Winston & Strawn on latest Jones Act guidance
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U.S. Customs and Border Protection (CBP) recently issued its first Jones Act guidance since 2011 regarding the installation of offshore wind facilities in U.S. waters.
The Jones Act determines which ships can engage in coastal trade within the U.S and is a key driver in how offshore structures are constructed and dismantled. The law restricts the transportation of merchandise between two points in U.S. waters to qualified flag vessels owned and operated by U.S. citizens.
In its ruling, CBP confirmed that a foreign installation vessel can install wind turbine components as long as the vessel is stationary and does not transport components, which must be provided from shore via Jones Act qualified “feeder” vessels.
Offshore wind stakeholders are now exploring the impacts of the CBP's guidance, including potential vessel equipment litigation, Congressional consideration of lifting waivers, and potential changes to the Outer Continental Shelf Lands Act (OCSLA).
“There’s still some confusion whether OCSLA has properly extended the Jones Act to the Outer Continental Shelf (OCS) for renewable projects,” Charlie Papavizas, Partner Chair for Maritime Practice, Winston & Strawn LLP, said at a recent Business Network for Offshore Wind (BNOW) webinar. “This whole question of whether federal law applies to offshore renewable projects on the OCS is a question that CBP has been aware of for a long time and has not had the political wherewithal to address. The agency is concerned that it should not be the entity that answers such a fundamental question, that that’s a question that’s really for a higher authority, whether that’s the President or Congress. And so when someone asks CBP for guidance on things that occur on the OCS--which I can tell you has occurred because some of our clients have asked--they don't get an answer. Because in order to answer those questions, the fundamental question of does the Jones Act apply has to be answered. And CBP is reluctant to do that to date, so no answers."
The Jones Act was included in the Merchant Marine Act of 1920, enacted by former President Woodrow Wilson to deal with a surplus of WWl vessels that were costing the government too much to maintain and operate and were no longer needed.
But the Jones Act was largely an afterthought, Papavizas notes in a recent article, with the bill's main sponsor saying during Congressional proceedings that the legislation was not intended to make substantive changes to existing law.
Potential changes to the Act
In March, U.S. Sen. Sheldon Whitehouse introduced legislation that would extend the OSCLA to expand revenue sharing for offshore wind and reauthorize the National Oceans and Coastal Security Act.
“The legislation would fix this, among other things,” Papavizas said. “No one expects this legislation to move forward this year. Congress is even worse off in their inability to do most things this year for pretty obvious reasons. The other thing we need to be aware of is this issue is going to come up in a government accountability study that is ongoing. They were charged with determining vessel availability for renewable projects, therefore there is no way to do that without assessing whether the Jones Act applies. It's been known for a long time that a vessel sitting still for a long time doing the mere act of installation can be done by a foreign vessel. So the working model which everyone has been talking about by Fred Olsen in Block Island is a workable model, which is a foreign installation vessel fed by Jones Act feeder vessels.”
In 2016, the Fred Olsen Windcarrier’s jack-up vessel Brave Tern installed the first U.S. offshore wind farm off Block Island.
“We know that the Jones Act feeder installation vessel model is sound but Customs has not answered a lot of the ancillary questions that go along with that model,” Papavizas said. “One of the things that was presented in the request issued on July 15 was whether the installation vessel could unload containers, tools, people, expendables and the like onto the worksite, and then recover those things and transport them to a second worksite and so on. Customs confirmed that tools, when transported by the installation vessel, constitute vessel equipment. They do not constitute merchandise and therefore the foreign vessel can undertake that activity. And the ruling is a little vague about expendables that are left behind and whether they would still constitute as vessel equipment. This whole concept of vessel equipment has been very controversial for a long time. The CBP has had to go back and forth with guidance.”
While CBP determined long ago that laying cable can be undertaken by a foreign vessel, questions remain around burying cable in the seabed.
“The issue that arises from cable lay is with the burial of the cable because any dredging activities within three nautical miles of the coast must be done by a qualified vessel and even beyond if it’s in connection with development, exploration and production of resources,” Papavizas said. “And it's not clear whether some of the methods that are commonly used would constitute dredging. We know from prior oil and gas rulings that use of a mechanical plow or excavating machinery is definitely dredging. We also know from these prior oil and gas rulings that any method involving fluidization of the seabed is not dredging. The questions come in with devices that use some aspect of both. Those questions remain unanswered.”
Papavizas says offshore wind stakeholders can move the legislative needle surrounding CBP’s latest guidance by talking to lawmakers.
“I don't think this is a CBP question, I think this is really a federal government question,” he said. “I think it’s really what Sen. Whitehouse wants to fix in terms of changing the law and refining it. What the industry can do is communicate with the senators who have already cosponsored that legislation and say they support the legislation. That will encourage the legislation to proceed. I don't think telling CBP that guidance is necessary and useful, which BNOW and AWEA have already done, is going to be enough. Next year, especially if there’s a change in the president, it’s very likely that renewables will get a very high focus. It's certainly in Biden’s economic plan and if there’s a general renewables legislation of some kind, it’s likely that something like this will find its way in there if it’s supported by the industry.”
Block Island image courtesy of AWEA.