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90 Years Ago, Congress Acted to Save Our Shipyards Today, Everybody Ignores That Law

It is necessary for the national defense and for the proper growth of its foreign and domestic commerce that the United States shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency, ultimately to be owned and operated privately by citizens of the United States; and it is declared to be the policy of the United States to do whatever may be necessary to develop and encourage the maintenance of such a merchant marine, and, in so far as may not be inconsistent with the express provisions of this Act, the Secretary of Transportation shall, in the disposition of vessels and shipping property as hereinafter provided, in the making of rules and regulations, and in the administration of the shipping laws keep always in view this purpose and object as the primary end to be attained.

 

Sec. 1. Purpose and policy of United States (46 App. U.S.C. 861 (2002)), MARAD

Enacted in 1920, the Jones Act says it straight out: All ships moving cargo between U.S. ports must be built in the U.S., owned and crewed by U.S. citizens. Violators can have their vessels and cargo seized and are subject to a fine. It is also a violation for ship owners to have Jones Act vessels repaired or refurbished by foreign shipyards, although foreign repair and rebuilding has become a common practice and the Coast Guard is complicit in this violation of the Jones Act.

The law is clear and straightforward. Interpreting the law, which falls to the Coast Guard takes some unusual twists and turns.

In 2006, when the Metal Trades challenged a deal between Aker Shipyard and Hyundai Mipo to take modules made in Korea and bolt them together in Philadelphia, the Coast Guard said: “No, that’s not a violation of the Jones Act.” Their logic? The imported parts—which included entire, prebuilt bulkheads, hull sections, even crew quarters—did not make up a “major component” of the completed vessel. When it served their purpose, the Coast Guard referred to the weight of the imported parts. When that didn’t fly, they reasoned that components “not integral to the hull of the vessel” could be foreign-built.

In 2009, the U.S. Court of Appeals upheld a Coast Guard determination that allowed a tanker company to rebuild one of its vessels in Communist China, inserting a new double hull and ballast tanks, even though a lower court had found that violated the Jones Act.

The Coast Guard has a convoluted formula for determining what constitutes “rebuilding” that is as flexible as a rubber band and, of course, favors foreign repairs. The courts grant “deference” to the Coast Guard’s regulatory authority in such cases, and typically cite “precedents” of earlier Coast Guard rulings that nobody challenged as reasons for not overturning these decisions.

That’s why Matson was able to dodge court suits when it essentially rebuilt one of its vessels in China and persuaded the Coast Guard to grant documentation for the rebuilt ship. * Click here to read selected provisions of the Jones Act. 

Who Cares?

The Coast Guard hands out waivers for foreign repair and rebuilding like so much confetti at a Super Bowl parade. Heck, even the Pentagon ignores the Jones Act, as it does the Oil Pollution Act of 1990 (that requires all vessels carrying oil must be double hulled to prevent spills—17 of the Navy’s oilers currently in service are single hull) and the Buy American Act (that requires the Military Sealift Command, the MSC, to use U.S. made vessels to position strategic military equipment to support U.S. military units). MSC has leased 11 foreign-built vessels instead of purchasing U.S. made ships for that job.

 

FOOTNOTE:

Aside from the unsuccessful Metal Trades suit against the Coast Guard challenging Aker’s kit ship construction agreement with Korean shipbuilder Hyundai-Mipo, there were four Jones Act cases filed in the Eastern District of Virginia.  The cases were as follows:

06-cv-1297: This case was the first challenge to the Coast Guard's decision permitting the modifications of a container vessel in China. It was dismissed on the basis that the USGC's decision was "preliminary" and not a final action subject to review under the Administrative Procedures Act.  A copy of the court's decision is attached for your information and review.  According to PACER, the case is closed and no appeal was filed.

07-cv-665: This case was the second challenge to the Coast Guard's decision to permit modifications to vessels in China.  It is still pending.  The Shipbuilders Council prevailed at the district court level and appeals were filed.  The Shipbuilders Council lost on appeal, with the 4th Circuit finding that the lower court erred in not deferring to the Coast Guard's interpretation of its regulation.  The case has been remanded to the district court for further proceedings.  Briefing is scheduled into 2011.

07-cv-1234: This case was the third challenge.  The Shipbuilders Council lost this case as well. The district court's decision is attached.  This case has been closed.

08-cv-680: This is the last case filed in the Eastern District of Virginia.  This case was stayed and ultimately closed without any decision on the merits.


Jones Act Resolution Adopted by the 69th Convention
Feb 10, 2012
 "Whereas the Buy American Act statutes contained in Title 11 U.S.
Whitepaper--The Way Forward
Jun 20, 2011
.
Creating the Conditions for a Revival in Shipbuilding
Nov 15, 2010

Given the right conditions, utilization, employment, productivity and output of the U.S. shipbuilding industry would all rise dramatically. Among the conditions that must be set “right”:

  • Effective enforcement of the Jones Act to cover construction of all manner of domestically used vessels—including traditional cargo ships, oilrigs and construction barges. Enforcement should cover de-facto “re-construction” of Jones Act vessels now taking place under the guise of “repair” work undertaken in China and elsewhere. Much of this repair work consists of complete construction from the ribs out. Five court challenges against de-facto foreign repair/reconstruction and “kit ship” construction have been frustrated by the tangle of administrative regulations and limited legal redress because of what we perceive to be lax interpretations by the Coast Guard (See footnote and cases).
  • Ending DOD’s long-term vessel leasing of foreign-built vessels by the Military Sealift Command—at least 11 ships in the current strategic reserve fleet are foreign built vessels. This practice is neither fiscally sound nor consistent with U.S. Buy American requirements. DOD keeps the costs of its leases a secret—arguing that it is “proprietary” information (even though it’s paid for with tax dollars). Long-term leasing is, in fact, illegal. As practiced by the Pentagon, long-term leasing is a budget expedient helping balance DOD’s budget in the short run, and killing shipyard jobs in the long run. Congress must no longer turn a blind eye toward the practice. See DOD Leases of Foreign-Built Ships, a document provided by the Research Department of the International Brotherhood of Electrical Workers (IBEW) and DOD Leases of Foreign Built Ships: Background for Congress, June 10, by the Congressional Research Service.
  • Fund maritime construction guarantees (Title XI) to re-establish and support ship orders for both cargo and passenger vessels in Jones Act commerce.
  • Support legislation requiring U.S. construction of renewable energy equipment and technology—wind & wave technology components as well as oil & construction barges used in the U.S.
  • Expedite implementation and increase financial support for the Department of Transportation Maritime Highway concept to encourage more cargo movement on U.S. waterways on the east and west coasts as well as the Mississippi River and throughout the Great Lakes. The plan would beef up maritime activity and ship building while relieving highway congestion on the nation’s interstates.

 


The Future of U.S. Shipbuilding
Nov 11, 2010

U.S. shipbuilding by first tier shipyards—there are only six such yards in the nation—is imperiled by:

  • Failures of government to pursue effective policies and enforce existing laws;
  • Inattention to the job creating potential of America’s last heavy manufacturing industry;
  • Short-sighted management decisions by shipyard owners; and
  • A bias on the part of the media and the general public against the kind of dirty fingernail work that America needs to sustain its strategic industrial base. The U.S. has been “sold” on the notion that the workforce of tomorrow must be a knowledge-based workforce—clean, white collar jobs directing the heavy lifting by lesser educated workforces in foreign nations.

America needs to restore its capability to build ships not only out of the necessity for a strong maritime sector to ensure the national defense, but also as a resource to sustain a heavy manufacturing capability for essential components of renewable energy—including wave and wind energy generation and nuclear containment vessels.

The Metal Trades Department maintains that the U.S. shipbuilding industry is one of the nation’s most under appreciated and underutilized resources. Shipbuilding in major U.S. shipyards employs some 100,000 workers, but supports an additional 500,000 jobs, by conservative estimates, in the shipbuilding supply chain that includes companies in each of the 50 states providing a vast array of materials and supplies critical to the shipbuilding industry.

Unfortunately, a web of laws and policies—including tax loopholes—encourages the mega corporations that own and operate U.S. shipyards to move away from shipbuilding. In the case of Northrop Grumman, for instance, the alternative to selling its shipbuilding business, either in whole or in part, to private equity buyers is less lucrative than spinning the business off as a separate entity. The parent company stands to realize some $2.5 billion in untaxed income in a spinoff instead of $2 billion in a sale to interested and competent buyers. At a time when everyone talks about the budget deficit, what possible public interest is there in forgiving the tax on $2.5 billion in corporate income?


Text of the Jones Act
Nov 10, 2010

SEC. 1. PURPOSE AND POLICY OF UNITED STATES (46 App. U.S.C. 861 (2002).

It is necessary for the national defense and for the proper growth of its foreign and domestic commerce that the United States shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency, ultimately to be owned and operated privately by citizens of the United States; and it is declared to be the policy of the United States to do whatever may be necessary to develop and encourage the maintenance of such a merchant marine, and, in so far as may not be inconsistent with the express provisions of this Act, the Secretary of Transportation shall, in the disposition of vessels and shipping property as hereinafter provided, in the making of rules and regulations, and in the administration of the shipping laws keep always in view this purpose and object as the primary end to be attained.

PURCHASE ALLOWANCE IN SALE OF VESSELS FOR COST OF PUTTING VESSELS IN CLASS (46 App. U.S.C. 864a (2002).

2 Hereafter the Secretary of Transportation may make allowances to purchasers of vessels for cost of putting such vessels in class, such allowances to be determined on the basis of competitive bids, without regard to the provisions of the last paragraph of section 3(d) of the Merchant Ship Sales Act of 1946.

ELEMENTS CONSIDERED IN SALE OF VESSELS IN DETERMINATION OF SELLING PRICE (46 App. U.S.C. 864b (2002)).

3 Hereafter, no sale of a vessel by the Maritime Administration of the Department of Transportation shall be completed until its ballast and equipment shall have been inventoried and their value taken into consideration by the Maritime Administration in determining the selling price.

SEC. 6. SALE TO ALIENS (46 App. U.S.C. 865 (2002).

The Secretary of Transportation is authorized and empowered to sell to aliens, at such prices and on such terms and conditions as he may determine, not inconsistent with the provisions of section 5 (except that completion of the payment of the purchase price and interest shall not be deferred more than ten years after the making of the contract of sale), such vessels as he shall, after careful investigation, deem unnecessary to the promotion and maintenance of an efficient American merchant marine; but no such sale shall be made unless the Secretary of Transportation, after diligent effort, has been unable to sell, in accordance with the terms and conditions of section 5, such vessels to persons citizens of the United States, and has determined to make such sale; and he shall make as a part of his records a full statement of its reasons for making such sale. Deferred payments of purchase price of vessels under this section shall bear interest at the rate of not less than 5 per centum per annum, payable semiannually.

SEC. 7. ESTABLISHMENT AND OPERATION OF STEAMSHIP LINES BETWEEN PORTS OF UNITED STATES; INVESTIGATION AND DETERMINATION; SALE OR CHARTER OF VESSELS; PREFERENCE IN SALES OR CHARTERS; CONTINUED OPERATION OF LINES; ADDITIONAL LINES; RATES AND CHARGES (46 App. U.S.C. 866 (2002).

The Secretary of Transportation is authorized and directed to investigate and determine as promptly as possible after the enactment of this Act and from time to time thereafter what steamship lines should be established and put in operation from ports in the United States or any Territory, District, or possession thereof to such world and domestic markets as in his judgment are desirable for the promotion, development, expansion, and maintenance of the foreign and coastwise trade of the United States and an adequate postal service, and to determine the type, size, speed, and other requirements of the vessels to be employed upon such lines and the frequency and regularity of their sailings, with a view to furnishing adequate, regular, certain, and permanent service. The Secretary of Transportation is authorized to sell, and if a satisfactory sale cannot be made, to charter such of the vessels referred to in section 4 of this Act or otherwise acquired by the Secretary of Transportation, as will meet these requirements to responsible persons who are citizens of the United States who agree to establish and maintain such lines upon such terms of payment and other conditions as the Secretary of Transportation may deem just and necessary to secure and maintain the service desired; and if any such steamship line is deemed desirable and necessary, and if no such citizen can be secured to supply such service by the purchase or charter of vessels on terms satisfactory to the Secretary of Transportation, the Secretary of Transportation shall operate vessels on such line until the business is developed so that such vessels may be sold on satisfactory terms and the service maintained, or unless it shall appear within a reasonable time that such line cannot be made self-sustaining: Provided, That preference in the sale or assignment of vessels for operation on such steamship lines shall be given to persons who are citizens of the United States who have the support, financial and otherwise, of the domestic communities primarily interested in such lines if the Secretary of Transportation is satisfied of the ability of such persons to maintain the service desired and proposed to be maintained, or to persons who are citizens of the United States who may then be maintaining a service from the port of the United States to or in the general direction of the world-market port to which the Secretary of Transportation has determined that such service should be established: Provided further, That where steamship lines and regular service have been established and are being maintained by ships of the board at the time of the enactment of this Act, such lines and service shall be maintained by the board until, in the opinion of the board, the maintenance thereof is unbusinesslike and against the public interests: And provided further, That whenever the Secretary of Transportation shall determine, as provided in this Act, that trade conditions warrant the establishment of a service or additional service under Government administration where a service is already being given by persons, citizens of the United States, the rates and charges for such Government service shall not be less than the cost thereof, including a proper interest and depreciation charge on the value of Government vessels and equipment employed therein.

SEC. 8. INVESTIGATION OF PORT, TERMINAL, AND WAREHOUSE FACILITIES (46 App. U.S.C. 867 (2002).

It shall be the duty of the Secretary of Transportation, in cooperation with the Secretary of War, with the object of promoting, encouraging, and developing ports and transportation facilities in connection with water commerce over which he has jurisdiction, to investigate territorial regions and zones tributary to such ports, taking into consideration the economies of transportation by rail, water, and highway and the natural direction of the flow of commerce; toinvestigate the causes of the congestion of commerce at ports and the remedies applicable thereto; to investigate the subject of water terminals, including the necessary docks, warehouses, apparatus, equipment, and appliances in connection therewith, with a view to devising and suggesting the types most appropriate for different locations and for the most expeditious and economical transfer or interchange of passengers or property between carriers by water and carriers by rail; to advise with communities regarding the appropriate location and plan of construction of wharves, piers, and water terminals; to investigate the practicability and advantages of harbor, river, and port improvements in connection with foreign and coastwise trade; and to investigate any other matter that may tend to promote and encourage the use by vessels of ports adequate to care for the freight which would naturally pass through such ports: Provided, That if after such investigation the Secretary of Transportation shall be of the opinion that rates, charges, rules, or regulations of common carriers by rail subject to the jurisdiction of the Surface Transportation Board are detrimental to the declared object of this section, or that new rates, charges, rules, or regulations, new or additional port terminal facilities, or affirmative action on the part of such common carriers by rail is necessary to promote the objects of this section, the Secretary of Transportation may submit his findings to the Surface Transportation Board for such action as such Board may consider proper under existing law.

SEC. 9. VESSELS SOLD UNDER DEFERRED PAYMENT PLAN; INSURANCE (46 App. U.S.C. 868 (2002).

If the terms and conditions of any sale of a vessel made under the provisions of this Act include deferred payments of the purchase price, the Secretary of Transportation shall require, as part of such terms and conditions, that the purchaser of the vessel shall keep the same insured (a) against loss or damage by fire, and against marine risks and disasters, and war and other risks if the Secretary of Tran That no vessel which has acquired the lawful right to engage in the coastwise trade, by virtue of having been built in or documented under the laws of the United States, and which has later been rebuilt, shall have the right thereafter to engage in the coastwise trade, unless the entire rebuilding, including the construction of any major components of the hull or superstructure of the vessel, is effected within the United States




Page Last Updated: Feb 10, 2012 (08:16:05)
 
 
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