Customs Withdraws Jones Act Offshore Rulemaking

New Development

On November 15, 2010, U.S. Customs and Border Protection ("CBP") withdrew an Advance Notice of Proposed Rulemaking ("ANPRM") regarding the transportation of merchandise and equipment by foreign-flag vessels engaged in the support of Outer Continental Shelf ("OCS") activities. The ANPRM was under review by the Office of Management and Budget ("OMB") when it was withdrawn prior to publication in the Federal Register. As discussed in more detail below, this would appear to mean that most of CBP's OCS-related rulings issued over the last 30 years remain valid as precedent, subject to CBP review on a case-by-case basis when it considers new requests for rulings by industry for future projects.

Background

The coastwise merchandise statute, commonly called the Jones Act, prohibits the transportation of merchandise between U.S. coastwise points by any vessel that is not "coastwise-qualified," i.e., U.S.-built, U.S.-flag, 75% U.S.-owned, and never sold foreign. However, CBP has long maintained that equipment of a vessel is not "merchandise" for purposes of the Jones Act, and therefore such equipment may be carried between coastwise points aboard a non-coastwise-qualified vessel without violating the Jones Act.

On July 17, 2009, CBP proposed modifying or revoking previously-issued ruling letters in which CBP had made determinations as to whether certain equipment would be considered vessel equipment or merchandise, and hence whether the item could (or could not) be carried and used aboard non-coastwise-qualified vessels between coastwise points. In its proposal, CB P sought to modify over 20 rulings issued over a span of more than 30 years, including its interpretation of a 1939 ruling that had been consistently interpreted by CBP for over 70 years. CBP reasoned that it had made errors in issuing the interpretive rulings and therefore needed to provide more consistency and clarity to the offshore industry. This proposal came less than four months after CBP's revocation of a ruling it issued on February 20, 2009, in which it determined that multi- function well head assemblies called "Christmas trees" could be considered vessel equipment and therefore could be transported between coastwise points and installed by foreign-flag vessels. In its revocation notice, CBP stated that withdrawal of the Christmas tree ruling was necessary pending further clarification of the definition of vessel equipment and review of past rulings in which CBP...