sign in sign up
<<
Home , Wilbur Ross

15 Benedict’s Maritime Bulletin 85 Second Quarter 2017

WINDOW ON WASHINGTON

TRUMPED! By Bryant E. Gardner

Make America Great Again! Many maritime and trans- security.’’ Additionally, Secretary Chao has family ties portation industry stakeholders believe that, surely, this to the industry. As a business-to-business industry, ship- must mean rejuvenation of our intermodal infrastructure, ping often falls to the wayside because it is not in the deepening of ports and the long-sought rightful allocation forefront of the public consciousness in the way that of the Harbor Maintenance Tax, restoration of the badly roads or airlines tend to be, and therefore it is all the trampled U.S.-flag blue water fleet, double-stack train more important to have a secretary like Ms. Chao who clearance for all, better flow of more goods and services, knows the ins and outs of the enterprise that supplies the reduction and streamlining of regulations, and restored vast majority of our trade and economy. And it probably prosperity. But does it, and how will we get there? won’t hurt that Secretary Chao’s husband happens to be What exactly are the Trump Administration’s plans as Senate Majority Leader Mitch McConnell, in case signa- they impact the maritime industry? Roughly 70 days ture transportation initiatives need a nudge over the finish into the new President’s tenure, as of this writing, much line in a closely contested Senate. Finally, Mr. Trump’s remains unanswered. However, there are breadcrumbs Secretary of Commerce, Wilbur Ross, has maritime roots and tea leaves worth examining. And given the paucity including ownership in Diamond S tankers and Nautical of activity in Congress, your Window on Washington Bulk Holdings bulk carriers, and therefore can reasonably would be remiss if it did not at least try to paint a be expected to have some consideration for and aware- picture of what Trumpism may mean for maritime. ness of the industry and its importance.

President Trump’s pick for Secretary of Transportation, Infrastructure , certainly seems a good omen for the industry. She has experience in both the U.S. Maritime During the March 2017 ‘‘homecoming’’ ceremony Administration and the Federal Maritime Commission, welcoming Secretary Chao back to the Department of and in dealing with labor issues from her time as Secre- Transportation, which also doubled as a 50th anniversary tary of Labor. During one of her first appearances on the celebration of the Department, Secretary Chao indicated job, Secretary Chao attended the reflagging of the that infrastructure development would be a key initiative LIBERTY PASSION in Beaumont, Texas, where she of the Administration, and signaled the path forward commented that ‘‘U.S.-flagged sealift capacity—crewed would include private investment and a reduction in by U.S. merchant mariners—is vital to our national regulatory burdens which have discouraged and 15 Benedict’s Maritime Bulletin 86 Second Quarter 2017 delayed infrastructure projects. Also during the home- Budget Indications coming address, Secretary Chao signaled that the nation The Administration initially proposed huge cuts to the could expect release of the Administration’s detailed CoastGuard,inpartasanoffsetintheHomeland infrastructure plan in the Fall of 2017—but that it would not look like the package released by Democrats Security budget to fund the Mexican border wall in the Spring of 2017. Shortly thereafter, in an April proposal. However, swift and unified bipartisan opposi- 2017 speech to the American Association of Port Autho- tion led the Administration to soften its approach and to rities, Secretary Chao announced the Administration begin viewing the Coast Guard more as one of the five may be moving the timeline forward to May for services requiring rebuilding to a greater state of readi- release of an infrastructure package, reiterating that it ness—probably more true for the Coast Guard than any 4 would ‘‘unleash the potential of private investment’’ to other branch given its aging cutter fleet. In the wake of achieve the President’s proposed $1 trillion infrastruc- the failed proposal, the Coast Guard—usually timid in ture investment—potentially through tax credits for such matters—has been more assertive in calling for private investment. Some administration officials have increased funding and the need for the service to be indicated private funds might be coupled with $200- placed upon a fair footing with the other armed services, $300 billion of public money, although Democrats and out from under the non-defense spending caps estab- some Republicans are pushing for more. President lished by the Budget Control Act.5 Trump has indicated that the reason for moving the infrastructure proposal ahead of schedule is because its In the last week of March, a document leaked from the popularity may offer leverage to achieve tax code or Office of Management and Budget (‘‘OMB’’) which healthcare overhauls. provided greater detail regarding anticipated reductions in the upcoming May budget than did OMB Director’s initial Increased infrastructure spending could benefit shipping ‘‘skinny budget’’ released earlier in March.6 As expected, on several fronts. First, increased investment in the inter- the proposal featured wide-ranging cuts to everything but modal pathway will stimulate the economy, facilitate the biggest expenses, i.e., entitlement programs such as trade, and increase the overall attractiveness of shipping Medicare and Social Security, and defense. Problemati- and commerce, and it will help our Jones Act carriers cally, non-defense discretionary spending composes only plying inland waterways compete more effectively with 16% of the budget, and so budget hawk Republicans will rail and highway alternatives. Pointedly, an end to the never be satisfied no matter how deep the cuts go, nor will chronic diversion of Harbor Maintenance Tax funds there be any chance to get the Government out of the red away from harbor dredging, and a renewed effort to until entitlements are on the block. deepen key rivers and harbors, would benefit the industry and particularly ports lacking natural depth.1 The OMB proposal features dramatic cuts to in-kind Renewed attention to harbor deepening is particularly international food aid programs such as Food for important in light of the widened Panama Canal and the Peace, and to Foreign Military Financing (‘‘FMF’’) wave of larger container vessels. Second, infrastructure programs, which serve as a crucial peacetime cargo investment triggering Harbor Maintenance Trust Fund base for the U.S.-flag internationally trading fleet spending may spur dredging work for U.S.-flag dredgers relied upon by the Department of Defense for national qualified under the Dredging Act,2 and infrastructure defense sealift readiness capability. It also proposes deep projects may also generate cargoes for U.S.-flag carriers to the extent there are government-impelled cargoes 4 3 On March 8, 2017, a bipartisan group of 23 Senators wrote subject to the Cargo Preference Act. to the OMB strongly objecting to the proposal to cut $1.3 billion from the Coast Guard budget. 5 See, e.g., State of the Coast Guard, Before the Senate 1 See Bryant E. Gardner, Dredging Up the Harbor Mainte- Commerce, Science and Transportation Subcommittee on nance Tax,9BENEDICT’S MAR.BULL. 158 (4th Quarter 2011). Oceans, Atmosphere, Fisheries, and Coast Guard Hearing on 2 46 U.S.C. § 55109. the State of the Coast Guard,115thCong., Mar. 22, 2017 3 (Statement of Commandant Zukunft, U.S. Coast Guard). 46 U.S.C. § 55305; Thomas D. Everett, Director, Office of Program Administration, Federal Highway Administration, 6 Office of Management and Budget, America First: A Budget United States Department of Transportation, Implementation Blueprint to Make America Great Again (‘‘skinny budget’’) of Cargo Preference Requirements in the Federal-aid (undated). The skinny budget provided top-line percentage Highway Program, Dec. 11, 2015, https://www.fhwa.dot.gov/ cuts by agency. For example, 13% from the Department of construction/cqit/cargo/151211.cfm (last visited Apr. 19, 2017). Transportation, 16% from the U.S. Army Corps of Engineers. 15 Benedict’s Maritime Bulletin 87 Second Quarter 2017 cuts to the National Oceanographic and Atmospheric Chairman Khouri is expected to take a less interventionist Administration (‘‘NOAA’’) and the Environmental Protec- approach. For example, in January 2016, the Chairman tion Agency (‘‘EPA’’). The document also contemplates indicated that because the agency has ‘‘relatively limited slashing $500 million from the Obama-era Transportation and, frankly, meager tools’’ to fight port congestion, he Investment Generating Economic Recovery (‘‘TIGER’’) supports providing the industry platforms they can use to grant program run by the Department of Transportation. discuss commercial solutions.8 ‘‘What’s the limiting prin- TIGER grants were originally established to help recovery ciple? The field could get broad pretty fast,’’ Khouri from the , but have since become a highly observed. ‘‘We need to have commercial parties coming popular, competitively bid infrastructure program to renew up with commercial agreement terms, not the commission transportation infrastructure, now in its eighth iteration.7 coming in with a sword and looking to solve the Initial reactions from Congress suggest that the OMB problem.’’9 Testifying before the House Transportation proposals will not get far. and Infrastructure Committee in March, Chairman Khouri confirmed his intention to reduce carrier commu- Regulatory Burdens & Environmental Law nity burdens associated with Shipping Act compliance. Throughout the campaign and beyond, President Trump Increased Energy Development promised to roll-back burdensome regulatory burdens, including specifically environmental regulations, and President Trump, a climate change skeptic, has repeatedly toward that end his OMB has proposed dramatic cuts to signaled an intention to expand opportunities for the EPA. Of course, it is not clear that cutting the budget of domestic energy production, particularly fossil fuels the EPA will expedite regulatory processes and, indeed, including coal. Although the impetus to increase produc- may very well have the opposite effect as the agency tion will really need to come from increased prices, reduces staff and required permits, such as engine interna- increased energy production historically means increased tional air emissions permits, take even longer to process. energy transportation and increased opportunities for The budget cuts may, however, limit the agency’s ability maritime shipping. Increased oil and product production to pursue violations, although the most serious of these are and transportation would benefit not only tanker opera- pursued by the Department of Justice, not the agency tors, but importantly, the struggling U.S. offshore sector. itself. Most of the key environmental laws and regulations The inland tug and barge segment would also benefit, not applicable to carriers are based upon international agree- only from oil transportation, but from waterways trans- ments negotiated before the International Maritime portation of dry bulk coal products—which the President Organization (‘‘IMO’’), as enacted domestically, and so has repeatedly said he would stimulate. Notably, coal it is not clear whether the Administration will be able to markets continue to struggle for the same reasons that unilaterally change or alleviate any of them, especially in domestic crude production has cooled: lower crude the term. However, the elimination of unrealistic and prices. Since the advent of cheap, abundant natural gas, uncommercial environmental regulations, such as some of it has slowly been supplanting coal’s place fueling elec- the rules governing ballast water and even the smallest tricity generating power plants. So, the move to increase incidental vessel discharges, including deck runoff and shale production of domestic oil would potentially under- anchor chain runoff, would certainly be welcome and mine efforts to jump-start the coal industry. Moreover, would reduce industry burdens—especially to the extent the President’s recent greenlighting of the Keystone pipe- rogue states can be brought in line with Federal and inter- line may cool some inland barge energy transportation national uniformity. demand for fracked oil.

With respect to trade regulation and oversight by the Many Jones Act operators have been eyeing the offshore Federal Maritime Commission, the Trump Administration wind market as a new opening for additional work, parti- has shifted the chairmanship of the Commission from cularly in a down oil market. However, these projects Mario Cordero to Michael Khouri. As a Republican, have been slow to develop, and President Trump’s posi- tion on wind power has been mixed. He has opined ‘‘I’m

8 7 U.S. Department of Transportation, TIGER Discretionary Mark Szakonyi, Trump’s Pick to lead FMC signals cautious Grants, Jan. 20, 2017, https://www.transportation.gov/tiger regulatory approach,J.OF COMM., Mar. 23, 2017. (last visited Apr. 19, 2017). 9 Id. 15 Benedict’s Maritime Bulletin 88 Second Quarter 2017 fine with it—we’ve got to get away from the middle shipowner John Angelicoussis, who owns a fleet of east,’’ but also that windmills are ‘‘an environmental approximately 133 tanker and dry bulk carriers, and aesthetic disaster’’ that kill bald eagles, and he commented: ‘‘Shipping lives off ... . There will argued forcefully against ‘‘ugly, noisy and dangerous’’ be no winners in a trade war. We should leave them alone offshore wind near his Scotland golf course.10 and continue to trade.’’13 On the dry bulk side, some have opined that strained relations with may lead that Trade country, which is the largest importer of U.S.-produced rice and the purchaser of 23% of U.S. exported corn, to The President’s buy-America bent, and his commitment turn to Asian, Argentinian, and Brazilian suppliers—and to renegotiate what he considers to be disadvantageous Mexican legislators have indicated that they will intro- trade deals, have many concerned that he will tear-up free duce legislation to that effect. ‘‘That would be very good trade agreements without having replacements to stimu- for the tonne-mile rations,’’ said Thailand’s Precious late increased trade, leading to less maritime commerce. Shipping managing director Khalid Hashim.14 This was initially confirmed when, days after entering the White House, the President withdrew from the Trans- Travel Bans Pacific Partnership (‘‘TPP’’) negotiated by the Obama Administration with a dozen other countries in the President Trump’s various travel bans directed at a handful Pacific, including Japan, , Mexico, Malaysia, of predominantly Muslim, Middle Eastern nations, have and Vietnam. Additionally, and likely less significant also caused some concern among maritime interests. In for maritime, the President has attacked the North Amer- particular, there have been concerns about how these ican Free Trade Agreement (‘‘NAFTA’’), threatened to executive orders, which so far have been blocked by the slap punitive duties on Mexican imports to pay for a judicial branch, might adversely impact vessel crewing border wall, and also threatened punitive tariffs on and crew changes or repatriations transiting through the other trading partners including China and Germany. United States. For example, several of the prominent While one cannot read too much into the appointment Protection and Indemnity Clubs have issued warnings of as the White House’s chief trade that crewmembers originating from the enumerated coun- negotiator, his record as a Washington lawyer known tries may be barred transit to or from vessels; or vessels for antidumping and countervailing duty trade disputes may be subject to additional, costly security measures may signal preparation for tough negotiations with China while in port, including the use of armed guards. and other trade partners. Additionally, the President’s pick for Secretary of Commerce, Wilbur Ross, has said The Trump Administration continues to formulate its ‘‘ is a pejorative term, it’s not really mean- maritime and transportation-related policies, and many ingful,’’ ‘‘There’s trade, there’s sensible trade, and there’s of its big initiatives are yet to come. Of course, the dumb trade. We’ve been doing a lot of dumb trade.’’11 Congress will have ultimate say as to any large expendi- tures or changes in law, but the bold ideas and willingness Shipping executives have been cautious in their reactions to buck tradition, which are so ingrained in Trumpism, to the President’s posture. For example, the President’s are sure to exact changes upon the industry and the talk about dismantling bilateral trade agreements did little competitive environment. The key will be timely aware- to unsettle Maersk’s management, ‘‘But when the talks ness of potential policy changes and the agility to take come to a potential trade war with China, we sit up and advantage when the winds inevitably shift. listen. ...That would have a very negative effect on our business,’’ commented Soren Skou, chief executive ***** 12 officer of the large container carrier. Similarly, Greek Bryant E. Gardner is a Partner at Winston & Strawn, LLP, Washington, D.C. B.A., summa cum laude 1996, 10 Pamela Glass, Clinton v. Trump: The best candidate for Tulane University of Louisiana; J.D. cum laude 2000, maritime interests?,WORKBOAT, Aug. 9, 2016. Tulane Law School. 11 Top 100,LLOYD’S LIST, Dec. 18, 2016, https://www.lloyds list.com/ll/news/top100/article544539.ece (last visited Apr. 19, 2017). 13 Journal, Greek shipping magnate hopeful on 12 Christian Wienberg, World’s biggest shipping company Trump plans,MANILA BULL., Nov. 27, 2016. 14 voices alarm at Trump trade war,MANILA BULL., Feb. 10, Jonathan Boonazier, Smaller bulkers ‘big winners’ from 2017. rise in Asia grain demand,TRADEWINDS, Feb. 23, 2017.