President Trump’s Jones Act dilemma

The Houston Chronicle reported in a news article, “Trump faces dilemma as maritime fleets face off in Gulf,” published on May 1, 2017, that President Donald J. Trump is facing a difficult decision regarding a pending U.S. Customs and Boarder Protection (CBP) general notice of January 10, 2017, proposing to revoke previous rulings regarding application of the Jones Act to the offshore oil and gas industry.

The instant CBP 2017 general notice is entitled, “proposed modification and revocation of ruling letters relating to Customs application of the Jones Act to the transportation of certain merchandise and equipment between coastwise points.”

CBP issued a very similar general notice on July 17, 2009, which proposed to revoke essentially the same set of rulings approximately six months after President Barak H. Obama’s administration came into office in January 2009. However, the 2009 notice was never finalized. The 2017 notice was issued on January 10^th ten days before Obama’s second term ended.  Clearly, both notices were issued by the Obama administration to respond to maritime industry and labor pressure. The 2017 notice left the final decision to  Trump.

The offshore oil and gas industry submitted their comments to CBP on April 18, 2017 in respect of the 2017 notice and among the many points they made was to note that:

President Trump signed Executive Order 13783, 82 Fed. Reg. 16,093, on Promoting Energy Independence and Economic Growth on March 28, 2017. Executive Order 13783 states that “[i]t is in the national interest to . . . avoid regulatory burdens that unnecessarily encumber energy production, constrain economic growth, and prevent job creation.” It further states that the policy of the United States includes suspension, revision, or rescission of regulatory actions that unduly burden the development of domestic energy resources.” The discussion above and the attached economic analysis show that the action proposed in the 2017 notice would impose significant burdens on development of the county’s offshore oil and natural gas resources, which directly conflicts with the policy of the United States as stated in this Executive Order. (See industry letter, page 46, second paragraph.)

The offshore industry’s reference to that Executive Order highlights the dilemma facing the Trump administration between “protectionism” and “growth” specifically in the context of the Jones Act and the 2017 CBP notice regarding the employment of foreign-flag vessels by the domestic offshore industry.

The way in which the Trump CBP chooses to handle the CBP 2017 notice may foreshadow how his administration may more broadly approach other Jones Act reform issues especially the U.S. domestic ship build requirement.

If the Trump CBP decides in favor of the domestic U.S. maritime industry and against the offshore industry revoking the previous rulings, it is unlikely there will be any opportunity for Jones Act reform during the Trump tenure.

On the other hand, if the Trump CBP decides in favor of the offshore industry leaving the existing rulings in place, then perhaps the Trump administration might seriously consider Jones Act reform.

Key excerpts:

For years, international ships and crews have traveled in and out of the Gulf of Mexico to construct the offshore platforms and deep-sea pipelines that allow oil and gas thousands of feet below the surface of the ocean to get to market.

But now a long-running fight between U.S. energy and maritime companies about what work international crews can do under U.S. law has come to a head, forcing a decision from the Trump administration. At issue is whether to require offshore oil and gas drillers to shift work handled by international construction crews to domestic ones, something oil lobbyists warn could decimate deep-sea drilling in the Gulf.

For President Donald Trump, who has promised to both grow the domestic energy industry and preserve American jobs for American workers, finding a path forward is fraught with political pitfalls. Whatever decision he makes, he is bound to end up alienating one of his key constituencies.

Under a century-old law known as the Jones Act, only U.S.-owned vessels are allowed to perform such work within American waters. But over the decades U.S. customs officials made a series of exemptions, allowing oil and gas companies to employ foreign vessels to perform specific tasks such as moving the fluid that drillers use to lubricate wells between sites or laying down massive subsea equipment that can weigh hundreds of tons forward is fraught with political pitfalls. Whatever decision he makes, he is bound to end up alienating one of his key constituencies.

Then in 2009, former President Barack Obama ordered a review of those rules, setting off a panic in the offshore industry that gradually abated over the next eight years as no action was taken. Then, just days before leaving office, the Obama administration released a proposal that would repeal decades of U.S. Customs and Border Protection rulings that allowed the exemptions, forcing offshore oil companies to use U.S. ships and crews.

The White House did not respond to a request for comment, but a spokeswoman for U.S. Customs and Border Protection said the agency, which postponed a decision by two months to allow more time for public comment, is scheduled to rule by May 18.

In response, the U.S. oil and gas industry has undertaken a fierce lobbying campaign to block a repeal. The American Petroleum Institute recently released a study forecasting 30,000 job losses in this year alone, mostly in the Gulf region, and a 23 percent drop in U.S. oil and gas production by 2030.

Among the arguments used by U.S. maritime companies is that oil and gas drillers prefer international crews, which might be drawn from the less prosperous countries like the Philippines or Eastern Europe, because they are cheaper. Leatt, chief executive of the international maritime group, described that assertion as “nice propaganda.”