US shipping rules complicate bid to ban Russian oil and gas

Critics say Merchant Marine law, aimed at protecting U.S. shipping, encourages dependence on foreign oil

by Joseph Morton and Benjamin J. Hulac, Roll Call, March 8, 2022 (excerpts)

As pressure builds to end the flow of Russian oil and gas into the United States, some lawmakers are pointing to a century-old shipping law as a potential hurdle.

A section of the Merchant Marine Act of 1920 — commonly referred to as the Jones Act — requires that merchandise transported by water between U.S. ports be shipped solely aboard vessels that are U.S.-built and owned and crewed mostly by Americans….

Following Russia’s invasion of Ukraine, Jones Act critics have blamed the law for why parts of the United States, such as Hawaii, import oil and gas from Russia rather than using domestic supplies.

Hawaii’s only refinery announced recently it was suspending purchases of Russian crude oil, which prompted the Grassroot Institute of Hawaii, a right-leaning nonprofit think tank, to write a letter to President Joe Biden calling for a one-year waiver of the Jones Act.

“Because of the Jones Act, it is too expensive to import oil from U.S. sources,” the group wrote. “Thus, Hawaii is almost wholly dependent on foreign sources for its oil imports, including a quarter to a third from Russia, which has made the islands especially vulnerable among U.S. states to fallout from the crisis in Ukraine.”

But the law puts significant restrictions on issuing such a waiver, said Charlie Papavizas, a partner at Winston & Strawn LLP who specializes in maritime law.

He said President Franklin Roosevelt signed an executive order allowing the waiver of navigation-related rules immediately after the attack on Pearl Harbor in 1941, in an effort to maximize flexibility for the coming war effort.

But the constitutional authority of that executive order was never tested. Congress later codified the waiver authority into law but included guardrails on how it can be used.

Relatively uncontroversial Jones Act waivers have been issued over the years, particularly in the face of natural disasters such as major hurricanes.

The shipping industry was dismayed, however, when the Obama administration released oil from the Strategic Petroleum Reserve, a cache of crude oil in a series of caves in Texas and Louisiana, with the minimum quantities set at such a level that no U.S. ship could qualify, Papavizas said.

That resulted in waivers that fueled new efforts to narrow the circumstances when waivers could be issued.

In particular, language was included in the National Defense Authorization Act that became law in 2021 when Congress overrode then-President Donald Trump’s veto.

Little noticed then, the new language says the Defense Department can waive Jones Act compliance to the extent the secretary considers necessary in the interest of national defense “to address an immediate adverse effect on military operations.”

The waivers have long been tied to national defense considerations, but the addition of the “military operations” language means it’s unlikely the kind of waiver request made by the Grassroot Institute in Hawaii can be granted. Other restrictions have been placed on waivers from non-DOD agencies, typically the Department of Homeland Security….

When the House Transportation and Infrastructure Committee marked up a Coast Guard bill last week, Rep. Scott Perry, R-Pa., offered an amendment to create a Jones Act exemption for ships carrying liquified natural gas, or LNG.

Perry said few LNG ships compliant with the Jones Act have been built and those available are refueling barges rather than LNG transport vessels. He called that a “damning indictment” of the argument that protecting the industry from competition incentivizes shipbuilding….

As bipartisan legislation to cut off U.S. imports of Russian fossil energy has gained traction, Biden administration officials have declined to endorse or oppose the idea….

Rep. Ed Case, D-Hawaii, has legislation that would exempt foreign-flagged ships from Jones Act requirements if they met other requirements on labor, cargo, the environment and trade. Rep. Tom McClintock, R-Calif., and Sen. Mike Lee, R-Utah, have their own bills to loosen the Jones Act….

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