Coast Guard, MarAd asked to close “backdoor” to Jones Act

Coast Guard, MarAd asked to close “backdoor” to Jones Act

Coast Guard, MarAd asked to close “backdoor” to Jones Act

   A group of more than 400 company and labor supporters of strict U.S.-flag compliance with domestic waterborne trades asked the U.S. Coast Guard and Maritime Administration to close a “back door” in vessel lease financing rules.
   In 1996, Congress amended the vessel documentation laws to promote lease financing arrangements to ensure that Jones Act vessels remain in the hands of U.S.-based companies. Lease financing has become a common way to finance capital assets in the maritime industry because of the cost benefits over traditional mortgage financing.
   While most transactions under the 1996 lease financing provisions are legitimate, Jones Act proponents say some foreign entities have used complex corporate transactions to foil congressional intent for the law. These foreign operators set up what they call “special purpose” leasing companies that are not bonafide financial institutions to bareboat charter vessels to section 2 U.S.-flag vessel operators.
   “This is a far cry from the congressional intent … and from the domestic industry’s understanding of the way in which lease financing would be used when the lease financing exception was enacted in 1996,” said Philip Grill, chairman of the Maritime Cabotage Task Force and vice president of Matson Navigation Co. “There is no doubt that Congress enacted lease financing as a narrow exception that would give U.S. operators access to foreign capital — not as a Trojan Horse around the U.S. ownership requirement.”
   Grill made his comments at a joint Coast Guard/MarAd meeting about lease financing for vessels engaged in the Jones Act April 2.