Welcome to the Cozen O’Connor Maritime and Infrastructure Federal Update. Through this publication, we aim to keep you informed about many of the federal legislative, regulatory, and administrative developments affecting the maritime industry and our nation’s transportation infrastructure.
Regulatory and Administrative
FMC Appoints Regulatory Reform Officer
Executive Order 13777 stated that it is the policy of the United States to alleviate unnecessary regulatory burdens placed on the American people, and directed all agencies to designate an agency official as its Regulatory Reform Officer (RRO). The RRO is charged with overseeing the implementation of the administration’s regulatory reform initiatives and policies under three prior executive orders. On March 13, 2017, the Federal Maritime Commission (FMC) fulfilled its initial obligation under EO 13777 by designating the agency’s Managing Director Karen V. Gregory to serve as its RRO and lead its Regulatory Reform Task Force. The FMC further noted the consistency of this action with the “the deregulatory spirit of the Shipping Act of 1984 as amended by the Ocean Shipping Reform Act of 1998.”
MARAD Withdraws Cargo Preference Rulemaking
On January 10, 2017, the Maritime Administration (MARAD) withdrew its Cargo Preference rulemaking, which had been under review by the Office of Information and Regulatory Affairs (OIRA) for nearly two years. OIRA provided no further information on the withdrawal, and the Department of Transportation (DOT) has yet to release a Significant Rulemakings Report under the Trump administration, stating that DOT rulemakings are being evaluated in accordance with Executive Orders 13771 and 13777.
FMC Amends Service Contract and NVOCC Service Agreement Rules
The FMC announced on March 6, 2017, that it was easing the regulatory burdens on users of the maritime supply chain. As reported by the FMC, its amended regulations at 46 C.F.R. parts 530 and 531 will (1) allow the filing of sequential service contract amendments with the FMC within 30 days of the effective date of an agreement between shipper and carrier; (2) allow up to 30 days for filing non-vessel operating common carrier (NVOCC) Service Arrangement Agreements with the FMC after their effective date; (3) allow additional time to correct technical data transmission errors from 48 hours to 30 days; and (4) extend the period in which one can file a service contract correction request from 45 days to 180 days. This final rule was developed in response to public comments received through the FMC’s February 2016 Advanced Notice of Proposed Rulemaking and August 2016 Notice of Proposed Rulemaking. The text of the final rule is not yet available.
Maritime Security Program Returns to 60 Vessels
On March 3, 2017, Secretary Elaine Chao welcomed the M/V Liberty Passion to the Maritime Security Program (MSP) fleet marking the first time in more than 19 months that the MSP has possessed its full complement of 60 militarily useful, commercially viable, U.S.-flag vessels. The Liberty Passion, together with American Roll-On/Roll-Off Carrier’s (ARC) M/V Liberty, which was added to the MSP fleet earlier this year, significantly expands the MSP’s available roll-on/roll-off capabilities. This positive news for the MSP is balanced by the fact that the program remains funded at the FY 2016 level of $3.5 million per vessel under the current Continuing Resolution, well below the authorized level of $4,999,950 per vessel.
CBP Looks to Amend Vessel Equipment Rulings
On January 18, 2017, Customs and Border Protection (CBP) published a proposal to modify or revoke more than 20 ruling letters to clarify the intersection of “merchandise” and “vessel equipment” under the Jones Act, as informed by Treasury Decision 49815(4). The proposed modification would limit “vessel equipment” to “portable articles necessary and appropriate for the navigation, operation, or maintenance of the vessel and for the comfort and safety of the persons on board.” CBP’s new ruling would eliminate the historic, broader definition of “vessel equipment” that included articles carried on board “in furtherance of the primary mission of the vessel.” The term “merchandise” under the Jones Act would now include, for example, repair materials, pipeline connectors, and damaged pipe removed from the seabed, among many other items. The transportation of such items between points in the United States, including on the U.S. Outer Continental Shelf, could only be performed by coastwise-qualified vessels. Public comments were due no later than February 17, 2017, and we await CBP’s final determination.
Trump’s “Skinny” Budget Targets TIGER Grants, Army Corps of Engineers and Leaves Questions Elsewhere
President Trump released his administration’s budget proposal in which he favored slashing domestic programs to compensate for increased federal funding for military and national security purposes. The DOT would see a 13 percent overall cut from last year’s funding levels, resulting in a budget of $16.2 billion, under the Trump proposal. Among the DOT programs targeted for elimination are the Essential Air Service and Amtrak’s long-distance service.
The proposed budget would also reduce the Army Corps of Engineers’ budget by 17 percent to $5 billion, and the Transportation Investment Generating Economic Recovery (TIGER) grant program, which has provided nearly $4.6 billion in federal funding for port, transit, rail, and road projects since its inception in 2009, would be eliminated entirely. While Republicans have often sought to reduce or cut TIGER grants in the past, Secretary of Transportation Elaine Chao spoke favorably on TIGER grants during her confirmation hearing in January. Senator Susan Collins (R-Maine), the chairman of the Senate transportation appropriations subcommittee, also joined Democrats in pledging to preserve TIGER grants in any upcoming spending bill, signaling a tough road ahead for opponents of the program.
The fate of Federal Emergency Management Agency’s (FEMA) Port Security Grant Program remains unknown, although the budget proposal seeks to eliminate $667 million in FEMA’s state and local grant funding. Similarly, the budget proposal leaves open questions regarding the impact on preference cargoes reserved for U.S.-flag carriers. The proposal would eliminate the McGovern-Dole International Food for Education program but is unclear regarding the potential impact on USAID’s Food for Peace Program. The proposal does purport to allow for “significant funding of humanitarian assistance, including food aid, disaster, and refugee program funding” while proposing significant reductions to USAID and State Department funding.
Congress Takes Lead on Infrastructure Investment
In his first address to Congress last month, President Trump reiterated his campaign promise to make infrastructure investment a top priority for his administration. In the weeks that have followed, Congress and various trade groups throughout Washington held a flurry of events focusing on the various facets of infrastructure spanning from flood response and airport development to transmission lines and rural broadband.
Given the president’s insistence on pursuing major infrastructure investment reform, the method de jure for attracting White House attention is to toss around the term “infrastructure” in any context and see if it sticks. With conflicting messaging coming from the White House and the president’s proposed budget cuts to key agencies such as the Army Corps of Engineers, the outlook for the maritime industry is particularly muddled. Despite efforts by the American Association of Port Authorities (AAPA) and the National Association of Waterfront Employers (NAWE) to promote the industry’s investment and development needs, it remains unclear if their message will be heard.
With the president neglecting to elaborate on his exact idea of what constitutes infrastructure for his investment plan, the burden of determining the parameters of his investment plan falls on Congress. Both the House and the Senate have risen to the challenge, hosting a marathon of infrastructure related hearings that will continue in the coming weeks. While the hearings have covered virtually every manifestation of infrastructure conceivable, repeated themes have begun to emerge with a focus on finding the balance between direct federal spending and the use of public-private partnerships.
The efficacy of public-private partnerships has been questioned by hearing witnesses and Members of Congress alike, including Senate Commerce, Science, and Transportation Committee Chairman John Thune (R-S.D.), due to low viability in rural areas. Support for direct federal funding for infrastructure projects, on the contrary, has been widespread.
The permitting process for infrastructure projects, whether for highway development or electric grid modernization, has also been a persistent topic of contention. Members and panelists have called several times for the federal permitting process to be streamlined into a faster, less burdensome, and more efficient system. In a Senate Commerce hearing, one panelist likened the permitting process to wearing handcuffs during a race, a sentiment that was echoed across a multitude of hearings.
Despite these common themes, the past few weeks on the Hill can only be characterized as chaotic with respect to infrastructure policy. Without further guidance from the president himself, it is unlikely that industry and government leaders will reach a breakthrough in crafting an approach to the president’s one trillion dollar investment proposal. With Congress moving to consider a major tax overhaul, however, it may be awhile before any such guidance comes into existence. Whether the maritime industry, in particular, has sufficient attention from the federal government will therefore likely be revealed during House and Senate hearings on the Coast Guard and maritime transportation programs scheduled in the coming weeks.
Garamendi Seeks to Expand U.S.-Flag Participation in Exports
On February 29, 2017, Congressman John Garamendi (D-Calif.) introduced H.R. 1240, the Energizing American Maritime Act. The bill would require that, as a condition of approving the export of liquefied natural gas (LNG), the Secretary of Energy direct the applicant to transport a certain percentage (15 percent for 2020-2024 and 30 percent for 2025 and beyond) of the exported LNG on U.S.-flag vessels. Additionally, the bill would require the president to impose the same conditions on the export of crude oil. The bill has been referred to the House Subcommittee on Coast Guard and Maritime Transportation. Rep. Garamendi has introduced similar legislation in prior legislative sessions, which has received strong support from U.S. maritime organizations.
Young Re-introduces Maritime Lien Reform Act
On January 3, 2017, Congressman Don Young (R-Ark.) introduced H.R. 234, the Maritime Lien Reform Act. The bill would amend the Commercial Instrument and Maritime Liens Act to restrict the establishment of a maritime lien on state or federal fishing permits. The bill arises out of established case law holding that fishing permits are “essential to the vessel’s navigation, operation, or mission” and should be regarded as an “appurtenance” of the vessel for the purposes of establishing a maritime lien. The bill has been referred to the House Subcommittee on Coast Guard and Maritime Transportation. Similar legislation has been introduced in each legislative session since the first session of the 112th Congress.
The House Committee on Transportation and Infrastructure Subcommittee on Coast Guard and Maritime Transportation will host a rescheduled hearing on “Authorization of Coast Guard and Maritime Transportation Programs” at a to-be-determined date.
The House Committee on Transportation and Infrastructure Subcommittee on Highways and Transit will host a rescheduled hearing on “FAST Act Implementation: State and Local Perspectives” at a to-be-determined date.