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News & Updates
October 2019 Jones Act Update: CBP Proposed Modifications
Customs and Border Protection (CBP) just released another round of proposed modifications to their rulings surrounding the Jones Act and its application to Outer-Continental Shelf (OCS) activity and the Offshore Industry as a whole. A complete overview of proposed modifications can be found in Customs Bulletin Vol. 53 which was released on October 23rd, 2019. https://www.cbp.gov/document/bulletins/customs-bulletin-weekly-vol-53-october-23-2019-no-38
Who are the Stake Holders:
- US Customs and Border Protection (CBP) - the US Agency tasked with the interpretation and enforcement of Jones Act Regulations.
- US Shipowners / Ship Builders - Represented by organizations such as the Offshore Marine Services Association (OMSA) and the American Maritime Partnership who are interested in locking out foreign competition and protecting their investment in the US maritime industry.
- Oil and Gas Exploration and Production Companies - Represented by Organizations such as the American Petroleum Institute (API) and the Offshore Operators Committee (OOC) who is interested in reducing costs and increasing profitability of their investment in the US OCS.
- Foreign Vessel Operators / Contractors - Represented by Organizations such as the International Marine Contractors Association (IMCA) and the International Association of Drilling Contractors (IADC). These are vertically integrated global companies providing a wide range of highly specialized vessels that operate on the global market. They too have made a great investment in vessels.
What is at stake?
- US CBP - CBP needs to create a regulatory environment surrounding the Jones Act that ensures everyone knows the rules of the game. Consistency and predictability in how CBP interpret and enforce the Jones Act Regulations will ultimately facilitate trade, investment and development on the OCS.
- US Shipowners / Ship Builders - OMSA has been lobbying hard for Jones Act to be enforced on the transport and installation of Subsea Equipment. As a result - its members have invested heavily in building a Jones Act Compliant fleet of MPSVs with over $2 billion in investment since 2009.
- Oil and Gas / Foreign Vessel Operators / Contractors - Would like to keep the enforcement /application Jones Act Status Quo for offshore activities. These companies have invested greatly basis the fundamentals that they would have access to global pool of vessels and service contractors. Restricting use of foreign flagged vessels for some operations could greatly diminish these companies' ability to operate effectively and economically in US Offshore Areas. A study that API points to is that with these proposed modifications - Oil and Gas related spending could reduce by $5.4 billion USD/year with a potential loss of 30-80K jobs for US Workers.
What You Need to Know
This is CBP's third attempt at revising a series of past rulings that have given conflicting guidance on what is considered vessel equipment verses merchandise.
This latest proposed modifications appear to be an attempt at restricting use of foreign flagged Multi-Purpose Support Vessels (MPSVs) in the Gulf of Mexico by clearly defining (or not defining) what CBP will consider vessel equipment vs merchandise.This designation is important because US Coastwise Regulations (IE the Jones Act) only apply to the transportation of merchandise between US "Coastwise" points (Vessel Equipment is specifically exempted).
Through these modifications - CBP is streamlining their interpretation of "vessel equipment" to include...
"all articles or physical resources serving to equip the vessel including implements used in the vessel's operation or activity………these functions include, inter alia, those items that aid in the installation, inspection, repair, maintenance, surveying, positioning, modification, construction, decommissioning, drilling completion, workover, abandonment or similar activities or operations of wells, seafloor or subsea infrastructure, flowlines, and surface production facilities."
CBP is also emphasizing that the fact an item is return to and departs with the vessel after an operation is completed, and is not left behind on the seabed, is a factor that weighs in favor of an item being classified as vessel equipment, but they stress this is not a determinative factor.
In the modifications - CBP is removing all analysis surrounding their determination of if equipment is considered vessel equipment or merchandise. In all modifications the analysis is replaced with a statement that the determination will be need be made on a case by case basis.
Aside from the vessel equipment vs. merchandise issue - CBP is relaxing their interpretation of what constitutes coastwise transport in the context of offshore heavy lifts.Through these proposed modifications - it appears CBP will now allow safe-zone movement for offshore lifts where a non-coastwise qualified crane / heavy lift vessel can initiate a lift and then move laterally in order to position itself to complete the lift.
Summary of the Proposed Changes
| Ruling Number | CBP's Summary of Proposed Modification | Proposed Red Line Changes to Ruling | Take-Aways / Comments |
| HQ 101925 (Oct. 7, 1976) | Limit the concepts that contributed to the overbroad definition of "vessel equipment" and the inappropriate conjoining of coastwise-trade-covered activity with non-coastwise-trade- covered activity. | Redline HQ 101925 - Attachment B.pdf | 1. Eliminates opinion
that there is no distinction between repairing Pipe and Pipe Laying.
Pipe repair ops could violate Jones Act if the foreign lay barge or vessel is
not "paying out" pipe.
2. Installation of Anodes on a subsea pipeline or Drilling Platform must be done by a coastwise vessel as items like anodes are now considered merchandise. 3. Several opinions struck and revised saying that Customs lacks sufficient facts to determine whether items being installed or used are tools (vessel equipment) or merchandise. Appears this modification is setting the precedent where CBP will be ruling on individual / specific subsea or offshore operations to determine what is considered vessel equipment vs merchandise. For Pipelay / Pipe repairs - one test that is mentioned is whether the pipe is Paid Out - Not Unladen. For Vessel Equipment vs Merchandise - one test that is mentioned is whether items are tools (and as such, vessel equipment used by the vessels crew) or merchandise depending on nature of item and facts associated with operation of the vessel. |
| HQ 108442 (Aug.13, 1986) | Remove analysis of whether work performed on or from a vessel as determinative of whether an item is merchandise or vessel equipment. | Redline HQ 108442 - Attachement D.pdf | 1. Well
Maintenance Projects - vessel
equipment vs. merchandise needs to be determined on case-by-case basis 2. Construction / Repair work - Jones Act-qualified vessel must transport repair materials if those materials do not constitute vessel equipment. What constitutes vessel equipment vs merchandise would be determined on a case-by-case basis. 3. Pipe Laying - Appears to be a redline error in the document. Redline comment under section 5 says "A Jones Act-qualified vessel cannot transport repair materials if those materials constitute merchandise and not vessel equipment. What constitutes vessel equipment versus merchandise would be determined on a case-by-case basis." Assume this is a type and should read that a Jones act vessel MUST…. 4. Drilling Mud and Treating Fluids - opinion that transport of mud and treating fluids does not constitute coastwise is struck and replaced with "What constitutes vessel equipment versus merchandise would be determined on a case-by-case basis." |
| HQ 113841 (Feb.28, 1997) | Remove the analysis of "mission of the vessel" to determine whether an item constitutes merchandise or vessel equipment. | Redline HQ 113841 - Attachment F.pdf | 1. ROV - ROVs qualify as "vessel equipment" in the context of being on an umbilical laying vessel. In addition to striking reference to "mission of vessel" Customs added the below: "The ROV constitutes vessel equipment because it is integral to the function of the umbilical laying vessel. Furthermore, the fact that the ROV is returned to and departs with the vessel is weighs in favor of it being considered vessel equipment." |
| HQ 114435 (Aug.6, 1998) | Remove analysis of whether certain objects are "necessary for the accomplishment of the mission of the vessel" or "essential to the completion of the mission of the vessel." | Redline HQ 114435 - Attachment H.pdf |
1. Umbilical/
Flowlines - Eliminated reference to mission
of vessel. Inserted that the
determining factor of whether or not the cable or pipe is merchandise is
dependent if they are paid out vs. unladen.
2. ROV - Inserted that ROV is vessel equipment because "it is integral to the function of the vessel. Furthermore, the fact that the ROV is returned to and departs with the vessel is weights in favor of it being considered vessel equipment." |
| HQ 115185 (Nov.20, 2000) | Remove the analysis of whether the subject items would be used to perform work from the vessel. | Redline HQ 115185 - Attachment J.pdf | This ruling is regarding foreign flag
vessels transporting and installing Jumper Pipes, Hull Mounted
Risers and Steel Catenary Riser Spool Pieces.
CBP strikes their opinion that transport and installation via a foreign flagged vessel is not a coastwise violation. CBP Added: "In order to make a reasoned determination as to whether these items constitute merchandise or vessel equipment, CBP needs -additional facts regarding the nature of the items and how they are used by the foreign-flag vessel. Whether items are tools (and as such, vessel equipment used by the vessel's crew) or merchandise depends upon the nature of the item and the facts associated with the operation of the vessel." |
| HQ 115487 (Nov.20, 2001) | Remove analysis of whether it is the "mission of the vessel" to install the subject items. | Redline HQ 115487 - Attachement L.pdf | CBP Strikes opinion that Umbilical and
Pipe Line Materials are not merchandise (pipeline Mattresses, EHDUs, Mud
Mats, Hydraulic Bridges, flying leads, ISUTS, MSUTS, SHOs, etc).
CBP Adds: "..there are insufficient facts to determine whether the item at issue constitutes a tool (and as such, vessel equipment used by the vessel's crew). Whether items are vessel equipment or merchandise depends on the nature of the item and the facts associated with the operation of the vessel. |
| HQ 115771 (Aug19, 2002) | Remove analysis of whether the subject items are "necessary for the accomplishment of the mission of the vessel, and usually carried on board as a matter of course. | Redline HQ 115771 - Attachement N.pdf | CBP removes reference to "mission of vessel" adds that equipment and repair materials constitute "vessel equipment" |
| HQ 116078 (Feb.11, 2004) | Remove references to other rulings improperly applying the "mission of the vessel" rationale. | Redline HQ 116078 - Attachment P.pdf | Removes opinion that equipment connected to mission of vessel is not considered merchandise. |
| HQ H225102 (Sept. 21, 2012) and HQ H235242 (Nov. 15, 2012) (reconsidering HQ H225102) | CBP proposes to adopt a revised interpretation for offshore "lifting operations" to clarify that certain lateral movements do not constitute transportation under the Jones Act. The term offshore "lifting operations" includes the lifting by cranes, winches, lifting beams, or other similar activities or operations, from the time that the lifting activity begins when unlading from a vessel or removing offshore facilities or subsea infrastructure until the time that the lifting activities can be safely terminated in relation to the unlading, installation, or removal of offshore facilities or subsea infrastructure. | Offshore Lifting Rulings - H225102 - H235242-H242466.pdf | CBP to revoke contradictory aspects of these rulings in order to align with the new proposed interpretation. |
CBP Proposes to Revoke the Following Rulings:
| Ruling Number | Summary of Proposed Modification | Ruling Being Revoked | Comment |
| HQ 115218 (Nov. 30, 2000) | REVOKE | Revoked Ruling HQ115218 - Attachment Q.pdf | CBP revoking a ruling allowing use of a foreign flagged vessel to transport and install a tie-in spool piece. |
| HQ 115522 (Dec. 3, 2001) | REVOKE | Revoked Ruling HQ115218 - Attachment Q.pdf | CBP revoking a ruling allowing use of
foreign-flagged vessel for the installation of flexible flowlines on
the OCS.
CBP revoking ruling allowing use of foreign-flagged vessel for installation of riser pipe and umbilical tie-ins on the OCS. |
| HQ 115938 (Apr. 1, 2003) | REVOKE | Revoked Ruling HQ115938 - Attachment T.pdf | CBP revoking ruling allowing broad use of non-coastwise qualified lift boats for drilling, completion, intervention, construction, maintenance and repair services. |
| HQ H004242 (Dec. 22, 2006) | REVOKE | Revoked Ruling HQ H004242 - Attachment U.pdf | CBP revoking ruling allowing foreign flagged MSPV to undertake survey, inspection activities, wellhead and pipeline instillations and repairs, as well as removal of debris from the OCS ocean floor and transportation to and unlading at a US Port. |
What's next?
CBP has opened a comment period which will close on November 22nd.CBP is asking anyone who has received an interpretive ruling or decision that is subject to this notice or was not identified in this notice to advise them during this comment period.
CBP is requesting that anyone who is engaged in substantially similar transactions as those mentioned in the notice, should advise CBP during this comment period.
Please contact our office if you'd like assistance identifying operations that could be impacted by these modifications.
Join us for our next Jones Act Outreach event, tentatively scheduled for November 20th, 2019 in Houston, Texas
We'll be hosting Officer Mike Hebert with US CBP Jones Act Divison of Enforcement and discussing these proposed modifications as well as the application of Jones Act regulations on OCS operations.
Click here to register and for more information on the event
