590 F.2d 1156 (D.C. Cir. 1978), 77-1934, American Maritime Ass'n v. Blumenthal

Docket Nº:77-1934, 77-1962 and 77-1970.
Citation:590 F.2d 1156
Party Name:AMERICAN MARITIME ASSOCIATION, Appellant, Shipbuilders Council of America, Seafarers International Union of North America, AFL-CIO v. W. Michael BLUMENTHAL, Secretary of the Treasury, et al. (three cases).
Case Date:November 20, 1978
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit

Page 1156

590 F.2d 1156 (D.C. Cir. 1978)


Shipbuilders Council of America, Seafarers International

Union of North America, AFL-CIO


W. Michael BLUMENTHAL, Secretary of the Treasury, et al.

(three cases).

Nos. 77-1934, 77-1962 and 77-1970.

United States Court of Appeals, District of Columbia Circuit

November 20, 1978

As Amended 24 Jan. 1979.

C.A.D.C., 1978.

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Joseph A. Klausner, Washington, D. C., with whom Thomas H. Boggs, Allan Abbot Tuttle, and John L. Oberdorfer, Washington, D. C., were on the brief, for appellant in No. 77-1934.

J. Stephen Street, Washington, D. C., with whom William W. Scott and Richard E. Schwartz, Washington, D. C., were on the brief, for appellant in No. 77-1970.

Howard Schulman, New York City, with whom David Jaffe, New York City, was on the brief, for appellant in No. 77-1962.

William J. Cassidy, Jr., Asst. U. S. Atty., Washington, D. C., with whom Earl J. Silbert, U. S. Atty., John A. Terry, Dennis A. Dutterer and Regina A. McGranery, Asst. U. S. Attys., Washington, D. C., were on the brief, for appellee, W. Michael Blumenthal in Nos. 77-1934, 77-1962 and 77-1970.

Mark P. Schlefer, Washington, D. C., with whom Michael Joseph and Thomas L. Mills, Washington, D. C., were on the brief, for appellee, Amerada Hess Corporation in Nos. 77-1934, 77-1962 and 77-1970.

Before BAZELON, McGOWAN and WILKEY, Circuit Judges.

Opinion for the Court filed by Circuit Judge WILKEY.

WILKEY, Circuit Judge:

This case involves the applicability of a section of the Merchant Marine Act of 1920 1 known as the "Jones Act" 2 to the transportation of crude oil by foreign-flag tanker from Valdez, Alaska, to the U.S. Virgin Islands, and the subsequent transport of products refined from that oil from the Virgin Islands to the continental United States. In the District Court plaintiffs American Maritime Association (U.S. steamship companies), Shipbuilders Council of America (domestic shipbuilders), and Seafarers International Union (maritime labor union) sought a declaratory judgment against the defendant Secretary of the Treasury and intervening defendant Amerada Hess Corporation (owner of the crude

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oil cargo) providing that the transport of the oil violated the Jones Act and an injunction to compel the U.S. Customs Service (Treasury Department) not to issue permits and clearances needed for its transport. 3 District Judge Oliver Gasch ruled against the plaintiffs and dismissed the action. 4 Finding the action of the trial court and the Customs Service preceding it to be based on sound statutory interpretation, judicial and administrative precedent, we affirm.


Among the many diversified petroleum interests of Hess is the ownership and operation of an oil refinery in St. Croix, Virgin Islands. Constructed in 1966, this refinery is the principal manufacturing facility of Hess and, apart from port and other facilities at St. Croix owned by Hess, represents an investment of some $650 million. 5 In a representative period, 83% Of the products produced at the Virgin Islands refinery are shipped by Hess to the continental United States, and the remainder marketed for use in the Virgin Islands or sold to the United States Government. 6 In 1969 Hess acquired an interest in Alaska's North Slope oil, which, from the southern terminus of the Alaska pipeline at Valdez, must be transported by tanker to a refinery for processing.

Planners of the Alaska pipeline system initially contemplated that the sea leg from Valdez would be relatively short, as the crude oil would be transported only to the U.S. West Coast. 7 The current glut of oil in the Western United States, however, has made it necessary to transport and refine Alaskan crude oil elsewhere. In 1969 Hess announced its plans to transport its share of the Prudhoe Bay crude from Valdez around Cape Horn to its St. Croix refinery in foreign-flag tankers. 8 At St. Croix the crude would be refined into some eleven separate products which, with the exception of a small portion consumed in the Virgin Islands, would be exported to the United States. 9 In furtherance of Hess' petroleum enterprise, the Hercules, a foreign-flag tanker, began its voyage from Valdez to St. Croix on 3 September 1977. 10

We now turn to the maritime laws of the United States and the Government enforcement agency involved here. From our First Congress in 1789, American shipping in the United States coastwise maritime trade has been protected from foreign competition. 11 Traditionally, in order to encourage the development of an American merchant marine,

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for both national defense and commercial purposes, all vessels engaged in the coastwise or other domestic trade have been required to be American-built and American-owned. 12

The foreign maritime trade of the United States has always and necessarily been different. As a practical commercial matter it would be impossible to prohibit foreign-flag vessels from carrying goods to and from the United States and another country. The purchaser or supplier of goods to or from the United States would have equal right, and the commercial and political leverage to enforce such right, to have the goods transported in vessels of its choice. Hence, the United States effort to maintain an adequate merchant marine in foreign commerce has, at least in the twentieth century, gone the route of subsidizing the construction of vessels in American shipyards and subsidizing the additional operational costs of an American crew manning the ship by American safety standards. 13

While most of the Congressional discussions in regard to tanker shipments from Valdez assumed carriage in American-flag vessels, it is clear that this assumption was based on the original belief that Alaskan crude would be transported to and refined in West Coast ports. 14 The coastwise laws of the United States would then have unquestionably required the transport to be in American bottoms, 15 and this would also be true if the transport of Alaskan crude were from Valdez to, say, Delaware. It was the introduction of the St. Croix refinery in the Virgin Islands into the processing of Alaskan crude which first arguably made possible the use of foreign-flag vessels to carry the cargo. 16

On 3 October 1969 plaintiff Shipbuilders Council inquired of the Commissioner of Customs as to whether Alaskan crude could, under the coastwise laws, be transported to the Virgin Islands, refined there, and then the products shipped to the United States in tankers not entitled to engage in the coastwise trade; in other words, whether the use of a foreign-flag tanker such as the Hercu

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les would violate the Jones Act. 17 In reply the Commissioner referred to "a number of cases involving the transportation of merchandise between coastwise points by way of an intermediate foreign port at which the merchandise underwent some form of processing," and stated that "if the main purpose of the exportation was to have the merchandise thus processed and if the processing was not merely incidental to an intended transportation between American ports," then the prohibition of the Jones Act did not apply and the transportation could be by a foreign vessel. 18 The Commission pointed out that the Bureau of Customs ordinarily considered processing to be "substantial," and thus likely to be the "main purpose" of the exportation, if it "changed the merchandise physically, improved its condition, and advanced it in value, so that after processing it was a new and different product. . . ." 19 No formal ruling from the Customs Service was then forthcoming, but plaintiffs renewed their effort to obtain such ruling at the time of the voyage of the Hercules in 1977. The Service responded by issuing formal notice of a proposed amendment to the Customs Regulations, which would provide:

A coastwise transportation of merchandise takes place, within the meaning of the coastwise laws, when merchandise laden at a point embraced within the coastwise laws ("coastwise point") is unladen at another coastwise point, regardless of the origin or ultimate destination of the merchandise. However, merchandise is not transported coastwise if at an intermediate port or place other than a coastwise point (that is, at a foreign port or place, or at a port or place in a territory or possession of the United States not subject to the coastwise laws), it is manufactured or processed into a new and different product, and the new and different product thereafter is transported to a coastwise point. 20

The Service further explained that where such manufacturing or processing of a product takes place at a non-coastwise point, "either segment (or both segments) of the overall transportation (to and from the non-coastwise point) may be accomplished by vessels not qualified to engage in the coastwise trade" because "the continuity of the transportation is broken at the intermediate port or place and . . . the new and different product resulting from the manufacturing or processing is not the same as that laden at the initial coastwise point." 21

On 2 September 1977, the day before the Hercules was to commence its voyage, plaintiff American Maritime Association sought a temporary restraining order to enjoin the Secretary of the Treasury from permitting the Hercules, or any other foreign-flag vessel, from departing Valdez, Alaska, laden with Alaskan crude for the Virgin Islands. 22 The TRO was denied that same day, but because of the imminent voyage, the hearing on motions for preliminary and final injunction was consolidated and tried on 3-4 October. On 13 October 1977 District Judge Gasch ruled that carriage by a foreign-flag vessel of Alaskan oil to the Hess refinery...

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