How to waive the Jones Act

How to waive the Jones Act

Jones Act waivers are in the news because of the Gulf oil spill. I would like to contribute to that discussion by sharing my experiences coordinating the Jones Act waivers for President Bush in the wake of Hurricanes Katrina and Rita. In 2005 I served as the Deputy at the White House National Economic Council.

I’ll begin with a quick definition.

cabotage (n): navigation or trade along the coast

The Merchant Marine Act of 1920, aka the Jones Act, precludes a foreign-flagged ship from operating near the U.S. coast. As I understand it, outside of three miles it’s fine. I am most used to it in the context of it precluding foreign-flagged ships from transporting stuff from one U.S. port to another.

The Jones Act can be waived “in the interest of national defense.” Since the Coast Guard is part of the Department of Homeland Security, the Secretary of Homeland Security actually issues the waiver. The law says the Secretary shall waive it “upon the request of the Secretary of Defense to the extent deemed necessary in the interest of national defense by the Secretary of Defense.” The Secretary may waive it “either upon his own initiative or upon the written recommendation of the head of any other Government agency, whenever he deems that such action is necessary in the interest of national defense.”

Obviously this means that to waive the Jones Act now, the Obama Administration would have to make an argument that doing so was in in the interest of national defense.

Waivers can be granted on a case-by-case basis or a blanket waiver can be granted. The blanket waivers we did in 2005 were limited to particular purposes and for a fairly short timeframe.

I cannot speak to the particular needs in the current situation, but I imagine the most pressing need might be for oil skimmers that could operate near Gulf state coastlines.

Update: Commenter Scott points out that another section of law (45 U.S.C. 55113) specifically covers oil spill cleanup. Here is the text:

§55113. Use of foreign documented oil spill response vessels

Notwithstanding any other provision of law, an oil spill response vessel documented under the laws of a foreign country may operate in waters of the United States on an emergency and temporary basis, for the purpose of recovering, transporting, and unloading in a United States port oil discharged as a result of an oil spill in or near those waters, if

(1) an adequate number and type of oil spill response vessels documented under the laws of the United States cannot be engaged to recover oil from an oil spill in or near those waters in a timely manner, as determined by the Federal On-Scene Coordinator for a discharge or threat of a discharge of oil; and

(2) the foreign country has by its laws accorded to vessels of the United States the same privileges accorded to vessels of the foreign country under this section.

It would seem that (1) involves an easier test than the national security test in the Jones Act. I don’t know, however, whether (2) binds in any particular cases. Do other countries that have oil spill cleanup equipment that could be used have similar provisions in their law? If so, then this would seem to be an easy way to get their equipment here. If not, then this section of law doesn’t help us.

Note also that if the two conditions are met, this overrules the relevant sections of the Jones Act, because of the language “Notwithstanding any other provision of law.”

In case it’s helpful, here’s what we did in 2005.

Round 1 – Katrina

  • August 29, 2005 – Landfall of Hurricane Katrina in Louisiana.
  • September 1, 2005 – President Bush announces that his Administration is waiving the Jones Act temporarily “for the transportation of petroleum and refined petroleum products.” This was an 18-day waiver.
  • Here is the text of the waiver by Secretary Chertoff. You can see that he justified it in terms of national security, and did so “in consultation with and upon the recommendation of the Secretary of Energy.”
  • The waiver covered gasoline, diesel fuel, jet fuel, and “other refined products.” He also waived it “for the transportation of petroleum released from the Strategic Petroleum Reserve.”
  • This waiver allowed foreign-flagged short haul ships to transport these liquids between ports on the Gulf Coast, and (I think) even from Louisiana and Texas to the Eastern Seaboard. The pipelines that normally supply fuel to the entire Southeastern U.S. were without power, and we were concerned about fuel supply shortages. The waiver did not increase the total amount of fuel within the U.S., but it provided flexibility for that fuel to move as rapidly and efficiently as possibly to where it was most needed.
  • September 19, 2005 – First waiver expires.

Round 2 – Rita

  • September 24, 2005 – Landfall of Hurricane Rita.
  • September 26, 2005 – At President Bush’s direction, Secretary Chertoff again waives the Jones Act with the same limitations as before. This waiver is for 30 days.
  • October 25, 2005 – Second waiver expires, and we shift to case-by-case consideration of waiver requests.

I learned a few things from coordinating this process for President Bush.

  • The direct benefits of a waiver were, in this case, small and diffuse. Waivers allowed 50K barrels per day here, and 100K barrels there, to arrive several days earlier than they would have otherwise. The waiver resulted in handfuls of short-term arrangements that moved fuel more expeditiously to where it was needed in the Southeastern United States.
  • The fuel situation was so dire that every little bit helped. The direct benefits were small but still worth doing. We were in a situation where every little bit counted and was worth doing.
  • Even more than the added shipping capacity, the waivers’ principal benefits were that they added speed and flexibility to the transportation of fuel.
  • There was no short-term policy cost to the waivers. This made it an easy call for the President.
  • If you’re a supporter of protecting U.S. shippers, shipbuilders, and maritime workers from foreign competition, then there is a long-term policy cost to a waiver. I think this cost was small, but I’m not in that industry. Those in the affected U.S. industries regarded these waivers as hugely important, and they lobbied the Administration hard.
  • The pushback was not just from maritime unions, but also from the U.S.-flagged shipping industry, including shippers and shipbuilders, and including Rs and Ds on Capitol Hill who were close to the industry.
  • Industry lobbied against the waivers. They lobbied for shorter timeframes and for narrower scopes. Once the waivers were granted, they pressured Customs and Border Patrol on enforcement.
  • They lobbied at all levels, including trying to make their case to me. They were most effective pushing on the Cabinet and sub-Cabinet.
  • Even some Cabinet officials in a Republican Administration were affected by the political pressure brought to bear by the industry.
  • In both waivers, the President ultimately made the decision. I think it was an easy choice for him – he wanted to do everything possible to help solve the pressing short-term problems in the Gulf region. Long-term policy arguments from U.S. industries seeking protection from foreign competition were less important, and political pushback irrelevant.

Without a strong lean from President Bush on his Cabinet to “do everything we can,” the waivers would not have happened. Given the intense pushback from the narrow interest groups, Presidential leadership was required to make this happen. The benefits were small but, in my mind, easily worth it. When things are really bad in the Gulf, you do everything you possibly can, even if it’s small.

At the time the debate sounded like this:

  • A: We have found N foreign-flagged ships that can help us get this done.
  • B: We have American ships and crews you can use.
  • A: Maybe, but the foreign-flagged ships are better/faster/more flexible/ready now.
  • B: But we have American ships and crews you can use, and the marginal improvement in speed or flexibility is small.
  • A: Sure it’s small, but every little bit helps.

The Deputy Administrator of the Maritime Administration (MARAD) has confirmed that one foreign-flagged skimmer has made a Jones Act waiver request. Yesterday, Dallas businessman Fred McAllister announced that “he has immediate access to 12 foreign ships and could pull in another 13 vessels in the next month.”

Before these recent developments I had frequently read and heard the Administration argue “We don’t have any requests.” This is reminiscent of the house on Halloween with no lights on and an angry pit bull tied to a tree in the front yard. When asked why they don’t hand out candy to trick-or-treaters, they reply that they haven’t had any requests.

In my experience government officials in crisis management sometimes focus too much on what the government will do, and not enough on the incentive effects of what the government says to the private sector. A blanket waiver combined with a strong encouraging signal from government officials could, I think, spur significant private help, including from friends around the world. We’ll never know unless the President tries.

Recommendation

  • I recommend the President waive the Jones Act for all purposes related to the oil spill and oil spill cleanup. I recommend a 75-day waiver to take us through the end of August (when the relief well is supposed to be done?). I assume a 30-day waiver with the possibility of extension is more practically feasible.
  • I recommend the President announce that he is directing Secretary Napolitano to issue the waiver, so that it is a Presidential decision. He would be signaling his willingness to do everything possible to help clean up the Gulf Spill, even if it ticks off certain domestic economic interests.
  • I further recommend the President have his press secretary announce, at the podium, that the United States has waived the Jones Act, and that we are asking owners of foreign-flagged ships, wherever they might be in the world, to send those ships to the Gulf of Mexico to help clean up the spill. The State Department would reinforce this message through diplomatic channels.

Update: Senator Kay Bailey Hutchison (R-TX) is the Ranking Republican on the Senate Commerce Committee, which has jurisdiction over the Jones Act. Friday morning she introduced S. 3512, a bill to legislatively suspend the Jones Act for the Gulf spill cleanup. Here is the relevant text of the bill:

SEC. 2. WAIVERS.

Notwithstanding any other provision of law, section 12112 and chapter 551 of title 46, United States Code, shall not apply to any vessel documented under the laws of a foreign country while that vessel is engaged in containment, remediation, or associated activities in the Gulf of Mexico in connection with the mobile offshore drilling unit Deepwater Horizon oil spill.

Kudos to Sen. Hutchison, as well as to Sen. Cornyn (R-TX) and Sen. LeMieux (R-FL) who have already cosponsored it. I hope that others do as well. I also hope Sen. Hutchison presses the point by forcing the Senate to either pass this bill, or for one of her colleagues to object to its passage and to explain why.

(photo credit: Leaking Oil Invades Louisiana Habitats, NASA/GSFC/LaRC/JPL, MISR Team)

40 responses

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  2. Pingback: Instapundit » Blog Archive » KEITH HENNESSEY: How To Waive The Jones Act. If you work in the White House, you may want to read …

  3. I don't think your description of the Jones Act is correct. It has to do with carrying cargo between two or more US ports. Foreign ships are clearly allowed to operate in US waters or no foreign flag ship would ever be allowed to dock.

    • Actually, though most often recognized as the act that prohibits foreign flagged vessels from carrying passengers or freight between two consecutive US ports (without touching an intermediate foreign port), the Jones Act is designed to prohibit all maritime activity, other than landing at a US port from a foreign port, within US territorial waters. This includes fishing, oil exploration, services to oil rigs, exploration or mapping, etc. It is a union protectionalist law that is clearly outdated in todays global economy, and its cost, paradoxically, has been the severe decline of the US maritime industry – vessels operating in US waters, by US carriers are also to be "union made" in those US shipyards we used to have.

  4. Pingback: Contending with the Culture · President Bush waived the Jones Act 3 days after Katrina Landfall

  5. Don't let a perfectly good crisis wasted, even if you have to invent one.

    The most important thing to do before we lost control to right wing extremists is to push thru green energy, cap and trade, not plug the damned hole. Must know your priorities folks.

  6. Couldn't the President issue the waiver on an even narrower basis, for just the purpose of skimming and offloading? How could anyone in the shipping industry object? Its not like they'd be losing any transport business.

      • How is the initial delivery of material and skimming operations related to the Jones Act when the Act specifically regulates only commercial port-to-port traffic? I think this uproar is a political red herring that is an unnecessary distraction.

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  12. Mr. Hennessey's suggestion makes perfect sense. There is only one problem, and it's political. If the Obama administration actually follows this advice, they will only be drawing attention to the fact that the Bush action on the Jones Act took only 3 days while the current administration's response will be measured in months. I don't think they want to highlight that comparison. Sadly, politics is likely to trump policy, again.

    • Spot on Vivian. The One must never be seen in the light of fallability and making a mistake, if in fact not waiving the Jones Act was actually a non-intentional mistake.

  13. Pingback: Oil cleanup and the Jones Act

  14. What about the .01% chance that this administration 'knows' of some threat posed by foreign flagged vessels to more of our oil refinement assets in gulf state ports?

  15. Why not just go to Congress on day onq and have the Jones Act repealed? This is spmething they could do in one day if thye wanted to.

  16. But Obama has been doing everying possible since Day 1!
    Sure, ask the people in Louisiana, Alabama and Florida how that is working out.
    What the layman needs to know is the huge volume that these foreign skimmers and dredgers can handle versus our current resources. Nearly triple the current skimming capacity could have been in place in 3 weeks after the explosion which would have greatly limited the pollution at the source and reduced the need for dispersants which may cause long term effects. The deliberate refusal to waive the Jones Act was a calculated decision to appease the union thugs and make the pollution far worse.
    The latter certainly is a criminal matter, Mr. President.

  17. Keith,

    While I totally agree that the President should issue a blanket waiver, and have a strong feeling that the waiver hasn’t been issued because of union lobbying, you have a couple facts incorrect. First and most importantly, 46 USC 55113 expressly allows foreign documented skimmers and other similar vessels to operate in US waters without a Jones Act waiver, as long as they meet two criteria. Second, there are actually several foreign skimmers operating in the Gulf right now pursuant to this exception. Third, a formal limited waiver request was made on Thursday by a Dallas businessman. More here: http://lincicome.blogspot.com/2010/06/unions-protectionism-and-deepwater.html

    Does any of this change the fact that a blanket waiver should have been issued 6 weeks ago? Heck no. Does it change the fact that a lack of a blanket waiver is probably harming clean-up and containment efforts? Heck no. And the whole thing’s definitely got dirty union politics all over it. But it’s still important to know what exactly is and isn’t going on down there.

    Keep up the great work.

  18. This President is in so far over his head it's pathetic! He has NO idea what's he's doing and this disaster is so much because of it. The Jones Act should be waived and NOW!!

  19. Why a waiver if one is not needed?? As stated, the Act ALREADY allows for foreign ships to help clean up oil spills. What kind of other waiver do we need? By the way, the Jones Act also provides protections for seaman that they otherwise wouldn't have. Those who were injured or died on Deep Water Horizon are covered by this. Perhaps you wish to waive their rights too???

    • The cleanup provision may apply, and I have edited the post to reflect this. If it does, then there is no need to waive the Jones Act.

      I believe there is a potentially significant incentive effect from the combination of explicit Executive Branch action and an affirmative signal to the rest of the world.

      And no, I would not recommend waiving the worker protection provisions, nor does a Jones Act waiver modify those provisions in any way.

      Thanks for your comment.

      • Keith,

        I think you're being too kind to zowee for two reasons (beyond his gratuitous shot about the injured/dead workers).

        1) Sure, the law allows skimmers and other ships that can clean oil spills, but only those that meet certain conditions. A blanket Jones Act waiver would eliminate the need to meet those conditions and thus remains substantively important for many foreign skimmers. (And as discussed, it would have immense rhetorical/symbolic benefits, regardless.)

        2) 46 USC 5511 only allows for foreign-documented ships that are "recovering, transporting, and unloading" oil. It does not allow for transport or other ships that could, for example, carry boom to vulnerable coastal areas. Thus, again, the Jones Act waiver could make an important substantive contribution.

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