AMO Currents - MARAD influences policy change to boost cargo preference for U.S.-flagged vessels

AMO Currents - Posted: December 18, 2015

MARAD influences policy change to boost cargo preference for U.S.-flagged vessels

A Department of Transportation memo dated December 8 recommends prompt implementation of a policy change that would require at least 50 percent of equipment, materials and commodities imported for use in U.S. domestic road construction projects funded with the assistance of the federal government to be carried by U.S.-flagged vessels, in accordance with a law passed in 2008.

Implementation of this policy would increase cargoes for U.S.-flagged vessels operating in international trade, reopening a freight valve for the U.S. merchant fleet that has been closed since 1988.

Separately, as previously reported, a five-year funding authorization plan for federally assisted surface transportation projects, including road construction, was signed into law December 4. The five-year highway bill provides a roadmap for domestic surface transportation construction projects to proceed in the immediate future, potentially generating greater demand for materials and commodities from overseas, as well as domestically produced raw materials, which are among the cargoes carried by U.S.-flagged bulk carriers operating on the Great Lakes.

In the memo, Thomas Echikson, chief counsel for the Department of Transportation's Federal Highway Administration, wrote: "On October 14, 2008, the President signed the Duncan Hunter National Defense Authorization Act of 2009. Section 3511 of that Act amended the CPA (Cargo Preference Act of 1954) by stating that the requirements apply to cargoes financed 'in any way with Federal funds for the account of any persons unless otherwise exempted'."

After consulting with the Maritime Administration (MARAD), it was determined this provision of the NDAA of 2009 does apply to state, local and tribal governments, Echikson wrote.

The amendment to the Cargo Preference Act contained in the NDAA of 2009 applies to all federal agencies, not only the Department of Transportation.

In the memo, Echikson noted the Cargo Preference Act of 1954 requires "at least 50 percent of the gross tonnage of equipment, materials, or commodities transported on ocean vessels be carried across the ocean on U.S.-flag vessels whenever the U.S. Government procured 'for its own account' or furnished 'to or for the account of any foreign nation' such equipment, materials, or commodities."

He noted the Federal Highway Administration applied these requirements to the "Federal-aid highway program" from 1979 until 1988.

"On February 2, 1988, the U.S. Department of Justice's Office of Legal Counsel issued an opinion finding that Congress did not intend the CPA to reach federally-financed State procurements and, therefore, CPA did not apply to imported cement and clinker procured by highway construction contractors for the account of States," Echikson wrote. The DOJ opinion was followed by a memorandum from the Federal Highway Administration's deputy administrator at that time "revoking all instructions mandating the application of the cargo preference requirements to the Federal-aid highway program" and removing the application of these requirements from federal plans and estimates.

"Our Agency has not applied the cargo preference requirements to the Federal-aid highway program since this time," Echikson wrote.

In the memo, Echikson stated: "We agree with MARAD's interpretation and give deference to its position, as MARAD is the lead agency for implementation of (the) CPA. As a result, recipients of the Federal-aid highway program must now meet the requirements of the CPA and its implementing regulations. The DOJ OLC opinion, therefore, is no longer applicable and the 1988 Farris memorandum is no longer in effect."