Friday, December 9, 2022

Legal Beat: Jones Act Moon Shot

October 18, 2022

Copyright brutto film/AdobeStock

What does the Jones Act have to do with the moon, you ask?  Well, we must go to ground on the Jones Act to answer the question.

The “Jones Act” we are talking about is the section in the Merchant Marine Act, 1920 which revised the pre-existing reservation of U.S. domestic maritime commerce to qualified U.S.-flag vessels.  “Pre-existing” is the right term because the U.S. Government advantaged U.S.-owned vessels in the domestic trade first with a differential duty in 1789 and then with an outright reservation in 1817.  

Changes were made over time to close loopholes particularly in 1866, 1893, and 1898.  The 1898 change for the first-time reserved U.S. domestic trade to U.S.-registered (“U.S.-flag”) vessels versus U.S.-owned vessels.  U.S.-owned, foreign-flag vessels could participate in the U.S. domestic trade before 1898 upon payment of a significant tonnage duty.

Another loophole developed in 1913 when U.S. Attorney General George W. Wickersham opined that cargo leaving the lower 48 states going to Alaska partly by land through Canada and partly by foreign vessel did not violate the domestic trade reservation.  Wickersham reasoned that the 1898 law meant what it said when it used the phrase “by water” and not “by land and water.”  

Wickersham’s opinion was not well received by the Seattle ship owning community and from that point to 1920 Washington State federal legislators worked to close the loophole.  One of those legislators was Senator Wesley Livsey Jones, a progressive, common-sense Republican, who as Chairman of the Senate Commerce Committee shepherded the Merchant Marine Act, 1920 through Congress – hence the name “Jones Act.”

The main purpose of the 1920 Merchant Marine Act was to deal with the huge fleet of vessels the U.S. Government had built (and was still building in June 1920) to support the U.S. war effort and to promote the U.S. merchant marine in the foreign, not domestic, trade.  The Wickersham loophole was in fact closed in section 27 of the Act which inserted the words “or by land and water” into the law.  Qualified U.S. flag vessels would then have to be utilized for any “merchandise” “transported” “by water, or by land and water . . . between points in the United States.”

Fast forward to today.  NASA is planning on sending its first mission of a crew module – the Orion – around the moon late this summer intended eventually to carry astronauts.  The capsule will blast off from Florida, orbit the moon, return to Earth, splash down in the Pacific Ocean, be recovered by a vessel, and transported to a U.S. west coast port and sent back to Florida for study, refurbishment, and reuse.  So, is that Jones Act-covered transportation of the Orion?
The Orion starts in Florida and ends up in a U.S. port on the west coast – which sure looks like between two “points in the United States” and at least in part “by water.”  And the Orion is definitely “merchandise” because U.S. Customs and Border Protection has interpreted that word broadly.  Moreover, it looks like the “merchandise” is being “transported” for at least part of the overall trip.

Amazingly, we don’t have to guess at the answer. CBP ruled in 2008 in the Orion planning stages that the Jones Act does “not extend to air, space or the earth’s orbit” and a foreign vessel can be used to recover the Orion and take it to a U.S. port (even though it appears that a U.S. Navy vessel will in fact be utilized).  Not many people are aware of the “space loophole” to the Jones Act, but that ruling sure looks like it created one even if it has somewhat limited utility since placing cargo in orbit seems an extreme way to evade the Jones Act.

This is not meant to make light of the “Jones Act” which has great significance for a variety of industries, supports U.S. national defense, and has effectively been the law of the land since the beginning of the United States.  But every law can lead to absurd consequences, even the best laws, and some flexibility in application can sometimes be a good thing.  Whether CBP made the right or the wrong call about space or the earth’s orbit, we all can remember to think of the Jones Act when the Orion blasts off into space.


About the Author: Constantine (Charlie) Papavizas is a partner in the international law firm of Winston & Strawn LLP resident in Washington, D.C. and is the chair of its maritime practice group. Mr. Papavizas represents ship owners, operators and managers, shipyards, energy companies, marine construction companies, financial institutions and a variety of other interests in the world-wide maritime and energy industries.  He  has authored a number of articles on a variety of topics including offshore wind development and the Jones Act.  Mr. Papavizas is also the co-author of the Practising Law Institute’s Maritime Law Answer Book and has been quoted in a number of publications on a variety of shipping topics.

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