A U.S. appeals court refused to weaken domestic shipping law requiring 75 percent American ownership of vessel-operating companies in U.S. coastal and inland commerce when it rejected Conoco Inc.'s novel spin on how the law applies to corporate subsidiaries.
Conoco's interpretation would have made it possible for U.S. companies with up to 49 percent foreign ownership to enter the restricted Jones Act domestic trades, simply by setting up U.S. subsidiaries.The oil production, refining and transportation company, based in Houston, is owned by E.I. du Pont de Nemours and Co., Wilmington, Del.
Because Joseph E. Seagram & Sons Inc., a Canadian corporation, owns slightly more than 25 percent of Du Pont's voting stock, Conoco and Du Pont are barred by the 75 percent standard under the Jones Act from operating regular vessel services in the coastwise trade. Under the so-called Bowaters exception to the law, they can operate vessels that haul only their own proprietary cargo.
Conoco and Du Pont challenged the law in a suit against the government filed before the U.S. Court of Appeals in Philadelphia.
They argued that because Du Pont meets the controlling interest test to qualify as a U.S. citizen for foreign trade purposes, and because Du Pont owns 100 percent of Conoco, Conoco should be considered to be 100 percent owned by a U.S. citizen and thus eligible to operate in domestic commerce.
In addition, they claimed the Bowaters exemption does not apply to bareboat vessel charters, meaning they have unrestricted authority to charter vessels
from other companies to transport non-proprietary cargo as a common carriers. A bareboat charter transfers full possession and control of the vessel to the charterer.
Acknowledging that the shipping law is "unabashedly protectionist," Circuit Judge Robert E. Cowen rejected the Du Pont/Conoco arguments last week.
Writing for a three-judge panel, Judge Cowen said the Maritime Administration's interpretation that the citizenship standard applies to all companies in the chain of ownership is the "best reading" of the law.
"If Conoco's argument were to prevail, any corporation which was majority- owned by U.S. citizens but did not meet the 75 percent requirement could simply circumvent the requirement by creating a wholly owned subsidiary which held nominal title to the vessels," he wrote.
The citizenship requirement "would be so easy to evade that it would be virtually meaningless," he added.
Leonard Egan, attorney for Conoco, had no comment about the ruling and said no decision has been made on whether to pursue the litigation further. One option is to request Supreme Court review of the case.
On the Bowaters issue, the judge said Conoco was "trying to accomplish indirectly what it cannot accomplish directly" under the law, that is, to compete against vessels owned by U.S. citizens in the coastwise trade.
Conoco, which owns 10 towboats and 17 bulk liquid petroleum barges, said that if it must rely entirely on independent marine operators for transportation it will lose over $12 million a year. And ceasing to carry products for other companies will cost $5 million a year because its vessels will be underused, the company said.