Early History of the Jones Act
The term merchant marine includes the commercial ships of a nation and the mariners who operate them. During times of war, the U.S. Merchant Marine, which consists of both privately and federally owned merchant vessels, may be called upon to serve on behalf of the armed forces, as happened, for example, during the first two world wars, the Korean and Vietnam wars, and, more recently, the Gulf War. It was the weak state of the merchant marine prior to and following World War I that the Jones Act was crafted to improve.
Before the war, U.S. commercial trade was heavily dependent on ships from other nations, primarily England and Germany. Only 8% of trade cargo was carried on U.S. ships. As the war progressed, the availability of foreign shipping declined significantly. The sinking of seven U.S. merchant ships by German U-boats further impaired the U.S. Merchant Marine and was an important factor in America’s decision to enter WWI.
By the end of the war, German submarines (“U-boats”) had sunk thousands of ships, including over 3,000 British merchant ships. Many were rightfully concerned about the state of the U.S. shipping industry and the danger that a weak merchant marine would present to the nation should hostilities break out again. The Jones Act was passed to address these concerns.
Jones Act Maritime Law and U.S. Shipbuilding
The fundamental purpose of the Jones Act, as expressed in its first section, was to promote the “national defense” and promote the “proper growth” of “foreign and domestic commerce.” To accomplish that purpose, it was necessary to have “a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency.”
That meant having a strong shipbuilding industry and skilled workers and mariners to support that industry – a goal that has been reflected in admiralty and maritime law from our nation’s earliest beginnings. Senator Jones’ legislation was written to encourage both.
Jones Act shipping regulations are as follows:
- No merchandise is permitted to be transported (completely or for any part of the trip) by water, or by land and water, between points in the United States (including U.S. districts, territories and possessions), “either directly or via a foreign port,” unless it is carried in “a vessel built in and documented under the laws of the United States and owned by persons who are citizens of the United States.”
- As interpreted by federal courts, the Act prohibits foreign built, foreign owned, or foreign flagged ships from carrying commercial cargo between any two points in the United States. In a word, it prohibits foreign ships from engaging in cabotage, also known as “coastwise trade,” to distinguish it from foreign trade between U.S. ports and other nations.
A company or business entity desiring to operate its ships between U.S.
locations must meet two requirements to qualify as a “citizen”
of the U.S.
First, the business entity must be able to document the vessel in the U.S.
with the Coast Guard. There are two requirements:
- The vessel must be at least 5 net tons and not documented under the laws of a foreign country.
The business entity must meet citizenship requirements that vary somewhat
by the type of entity.
- Corporations must be incorporated within the U.S. and the chief executive officer and chairman of the board must be U.S. citizens. If there are non-citizens on the board, their total number must constitute a minority of the number needed to constitute a quorum.
- For a partnership, each general partner must be a U.S. citizen and controlling interest in the partnership must be owned by U.S. citizens.
- For an association, trust, joint venture, each member must be a U.S. citizen and the entity must be capable of holding title to a vessel under federal or state laws.
- Second, the entity must be owned at least 75% by U.S. citizens who are eligible to own and operate a vessel in the coastwide trade.
- First, the business entity must be able to document the vessel in the U.S. with the Coast Guard. There are two requirements:
- 75% of the crew working on vessels engaged in coastwise trade must be U.S. citizens.
Jones Act maritime law also places severe limits on rebuilding the ship outside the United States. Even if a ship is built in the U.S., it can lose its eligibility to engage in coastwise trade if it is found to be rebuilt outside the U.S. A ship is determined to be “rebuilt” in a foreign country when a major component of the hull or superstructure is added to the vessel in a foreign shipyard. Longstanding practice and court decisions have defined “major component” as a separately constructed unit added to the vessel that weighs more than 1.5% of the steel weight of the vessel. The ship is also found to be rebuilt abroad if more than 7.5% of the vessel’s steel weight is added to the ship’s hull and superstructure in rebuilding outside the U.S.