Congressional Questions on LNG Exports Could Impact the Jones Act 

Transportation & Logistics Newsletter

May 2014

Last month, Congress began consideration of comprehensive legislation to reauthorize the Coast Guard and other maritime transportation programs. Consideration of such legislation is an annual occurrence and generally moves through Congress and becomes law with little attention outside the maritime and fisheries industries. However, a small provision relating to maritime transportation of U.S. exports of liquefied natural gas (LNG) has drawn broader attention as the questions posed in the provision could impact international trade and potentially threaten the future of the Jones Act.

The measure in question is contained in the Coast Guard and Maritime Transportation Act of 2014 (H.R. 4005), which recently passed by the U.S. House of Representatives Committee on Transportation and Infrastructure. It would require the Comptroller General to report to Congress on the number of jobs that would be created in the United States if, beginning in 2015, only vessels documented in the United States could be used to export LNG and, beginning in 2019, only vessels constructed and documented in United States could be used.

The general idea of expanding U.S. cabotage laws is often raised by members of Congress who strongly support the U.S. based maritime industry. These members are responding to concerns of a U.S. maritime industry that is looking for support that would allow it to grow in the face of ever increasing costs. In a September 2011 report, the U.S. Maritime Administration compared a number of areas where U.S. flag carriers face higher costs then their foreign competitors including operating, crewing, maintenance and insurance.

Considering the reported higher costs and the resulting competitive disadvantage that could come with a requirement that more exports move on U.S. flag vessels, Congress has asked the Comptroller to evaluate the potential job growth resulting from such a requirement. However, regardless of the outcome of the Comptroller’s report and before enacting export limitations relating to the U.S. flag vessels, Congress will need to consider international trade concerns that could impact the future of the Jones Act.

The trade concerns raised by enacting the export limitations posed in the report requirement would focus on the General Agreement on Tariffs and Trade (GATT). An often overlooked provision in GATT has provided protection to the Jones Act as long as it remains unchanged. Included in the Explanatory Notes of GATT is an exemption applying to

measures taken by a Member under specific mandatory legislation, enacted by that Member before it became a contracting party to GATT in 1947, that prohibits the use, sale or lease of foreign-built or foreign reconstructed vessels in commercial applications between points in national waters or the waters of an exclusive economic zone.

This exemption applies to the U.S. Jones Act, 46 U.S.C. § 50101 et seq., which bars domestic transport of merchandise between points in the United States unless the vessel is built in the United States, documented under the laws of the United States, and owned by a citizen of the United States. Importantly, the exemption dictates that “[i]f such legislation is subsequently modified to decrease its conformity with Part II of GATT, it will no longer qualify for coverage under this paragraph.”

In other words, any legislation that expands the cargoes reserved to U.S. flag vessels could nullify the application of the exemption and force Congress to choose between violating GATT and maintaining the Jones Act in its current form.

In light of these concerns, if Congress is to take action to promote the U.S. flag beyond asking for a report, there is a need to understand that GATT prohibits U.S. export restrictions to member countries except in very limited circumstances, with one such circumstance being the Jones Act. Congress also will need to understand that any further U.S. export restrictions, based on the language of the GATT exemption, could threaten the United States’ standing in the WTO and have negative implications for the Jones Act. If Congress takes a serious look at these trade concerns as they seek to promote the use of U.S. flag vessels for LNG exports, it will likely not reach a conclusion in the near future. The legislation has a long road ahead before becoming law, so Congress has time to incorporate questions on these trade concerns into the Comptroller General’s report if it so chooses.