Cabotage regulations and the challenges of outer continental shelf development in the United States.

• Author: Oyedemi, Wakil Oyeleru

1. INTRODUCTION II. MEANING AND HISTORICAL BACKGROUND OF CABOTAGE IN THE UNITED STATES A. What is "Cabotage"? B. Why Cabotage? III. THE ORIGIN OF CABOTAGE IN THE UNITED STATES: THE 1789 TAX LAWS IV. THE JONES ACT OF 1920 A. What is "Coastwise" (The Geographical Extent of the Jones Act)? B. Coastwise Restriction and the Outer Continental Shelf V. ARE THE CABOTAGE REGULATIONS WORTH IT? A. Domestic Attempts to Repeal the Jones Act B. Efforts to Sustain the Jones Act and Other Cabotage Regulations VI. JONES ACT AND THE DEEPWATER HORIZON OIL SPILL DISASTER VII. FROM MACONDO: LESSON FOR THE ARCTIC VIII. CONCLUSION AND RECOMMENDATIONS A. Both Economic and Strategic Reasons Support the Protection of the Jones Act (With Some Minor Amendments) B. The United States Build Requirement of the Jones Act Should be Sustained C. The Citizen-Owner Requirement of the Jones Act Should be Relaxed D. The Enforcement Framework of the Jones Act Must be Looked Into E. Congress Should Pass Legislation extending the Cabotage regulations to the Outer Continental Shelf F. The United States Should Stop Dragging Its Feet Regarding the Arctic Resources I. INTRODUCTION

   Marine cabotage regulations restrict transportation along the inland and coastal waters of a nation. The focus of this paper is on the marine cabotage of the United States. The Passenger Vessel Services Act of 1886; the Dredging Act of 1906; the Jones Act (Merchant Marine Act) of 1920; and the Towing Statute of 1940 collectively constitute the marine cabotage regulations of the United States. There are also government loan assistance and loan guarantee programs, as well as government cargo lifting programs to aid domestic ship owners and shipyards. These statutes and programs fulfill Congress's goal to restrict participation in the coastwise trade to American vessels and to boost domestic shipyards and the domestic shipping trade. The Jones Act of 1920, the focus of this paper, is the fulcrum of the cabotage regulations in the United States, and the lens through which the courts have interpreted other cabotage statutes. Other statutes and programs related to them will not be discussed in detail. (1)

   In Part Two, we look at the meaning, historical background, and the reasons adduced for having the cabotage regulations: national security and development of the domestic shipbuilding and shipping trade. Without a clear understanding of these concepts, the Jones Act and other cabotage regulations would make no sense to the reader going forward. Part Two also looks at the agencies tasked with enforcing the Jones Act and other marine cabotage regulations.

   To participate in the coastwise trade of the United States, the Jones Act requires a "vessel" to be "constructed" (repaired or rebuilt if needed) in the United States, "owned by United States' citizens," and "crewed by United States citizens." (2) Failure to meet these requirements results in denial of the coastwise trade permit, forfeiture of any "merchandize" carried by the vessel, or forfeiture of the errant vessel itself. (3) Part Three analyzes these requirements using the statutory, case law, and regulatory frameworks. Part Three also looks at the application of the Jones Act to the Outer Continental Shelf.

   Part Four looks at domestic legislation and attempts to repeal the Jones Act, as well as the efforts made to sustain it. Because the coastwise trade affects almost every facets of a nation's life, the Jones Act is a very attractive political issue on all sides of the political divide. There have been strong domestic and international attempts to amend, relax or repeal the Jones Act. These have been met with equally stiff and unrelenting resistance, aided by supportive administrations and America's top military leaders. To date, the forces that support the Act have prevailed, and the Jones Act lives on.

   Part Five looks at the Jones Act in the aftermath of the Deepwater Horizon blowout (the Macondo disaster). The disaster led to the deaths of 11 people and left 27 others injured. Many were awed by the colossal damage to the environment, property, and businesses along the Gulf Coast, and blamed the Obama Administration for the delay in the cleanup efforts. The delay reignited the political powder keg surrounding the Jones Act. Senator John McCain and a host of other critics saw the Jones Act as the obstruction to a quick cleanup and renewed efforts and calls to repeal the Act. (4) The bipartisan Commission on the Deepwater Horizon Oil Spill concluded the Jones Act was not to blame for any delay in the cleanup efforts. (5) The bill to repeal the Act, using the delay as a reason, failed in Congress. (6) Supporters of the Jones Act presented a bill aimed at bolstering the Jones Act restrictions in regards to the Outer Continental Shelf. (7) It too was unsuccessful.

   Part Six takes a cursory look at the Arctic as the next big stage in the battle for oil and gas, and how lessons from Macondo could be of benefit in the Arctic. Part Seven makes recommendations regarding the Jones Act moving forward. Ultimately, it is recommended that the U.S. build requirement contained in the Jones Act should be sustained for economic and strategic reasons. At the same time, it is recommended that the citizen-ownership provision should be relaxed for practical reasons. An extension of the Jones Act to the OSCLA and the U.S. part of the Arctic is recommended, as the only way to counter the injurious and vessel dumping practices of some nations. It is recommended that the U.S. should ratify the United Nations Law Of the Sea immediately. Finally, it is recommended that the country should fund the icebreaker oil spill response vessels that could be used in case there is an oil spill in the Arctic.

2. MEANING AND HISTORICAL BACKGROUND OF CABOTAGE IN THE UNITED STATES

   Judge Kaufman captured the mentality surrounding cabotage regulations in clear terms when he said:

   Like all maritime nations of the world, the United States treats its coastwise shipping trade as a jealously guarded preserve. In order to participate in this trade, a vessel's credentials must be thoroughly American. The ship must have been built in an American shipyard and be owned by American citizens. Moreover, it must not have trifled with its American Heritage. (8) The focus of Part Two is to trace how the United States arrived at making the coastwise business a "guarded preserve."

   1. What is "Cabotage"?

      The word "cabotage" originates from the French word "caboter". (9) It means coasting-trade or navigating and trading along the coast between the ports thereof. (10) A coastwise transportation takes place when merchandise or persons are loaded onto a vessel at one location and unloaded at another location. (11) The coastwise laws encompass both locations, regardless of the origin or ultimate destination of the persons or merchandise. (12) Thus, cabotage regimes are laws regulating the transportation of persons and merchandise from one point to another along the coastal waters of a nation. Worldwide, there are approximately 50 cabotage laws, that dictate the pace of domestic waterborne commerce. (13) The United States is not an exception.

   2. Why Cabotage?

      Shipping affects geographic distribution, economic activity and access to materials and markets. A viable merchant marine also remains an indispensable military asset. These factors make shipping a very attractive economic, strategic, and political topic. History abounds of nations doing all they can to protect their domestic shipping commerce against foreign incursions. The British showed an early awareness of the need to have a strong merchant marine with British subjects as crews. King Alfred rewarded English mariners who took three sea trips in their own vessels, in an attempt to encourage merchant shipping. (14) Richard II decreed a statute that restricted British subjects to transporting their merchandise on the sea by English ships only. (15) Henry VII prohibited importation of certain commodities by British subjects, other than in a ship owned by British subjects and manned in greater part by them. (16) During the time of Henry VIII, large landholders were required to plant a certain amount of flax, used mostly for shipbuilding. (17) In 1651, England passed the Navigation Acts, which totally closed the coasting trade to foreigners and permitted importation of merchandise into England or any of its colonies only goods carried on British Ships. As an exception, European goods were allowed only if carried from ships belonging to the country of origin. (18) The Navigation Acts remained in operation until 1849. It was the cornerstone of building and maintaining a strong colonial merchant marine that dominated the world. (19)

3. THE ORIGIN OF CABOTAGE IN THE UNITED STATES: THE 1789 TAX LAWS

   Starting with the First Congress, the United States government has focused on giving the United States maritime industry preferential treatment. On July 4, 1789, the first tax levied by Congress imposed protective tax on different items, with items arriving on American ships charged at a lower rate compared to those arriving on foreign ships. Titled 'An Act Imposing Duties on Tonnage', Section 1 of the Act provides that:

   On all ships or vessels built within the said States, and belonging wholly to a citizen or citizens thereof; or not built within the said States, but ... belong wholly to a citizen or citizens thereof, at the rate of 6 cents per ton. On all ships or vessels hereafter built in the United States, belonging wholly, or in part, to subjects of foreign powers, at the rate of 30 cents per ton. On all other ships or vessels, at the rate of 50 cents per ton. (20) The provision above referred to vessels entering the United States and bringing in merchandise from overseas. The statute specifically provides for higher tonnage duties on foreign-built and foreign-owned ships and vessels that wished to engage in coastwise business. (21)

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