United States: Sen. Mccain's New Jones Act Repeal Effort Not Likely To Progress

Eric Lee is an Associate for Holland & Knight's Washington, D.C. office

J. Michael Cavanaugh is a Partner for Holland & Knight's Washington, D.C. office

HIGHLIGHTS:

  • Sen. John McCain's proposed "Open America's Waters Act of 2017" is the Arizona Republican's fourth effort to eliminate or sharply pare back Jones Act cabotage restrictions in the past eight years.
  • McCain's latest legislation appears to be a broad repeal of U.S. law restricting transport of merchandise between U.S. ports and offshore sites to U.S coastwise vessels.
  • Like his prior attempts, the new McCain campaign seems unlikely to pass either the Senate or House, or to lead to other legislation or policy changes.

Sen. John McCain (R-Ariz.) offered proposed legislation entitled the "Open America's Waters Act of 2017" on July 18, 2017. Styled as a bill to "repeal the Jones Act restrictions on coastwise trade, and for other purposes," this legislation appears to be a broad brush repeal of the longstanding U.S. trade protectionist law, embodied in 46 US Code §55102 and various vessel documentation provisions, restricting transport of merchandise between U.S. ports and offshore energy facility sites to U.S.-built, U.S.-flag vessels with 75 percent or more U.S. equity ownership.

McCain's Previous Repeal Attempts

This is Sen. McCain's fourth effort to eliminate or sharply pare back Jones Act cabotage restrictions in the past eight years. In 2010, he called for a full repeal of the Jones Act. His 2015 and 2016 legislative proposals were more narrowly crafted, striking at the U.S.-built requirement and the related provision at 46 US Code §12132 that any U.S. Jones Act-eligible vessel that is reflagged or sold foreign loses its coastwise privileges permanently and cannot be brought back in by reflagging. These measures would have left in place the requirement for use of vessels currently under the U.S. flag, with 75 percent U.S. ownership. Sen. McCain's current measure again seems to be an effort to undercut the Jones Act in its entirety, although it is not clear that his draft bill – seemingly aimed more at coastwise vessel eligibility requirements – would do exactly that.

Passage Again Unlikely

Like his prior attempts, the new McCain campaign seems unlikely to gather sufficient support to pass either the Senate or House, or to stir much debate leading to other legislation or policy changes. Legislation protecting U.S. ship operators and shipyards from foreign competition in U.S. inland and coastal domestic trading markets dates from the first few U.S. Congresses during the late 18th century. Despite strong support from much of corporate America and traditional Republican interests, including the oil majors and Heritage Foundation, and continuous pressure from U.S. jurisdictions heavily reliant upon ocean shipping trade with other states – such as Alaska, Hawaii and Puerto Rico – historical efforts to reduce the scope of the Jones Act materially have failed outright or been heavily diluted. The current political landscape is no more favorable. Weakening the Jones Act in any way would appear to run directly counter to the protectionist themes of the Trump Administration.

Other Legislative and Regulatory Efforts

Sen. McCain's bill comes amid a small flurry of coastwise legislative and regulatory activity from which no clear momentum or theme seems evident. In mid-2016, Rep. Gary Palmer (R-Ala.) led an unsuccessful effort to tie Puerto Rico debt relief legislation to the exemption of Puerto Rico-mainland trade from Jones Act requirements. After the election of President Donald Trump – which based on campaign rhetoric appeared almost certain to foster increased protectionism – but before Trump's inauguration, U.S. Customs and Border Protection announced a significant proposed rollback of a series of prior interpretive legal rulings that effectively permit certain non-U.S. vessels to perform specific services in the U.S. offshore energy marine services industry. These changes would have reversed decades of precedent and tightened U.S. enforcement of the Jones Act. However, after a firestorm of opposition from various sectors, CBP has recently pulled back these proposed interpretative changes for reconsideration, and CBP's interpretive rulings remain.

In contrast to Sen. McCain's campaign to repeal the Jones Act, Rep. John Garamendi (D-Calif.),joined by Reps. John Duncan (R-Tenn.) and Duncan Hunter (R-Calif.), recently introduced H.R. 1240, a bill to extend U.S.-flag cargo preference to commercial oil exports from the United States. This measure, like other U.S. cargo preference laws (which reserve portions of U.S. military and civilian government cargoes to U.S.-flag ships), does not require U.S.-built vessels or any particular level of U.S. equity ownership, as long as the vessels engaged are U.S.-flag, with U.S. officers and crews. Prior attempts to extend cargo preference to privately owned cargoes have failed. The high-water mark for cargo preference was the Energy Transportation Security Act of 1974, which passed both Houses of Congress but was pocket vetoed by President Gerald Ford. This new cargo preference effort also seems likely to fall by the wayside, possibly as premature more than being out of step with current political trends. However, it illustrates that expanding shipping protectionism is at least viewed as a fair subject for dialogue among polite company, which is a stark contrast to any attempt to repeal the Jones Act.  

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