     Use of Foreign Vessels to Transport Petroleum from the
          Virgin Islands to the United States Mainland

U nder the M erchant Marine A ct o f 1920, the President is authorized to extend the
  coastw ise laws o f the United States to the Virgin Islands, and thus m andate the use of
  U.S. vessels for transportation o f passengers and m erchandise from the Virgin Islands
  to the U.S. mainland.

T here is a strong argum ent that the President is em pow ered to make the coastw ise laws
   applicable to the Virgin Islands solely for the carriage o f petroleum and petroleum
   products.

                                                                                January 30, 1980

    M EM ORANDUM OPINION FOR T H E ASSISTANT TO TH E
      PR ESID EN T FOR DOM ESTIC A FFA IR S AN D POLICY

   Several months ago, we were informally asked by your staff to
consider whether the President can require the use of U.S. vessels to
transport petroleum products from the Virgin Islands to the U.S. main­
land. The question is whether the President has the authority to declare
that the coastwise laws of the United States shall extend to the Virgin
Islands solely for the carriage of petroleum and petroleum products.
While we understand that the matter is not under active review at this
time, we have been advised that the results of our research are nonethe­
less relevant to your staffs consideration of proposals that may be
considered in the future.
   In general, the coastwise laws require that passengers and merchan­
dise be transported between points in the United States in vessels built
in and documented under the laws of the United States and owned by
citizens of the United States.1 46 U.S.C. §§ 289, 877, 883. They are
intended “to provide protection for American shipping by excluding
foreign shipping from performance of domestic maritime business.” 42
Op. A tt’y Gen. 189, 196 (1963). At present the Virgin Islands are
excepted from these coastwise laws. Therefore, petroleum refineries
located in the Virgin Islands can transport petroleum products to
United States ports on less expensive foreign vessels, thus enjoying a
competitive advantage over refineries located on the U.S. mainland.

   1    T h e re is no statu to ry definition o f coastw ise law s but they are considered to refer to laws
regulating the “coastw ise trad e," meaning dom estic trade betw een ports in the U nited States. 42 Op.
A tt’y G en. 189, 192 (1963).


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   We have had the benefit of separate letters prepared by the Com­
merce Department and the Maritime Administration expressing the
view that the President has the authority to issue a proclamation
making the coastwise laws applicable to petroleum .. Based on our
review, we agree with that conclusion. However, the case that can be
made for issuance of a proclamation involves significant legal problems.
These should be considered in evaluating this course of action, since it
is probable that the proclamation will be challenged in litigation.
   At the outset it will be useful to describe the various laws that bear
on this matter and how they came to be enacted. The exception from
the coastwise laws for the Virgin Islands has a complicated history,
resulting from the relationship of two spearate laws: The Merchant
Marine Act of 1920 and the Organic Act of the Virgin Islands, enacted
in 1936.
   The Merchant Marine Act of 1920 extended the coastwise laws of
the United States, as of February 1, 1922, to the “island Territories and
possessions of the United States not covered thereby on June 5, 1920.”
46 U.S.C. § 877. This language covered the Virgin Islands, but the Act
provided for an exception, if “adequate shipping service”—both com­
mercial and passenger—was not yet established for any island territory
or possession. The President was given the authority to extend the
period of exemption from the coastwise laws “for such time as may be
necessary for the establishment of adequate shipping facilities.”
   Between 1922 and 1936 every President acted, on a yearly basis, to
exempt the Virgin Islands from the coverage of the coastwise laws.
H.R. Rep. No. 2281, 74th Cong., 2d Sess. 1 (1936). In 1936, the
Merchant Marine Act of 1920 was amended by the addition of a
specific exception for the Virgin Islands:
      And provided further, That the coastwise laws of the
      United States shall not extend to the Virgin Islands of the
      United States until the President of the United States
      shall, by proclamation, declare that such coastwise laws
      shall extend to the Virgin Islands and fix a date for the
      going into effect of same.

46 U.S.C. § 877. The result of this added provision was no longer to
require affirmative presidential action to continue the exemption, but
rather to require that the exemption would remain in effect until the
President takes action to terminate it.
   The 1936 Virgin Islands proviso does not refer to the need for a
finding by the President that “adequate shipping service” has been
established before he could invoke the coastwise laws. The Senate had
provided for such a requirement. The House Committee on Merchant
Marine and Fisheries pointed out, however, that it had “no intention of
weakening in any way the coastwise laws” and that “the establishment
                                  361
o f an adequate shipping service to the islands might be prevented by
the continued suspension of the coastwise laws.” The Committee noted
that the President would be denied “sufficient flexibility” by the re­
quirement in the Senate bill that there first be adequate shipping before
restricting the Virgin Islands trade to American shipping. Thus, under
the House proviso “the President would be authorized at any time, by
proclamation, to declare that the coastwise laws should extend to the
Virgin Islands and fix a date for the going into effect of the same.”
(Emphasis added.) The language of the proviso was therefore viewed
as a formula which would make reimposition of the coastwise laws
more likely. H.R. Rep. No. 2281, 74th Cong., 2 Sess. 2 (1936).
   It appears that the Executive Branch was motivated to support the
bill for different reasons—the importance to the economy of the Virgin
Islands of bunkering foreign vessels. Letter from Interior Secretary to
House Committee on Merchant Marine and Fisheries, Jan. 9, 1935,
reprinted in H.R. Rep. No. 2281, supra at 2-3.2 Although the House
Committee took note of this fact, id. at 2, as a reason for supporting the
bill it is apparent that the precise language adopted by the House and
ultimately accepted by the Senate was motivated by a desire to grant
the President discretion easily to extend the coastwise laws.3
   About two months later, June 22, 1936, the same Congress passed the
Organic Act of the Virgin Islands, which contained a provision relating
to application of laws concerning navigation and commerce:
          . . . except as otherwise expressly provided, all laws of
          the United States for the protection and improvement of
          the navigable waters of the United States and the preser­
          vation of the interest of navigation and commerce shall
          apply to the Virgin Islands.
49 Stat. 1808. It is not clear what effect this amendment had on
application of the coastwise laws to the Virgin Islands. Repeals by
implication are not favored, however, 1A Sutherland Statutory Construc­
tion §23.10 (Sands ed. 1972), and since the exemption from the coast­
wise laws was “expressly provided” for, it is fair to conclude that the
Organic Act did not reimpose the coastwise laws. It hardly seems that
Congress would have reversed a policy adopted only two months
earlier without explaining that it. meant to do so.
   It was feared, nevertheless, that the Organic Act would interfere
with the shipping trade in the Virgin Islands because of other federal

   2 E vidence o f the same kind was collected in hearings held in 1932 on an earlier version o f the
legislation that did not pass. Relating to the Application o f the Coastwise Laws to the Virgin Islands.
Hearings on H .R . 10329 before the House C om mittee on Merchant Marine. Radio, and Fisheries. 72d
C ong., 1st Sess. (1932).
   3 T h e Senate report relied on th e E xecutive position, S. Rep. 1010, 74th C ong., 1st Sess. (1935), but,
since C ongress enacted the bill in the precise form recom m ended by the House, that report should be
view ed as m ore authoritative. T h e Senate co n cu rred in the H ouse am endm ent w ithout comment.
80 C ong. Rec. 5069 (1936).


                                                    362
laws which it imposed. In 1939 legislation was passed amending the
Organic Act so that these laws were no longer applicable. Specific
language expressly exempted the Virgin Islands from tonnage duties,
light money, and entrance and clearance fees. 53 Stat. 1242, 48 U.S.C.
§ 1405c(c). Moreover, the language in the Organic Act which had
incorporated federal laws “for the preservation of the interest o f navi­
gation and commerce” was deleted. 53 Stat. 1242. Nothing in the 1939
amendment made the coastwise laws specifically inapplicable, which
would have been technically necessary if the Organic Act had been
thought to have repealed the 1936 proviso to the Maritime Act. The
President was, however, again authorized to make the coastwise laws
applicable at a future time. 48 U.S.C. § I405c(d).4
   Thus, as of 1939 there was one law making the coastwise laws
inapplicable—the 1936 proviso to the Merchant Marine Act of 1920, 46
U.S.C. § 877—but two which permitted the President to make them
applicable, the same proviso and the 1939 amendment to the Organic
Act, 48 U.S.C. § 1405c(d).
   As of today, it seems that the Organic Act may no longer be relied
on as authority to apply the coastwise laws. This is because the 1936
Organic Act was replaced by a Revised Organic Act in 1954, which
states:
         The laws of the United States applicable to the Virgin
         Islands on July 22, 1954, including laws made applicable
         to the Virgin Islands by or pursuant to the provisions of
         the Act of June 22, 1936 . . . shall, to the extent they are
         not inconsistent with this chapter, continue in force and
         effect until otherwise provided by Congress. . . .
48 U.S.C. § 1574(c). This provision requires some interpretation as to
what is meant by “laws made applicable” to the Virgin Islands by the
1936 Organic Act. There is thus a question whether this provision
effectively repealed § 1405c, or whether it, in fact, carried forward the
President’s proclamation power. In the only case so far to address the
issue of repeal, the Third Circuit said “[i]t . . . seems clear that the
Revised Organic Act of 1954 operated to repeal the Organic Act of
1936.” Virgo Corp. v.Paiewonsky, 384 F.2d 569, 578 (3d Cir. 1967), cert,
denied, 390 U.S. 1041 (1968).

   4    T h e reports on the 1939 am endm ent do not indicate that the coastw ise law s had been imposed
after 1936 o r that the am endm ent w as necessary to make them inapplicable. T hey state that the
purpose o f the am endm ent was to make inapplicable "F ed eral navigation and o ther law s" w hich
prevent the Virgin Islands from com peting w ith o th e r ports. S. Rep. No. 808, 76th C ong., 1st Sess. 1
(1939); H .R. Rep. No. 1314, 76th C ong., 1st Sess. 1 (1939). T his seems to be a reference not to the
coastw ise laws but to the various fees specifically covered by the am endm ent. T h e fact that the
coastw ise laws had not been imposed is supported by the statem ent in the report that the bunkering
business “may be adversely affected" unless the bill passed. (Em phasis added.) If they had been applied
then the trade w ould have been largely eliminated.


                                                 363
   Nevertheless, the court also observed: “We find no indication in the
Revised Organic Act that the Congress intended any part of the Act of
 1936 to remain in force after the Revised Organic Act took effect,
except those provisions of the Act of 1936 which had made certain
laws of the United States applicable to the Virgin Islands.” Id. at 576.
Since the holding of the case did not involve these provisions, it is not
clear whether a court would find that the President, under “applicable”
law, could still issue a proclamation under the Organic Act or whether
only Congress could do so.
   The closest direct authority appears to be a footnote in an opinion of
the Attorney General stating that the President could no longer amend
Executive Order No. 9170 as a result of the passage of the Revised
Organic Act. 42 Op. A tt’y Gen. 189, 190 n.2 (1963). As a result any
attempt to use the old Organic Act as authority is clouded.5
   This sketch of the tangled legislative history of these Acts strongly
suggests that whatever authority there is for the President’s ending the
exemption derives from the Merchant Marine Act of 1920. It leads to
two further questions: (1) whether the President can apply only one of
the coastwise laws, i.e., 46 U.S.C. § 877, relating to carriage of mer­
chandise, to the exclusion of other coastwise laws; and (2) whether he
can apply it to a particular type of vessel—oil tankers.
   The language of the Merchant Marine Act does not answer the
questions clearly. It states, 46 U.S.C. §877, “ [t]hat the coastwise laws of
the United States shall not extend to the Virgin Islands . . . until the
President . . . shall . . . declare that such coastwise laws shall ex­
tend. . . .” The amended (and presumably repealed) Organic Act, 48
U.S.C. § 1405c(d), stated: “the President shall have power to make
applicable to the Virgin Islands such of the navigation, vessel inspec­
tion, and coastwise laws . . . as he may find and declare to be neces­
sary in the public interest. . . .” The difference between the former
(“such coastwise laws”) and the latter (“such of the . . . coastwise
laws”) may be more than semantic: the latter seems to give the Presi­
dent the authority to apply “parts” of the coastwise laws, while the
former does not as readily lend itself to this interpretation.
   This alone should not be determinative. In deciding what Congress
intended one should keep in mind that the “coastwise laws” are not a
simply defined body of law but a traditional reference to a series of acts
passed at different times for different reasons. For example, the Foreign
Dredge Act, 46 U.S.C. §292, has been found by the Attorney General
to be one of the coastwise laws. 42 Op. A tt’y Gen. 189 (1963). Since 46
U.S.C. § 877 seems to be primarily concerned with adequate shipping

   5    T his also undercuts the argum ent m ade by b o th the C om m erce D epartm ent and the M aritime
A dm inistration that E xecutive O rd e r No. 9170, M ay 21, 1942, serves as a precedent for selective
Presidential action in this area. T h at o rd er was based upon the language o f the old O rganic A ct. Even
if this w ere not so, it is not at all clear that the o rd e r applied selective parts o f statutes. See 42 Op.
A tt’y G en., supra at 198-99.


                                                   364
service, it would seem, for example, that the President might issue a
proclamation relating to the coastwise laws as they related to shipping
but not include the Foreign Dredge Act. It is our conclusion that the
coastwise laws should not be considered indivisible but should be
judged in light of congressional intent.
   A more difficult question is whether the President could make the
coastwise laws applicable only to oil tankers. Again, there is a strong
argument that Congress sanctioned such action. When it enacted the
Virgin Islands proviso in 1936, Congress was interested in giving the
President “flexibility” in restoring the coastwise laws and authorized
him to issue a proclamation “at any time.” H.R. Rep. No. 2281, 74th
Cong., 2d Sess. 2 (1936). If the President were faced with a situation
where there was a glut of domestic tanker capacity due to decreased
shipments from abroad, but no prospect that any other type of domestic
shipping would be adequate to meet the needs of the Virgin Islands, it
may well be that Congress, in protecting the domestic fleet, would
rather have the coastwise laws apply in limited fashion to oil tankers
rather than not have it apply at all. This theory is untested, of course,
and would be subject to judicial challenge, but we cannot say that it
would be unsuccessful.6
   We would be pleased to provide whatever further assistance you
may require. In light of the complexity of this particular statutory
structure, and given the probability of eventual litigation, it is apparent
that careful consideration of any proposal is merited.

                                                          John M. H arm on
                                                    Assistant Attorney General
                                                     Office o f Legal Counsel




   6 A question may be raised as to w hether C ongress may constitutionally delegate to the President
flexibility o f the kind argued for here. This provision, how ever, is considerably narrow er in its scope
than others perm itting the President to determ ine the term s on w hich foreign and dom estic com m erce
may com pete and w hich have been held to meet constitutional standards. United States v. Yoshida
International. Inc.. 526 F.2d 560, 582 (C .C .P.A . 1975); c f FEA v. Algonquin SN G . Inc., 426 U.S. 548,
558 (1976); United States v. Curtiss-Wright Export Corp.. 299 U.S. 304, 320 (1936).

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