McCain Challenges Jones Act Build and Ownership Requirements

U.S. Senator John S McCain (R-AZ) filed with the Secretary of the Senate on January 13, 2015, an amendment (SA 4) to the Senate version of The Keystone XL Pipeline Act. Sen McCain’s amendment would eliminate the U.S. build requirement of the Jones Act and other U.S. maritime cabotage laws for most vessels engaged in domestic trade, or more formally as it is known in U.S. jurisprudence, the coastwise trade of the U.S.

The original Senate version of the legislation in the current Congress, namely “The Keystone XL Pipeline Act” (S. 1), was introduced by Senator John Henry Hoeven III (R-ND) on January 6, 2015. Senator Lisa Murkowski (R-AK) offered on January 12, 2015 “The Keystone XL Pipeline Approval Act” (S. 147) as Amendment 2 to replace S. 1.

Sen McCain’s instant amendment would be a rider to the Keystone legislation (actually to Sen Murkowski’s Amendment No. 2) and is modeled very closely on his previous standalone bill “Open America’s Waters Act” (S. 3525, 111th Congress, 2nd Session) introduced on June 23, 2010, which was not acted upon and died at the end of that Congress.

Sen McCain’s press release covering the filing of his amendment contains provocative language affirming the need to fully repeal the Jones Act paralleling his previous comments as keynote speaker at the Heritage Foundation on December 5, 2014 and his press release from June 2010 covering the standalone bill (here and here). These statements have led some to report incorrectly that Sen McCain’s amendment to the Keystone Legislation proposes to fully repeal the Jones Act, which it does not.

The Keystone XL Pipeline Act

The Keystone legislation was introduced In both chambers on January 6, 2015 during the opening days of the 114th Congress, 1st Session, to authorize TransCanada Keystone Pipeline LP to build a crude oil pipeline from Canada to the Gulf of Mexico, a project which was been pending federal approval since 2007.

The Keystone XL Pipeline Act (H.R. 3) was passed by the U.S. House of Representatives on January 9, 2015 by a 266 to 153 majority, and sent to the U.S. Senate where it was received on Monday, January 12, 2015. The Senate determined to take up the companion measures with their procedural vote 63 to 32 on January 12, 2015 to end cloture. It is expected that the Senate debate will take between two and three weeks when various amendments will be offered and debated prior to passage. Currently there are 55 filed amendments pending to S. 1.

President Barak H. Obama (D) has pledged to veto The Keystone XL Pipeline Act when it gets to his desk. A two-thirds majority in each chamber of Congress is needed to override a Presidential veto, which is a very high hurdle requiring a majority of 345 in the House and 67 in the Senate. The majorities achieved in the votes already taken on the measures in the House and Senate would be insufficient to override a presidential veto.

The sources I contacted in Washington D.C. on January 14, 2015 who closely monitor the Keystone XL Pipeline and domestic maritime issues said that they were surprised to learn about Sen McCain’s amendment and noted that the Keystone’s bill’s Senate managers have expressed their desire to pass out a clean bill without controversial amendments so as to improve its prospects of becoming law. They further opined it would not be unexpected for Sen McCain to withdraw his Jones Act amendment after having made his point because it is unlikely given the number of amendments and the expressed view of the bill’s managers that his would be among the few to be selected as candidates for possible consideration, debated and actually voted on.

The Senate was scheduled to resume consideration of the Keystone legislation on Tuesday, January 20, 2015.

Provisions of Sen McCain’s Amendment

The substantive part of Sen. McCain’s instant amendment to the Keystone legislation is its Section 3, entitled “Repeal of Certain Limitations on Coastwise Trade,” which directly addresses the U.S. build and touches on the U.S. ownership requirements of the Jones Act and the other coastwise laws .

The key modification is made by Section 3, paragraph (a) In General, which would repeal Section 46 USC 12112 Coastwise endorsement paragraph (a) and replace it with authorization for the U.S. Coast Guard to issue a coastwise endorsement to a vessel that qualifies in terms of safety and security. Repealed are the requirements for a vessel to be: (1) U.S. owned under Section 46 USC 12103 and (2) U.S. built. In addition, this section repeals long standing exemptions to the U.S. build requirement for vessels captured in war, forfeited for a breach of U.S. law, and wrecked on a U.S. coast under section 46 USC 12107 Wrecked vessels. Without the domestic build requirement in force, these exemptions would be superfluous and properly repealed.

It is not clear if the U.S. ownership requirements would be positively repealed by eliminating this requirement for a coastwise endorsement in Section 46 USC 12112 because the ownership requirements are still stated in Section 46 12103 General eligibility requirements , which is not repealed by Sen McCain’s amendment.

In addition, five conforming amendments are made by McCain’s amendment: (1) eliminating a wrecked vessel provision from 46 USC 3703a (c) (1) (C) Tank vessel construction standards; (2) liberalizing a foreign build exemption in Section 46 USC 12120 Liquefied gas carriers to be employed in the Puerto Rico trade; (3) eliminating Section 46 USC 12112 requirements from Section 46 USC 12112 Small passenger vessels; (4) deleting Section 46 USC Loss of coastwise trade privileges eliminating the foreign ownership, foreign registry and foreign rebuilding causes for loss of coastwise privileges; and, (5) deleting Section 46 USC 12132 listing from the table of contents in a clerical amendment.

These provisions would substantially change the U.S. build and possibly ownership requirements of the coastwise laws if enacted.

Blue Water Ship Build Exemptions

Sen McCain’s instant amendment to eliminate the domestic ship build provisions of the U.S. cabotage laws (including the Jones Act) follows on several previous and similar proposals made over the past twenty years or so that have been limited to the so-called Blue Water trades.

In August 1998, Tom Moore, then President of Chevron Shipping Company, proposed that the domestic build requirement should be eliminated for the domestic “Blue Water” trades. As a subsidiary of the oil major Chevron Inc. and an important Jones Act tanker owner and operator, this statement was a major departure from widespread corporate support for the U.S. build requirement and the Jones Act generally. The Chevron Shipping proposal was not restricted to tankers.

For those in the U.S. maritime industry, the “Blue Water” trades are those where oceangoing ships are employed to carry cargoes over deepwater, which typically has a blue color. This is as opposed to the “Brown Water” trades, which refers to the inland waterways on the nation’s rivers, canals and the intracoastal waterway, where the water often has a muddy brown color.

The Blue Water trades can be identified more formally as the coastal, intercoastal and noncontiguous trades of the U.S. The coastal trades are transportation movements confined to either the East Coast, Gulf Coast or Pacific Coast of the U.S. Intercoastal trades are those movements between the designated “coasts” of the U.S. And, the noncontiguous trades are those involving those areas of the U.S. (including Alaska, Guam, Hawaii and Puerto Rico) that are not geographically connected to the 48 contiguous states.

At approximately the same time of the Chevron Shipping proposal, U.S. Representative Nick H. Smith (R) (MI-07) introduced on July 16, 1998, “Shipping Relief for Agriculture Act of 1998” (H.R. 4236), which would have eliminated the domestic build requirement for the “deepwater transportation” of “certain noncontainerized agricultural and bulk cargoes in coastwise trade”. In this construction, deepwater meant the Blue Water trades and the Great Lakes. Interestingly, bulk liquid cargoes were specifically excluded from Rep Smith’s bill.

Rep Smith’s “Shipping Relief for Agriculture Act of 1998” was one of six pieces of legislation introduced in Congress during the period from 1996 through 2003 in response to the efforts of the Jones Act Reform Coalition (JARC) led by its then president Rob Quartel. JARC is defunct today.

The next piece of Jones Act legislation was Sen McCain’s Open America’s Waters Act of 2010, from which his instant amendment is drawn.

Also in 2010, we [Hawaii Shippers’ Council] put forward our Noncontiguous Trades Jones Act Reform (NTJAR) proposal that would exempt those trade lanes from the domestic build requirement for large oceangoing ships. Other than eliminating the build requirement, our proposal would retain the other Jones Act requirements in respect of large self-propelled ships operating in the noncontiguous trades (i.e., the U.S.-flag, U.S.-ownership, U.S.-crew and U.S. management requirements). We are not proposing to change the U.S. build requirement for the domestic tug and barge industry operating in the noncontiguous trades.

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