in a trade without an appropriate endorsement." 46 U.S.C.A (b)(4).
11 PASSENGER VESSEL SERVICES ACT OF 1886 The Passenger Vessel Services Act of 1886 provides that a vessel may not transport passengers between ports or places in the United States to which the coastwise laws apply, either directly or via a foreign port, unless the vessel is a qualified US-flagged vessel. Regarding the US OCS, the CBP has also carefully limited the application of the Passenger Act consistent with OCSLA Section 4(a).
12 TOWING STATUTE OF 1940 The Towing Statute of 1940 provides that a US vessel must be used for towage between ports or places in the United States to which the coastwise laws apply, either directly or via a foreign port or place and from point to point within the harbors of ports or places to which the coastwise laws apply unless a vessel is in distress. The CBP has taken the position that the statute is to be construed consistently with the Jones Act so under this rational places in the United States to which the coastwise laws apply would also encompass points on the US OCS as defined in OCSLA.
13 DREDGING ACT OF 1906 The Dredging Act of 1906 restricts dredging, which includes certain pipe or cable laying activities as well as foundation excavations, in the navigable waters of the United States to qualified US-flagged vessels. The CBP has long-held that dredging... is the use of a vessel equipped with excavating machinery in digging up or otherwise removing submarine material. The CBP reasons that [w]ith respect to the applicability of [the Dredging Act] to the OCS, we [CBP] have held that statute to apply only to dredging on the OCS for the purposes described in Section 4 of the OCSLA, and not to dredging done to prepare the seabed of the OCS for the laying of trans-oceanic cable. The Dredging Act does not apply because dredging for a transoceanic cable on the US OCS was not within the purposes outlined in OCSLA Section 4(a). Analogously, dredging to lay or bury in the seabed the undersea cable infrastructure of an offshore wind farm would not implicate the Dredging Act.
14 U.S. MARITIME CABOTAGE LAWS The United States maritime cabotage laws apply to US territorial waters (navigable waters). The US territorial seas limit applicable to these laws is three nautical miles. These laws consist primarily of the Jones Act (Merchant Marine Act of 1920), the Passenger Vessel Services Act of 18863, the Dredging Act of 19064, and the Towing Statute of Outside of three nautical miles, the application of these laws likely limited because the Outer Continental Shelf Lands Act of 19537, that extends certain federal laws to the Outer Continental Shelf (OCS), appears likely restricted (OCSLA) to mining, gas and oil activities.
15 Outer Continental Shelf Lands Acts of 1953 (Amended 1978) Extend the jurisdiction of all federal laws to: the subsoil and seabed of the outer Continental Shelf and to all artificial islands, and all installations and other devices permanently or temporarily attached to the seabed, which may be erected thereon for the purpose of exploring for, developing, or producing resources therefrom[.] Limits federal laws and their application to certain types of installations and devices on the US OCS based on their function. The 1978 Amendments to OCSLA Section 4(a)(1) limit the application of federal law to those installations and devices erected thereon for the purpose of exploring for, developing, or producing resources therefrom, while extending United States maritime cabotage laws to artificial islands and fixed structures which may be erected thereon for the purpose of exploring for, developing, removing, and transporting resources therefrom[.] (the purpose requirement).
16 Outer Continental Shelf Lands Acts of 1953 (Amended 1978) Does not define the term resources but the Geneva Convention on the Continental Shelf to which the United States is a party defines natural resources to consist of the mineral and other non-living resources of the seabed and subsoil together with the living organisms belonging to sedentary species [immobile or constantly in contact with the seabed]. The question remains to whether the OCSLA extension of US maritime cabotage laws is limited to the particular purposes of exploration, development, and production in an oil and gas context as enumerated in Section 4(a)(1) of the statute. In the Alliance case, the United States First Circuit Court of Appeals recently interpreted OCSLA Section 4(a)(1). The court found the language to be ambiguous and reviewed the legislative history underlying the 1953 original enactment and 1978 amendments, as well as looking at the governing law provision in Section 4(e). The court determined that Congress had intended to import the purpose requirement.
17 Outer Continental Shelf Lands Acts of 1953 (Amended 1978) The CBP, charged with enforcement of the Jones Act, has interpreted Section 4(a)(1) to apply to points on the US OCS used for the exploration, development, or production of seabed mineral resources. The consensus seems to support the view that the terms exploration, development and production apply exclusively to mineral activities in the seabed, and thus the Jones Act would not apply to a nonmineral resource such as offshore wind energy.
18 JONES ACT: EXCEPTIONS Even if the Jones Act does apply to offshore wind projects, both exceptions and waivers exist to avoid its application. Under the language of the Jones Act, the act of installing a wind tower is likely not be coastwise trade or transportation of merchandise between points. A recent CBP ruling speaks directly to this point, and concludes that in the context of a wind farm, CBP has long held that neither drilling nor pile driving, in and of itself, conducted by a stationary vessel, constitutes coastwise trade or coastwise transportation. See HQ , dated November 14, 1988 and HQ , dated November 28, 1990, respectively. The proposed activity with respect to the driving of a monopile foundation into the seabed is very similar to pile driving and is governed by the same principle. Therefore, we find that the activity of the stationary construction vessel described above, involving driving of a monopile foundation into the seabed and then adding a platform deck, anemometer tower, and other components does not constitute coastwise trade or coastwise transportation. In summary, we find that the engagement in the proposed activity will not result in a violation of 46 U.S.C
19 JONES ACT: EXCEPTIONS Based on this CBP ruling, a vessel used in monopole installation, and even the installation of the turbines themselves, does not constitute coastwise trade under the Jones Act. Foreign-flagged vessels and crews may be used for these activities (albeit the components installed would have to be transported by a US flag coastwise qualified vessel unless all such transportation can be arranged from a foreign port directly to the installation site with no US entry).
20 JONES ACT: WAIVER US maritime cabotage laws can be waived by the US government in certain limited circumstances, which could come into play if those laws were found to apply to offshore alternative energy projects, specifically On request of the Secretary of Defense, the head of an agency responsible for the administration of the navigation or vessel-inspection laws shall waive compliance with those laws to the extent the Secretary considers necessary in the interest of national defense. Indeed, the recent public debate surrounding the Administration s handling of waivers for foreign vessels used in oil spill response in the Deepwater Horizon spill demonstrates well the political minefield surrounding Jones Act waivers.
21 CBP RULINGS: REGARDING FOREIGN VESSELS & JACK-UPS A recent CBP ruling provides that foreign flagged jack-up vessels with foreign crews may be used for wind farm drilling, pile driving and installation activities as long as The vessel is stable and stationary, Does not transport persons to or from US ports, Ideally, the jack-up rig would arrive functional from a foreign country with a foreign crew without requiring any US modification ashore. A foreign-flagged vessel with foreign crew vessel entering US port and disembarking for modification would directly violate the ruling, so the foreign vessel should proceed directly to the project site to begin drilling, driving piles and installing the wind tower, and This recent ruling conforms to past offshore oil and gas CBP rulings that permit foreign vessels, that are non-coastwise qualified, to be used as a moored construction facility. The coastwise laws do not prohibit the use of a non- coastwise-qualified stationary platform or barge used for construction activities within or beyond the territorial waters of the United States.
22 APPLICATION OF JONES ACT REQUIREMENTS TO THE SEPARATE CONSTRUCTION AND MAINTENANCE PHASES OF OFFSHORE WIND FARMS Initial Component Delivery The Jones Act does not apply to the transportation of merchandise from foreign ports to US ports. Components may be initially delivered to a US port by a foreign vessel. Component Transportation To An Offshore Wind Farm Site The Jones Act applies since this is the transportation of merchandise from a US port (a point) to another point, that point being a jack-up operating as a stationary, stable construction platform. If the component is moved by barge, the Towing Act will require that the tug utilized be a documented US flag tug. Installation and Assembly Phase Offshore drilling, pile-driving, and component installation are not considered coastwise trade or coastwise transportation under the Jones Act, so it does not apply in this phase. A foreign flag construction vessel (jack-up) that is stable and stationary may be used for this phase.
23 APPLICATION OF JONES ACT REQUIREMENTS TO THE SEPARATE CONSTRUCTION AND MAINTENANCE PHASES OF OFFSHORE WIND FARMS Operation, Repair and Maintenance Phase The Jones Act would likely apply since the these activities would involve a vessel leaving from a US port (a point) and travelling to another point (the completed wind tower) with merchandise (repair components) and then returning to a US port (another point). Under the Jones Act, any vessel moving merchandise or passengers between a stationary platform and another coastwise point must be documented for the coastwise trade. Maintenance - Once the offshore wind farm is completed, the wind farm operator faces the problem of maintaining the turbines in terms of normal maintenance but possible repairs necessitated by natural forces or third parties such as a vessel collision with a wind turbine.
24 CLEAR ACT Consolidated Land, Energy and Aquatic Resources Act of 2010 Passed by House July 30, Requires any USL engaged in U.S. Offshore energy development, explanation, or production to be U.S. flagged, Use can be built overseas, it must be owned by a Jones Act Company, Redefines the Outer Continental Shelf Lands Act to Cover alternative energy in addition to oil and gas. Thus would apply to wind farms 200 miles offshore; and President Obama is in favor of bill McCain opposes
25 CONGRESSIONAL HEARINGS NEXT WEEK There are vigorous debates between those interested in making the Jones Act more restrictive and others who want to relax or abolish the Act. For example the House Committee on Transportation and Infrastructure has proposed new safety and environmental regulations including a provision that vessels operating in the 200 NM US Exclusive Economic Zone (EEZ). In contrast, Senator McCain proposes a repeal of the Jones Act.