Foreign Investment Restrictions in Coastwise Shipping: A Maritime Mess

June
2014
Daniel Michaeli

A federal law known as the Jones Act imposes citizen ownership and control requirements on owners and operators of ships that transport goods between U.S. ports. Scholars have consistently presumed that these requirements are enforceable. This Note demonstrates, however, that limiting foreign ownership in companies with widely dispersed shareholders has become legally and practically infeasible in modern U.S. securities markets. It sheds light for the first time on the Seg-100 program of the Depository Trust Company, which aims to resolve this problem but would ultimately, even with substantial changes, be unable to discern the citizenship of entities that are not natural persons—a vast majority of shareholders. After considering the Jones Act’s ownership and control restrictions in the context of U.S. national security and economic interests, the Note finds that both practical considerations and U.S. interests support elimination of the citizen ownership and control requirements. Recognizing that Congress may be unwilling to invite unrestricted foreign investment in coastwise shipping, it also proposes more limited reforms to foreign ownership limitations and administrative actions that could reduce, but not eliminate, unnecessary costs of the current system.

This article appears in the June 2014 Issue: Volume 89, Number 3