The shipyard’s mistake — using too much foreign steel that was modified before coming into the U.S. — could mean the advanced, 264-foot ship must be sold abroad at a big loss, according to advocates seeking a waiver of federal rules to salvage the big investment.

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The largest, most modern American-made trawler built in nearly three decades may be barred from fishing in U.S. waters, with financial repercussions to its local builder and buyer “so draconian that neither company may survive.”

That’s the scenario painted by the law firm that Anacortes shipyard Dakota Creek Industries has hired to seek a rare waiver from a century-old law called the Jones Act, which they acknowledge wasn’t properly followed when the shipyard began building the state-of-the art, $75 million vessel America’s Finest.

The shipyard’s mistake — using too much foreign steel that was modified before coming into the U.S. — could mean the advanced ship must be sold abroad at a big loss.

According to the law firm’s May 16 briefing paper on the situation, that could “eliminate two Washington companies (and) more than 500 highly paid and skilled trade jobs.”

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Fishermen’s Finest, a fishing company based in Anacortes and Kirkland, hoped the 264-foot catcher processor would represent a big upgrade from its two 40-year-old vessels, and help make the fishing industry here safer and more sustainable.

But as it nears completion, the vessel threatens to sink both the fishing company and the shipbuilder.

Charlie Papavizas, a Jones Act expert at the Winston & Strawn law firm in Washington, D.C., who’s not involved with the case, said that without a waiver there are no good options for the companies.

Legislation passed early this decade opened the door for replacing the nation’s aging fishing fleets. That led Fishermen’s Finest to take the plunge, deciding to replace one of its two nearly 40-year-old ships.

It has already spent $62 million of the estimated $75 million cost of the ship, which is 86 percent complete and expected to be ready in November.

“Someone has to go first,” said Dennis Moran, president of Fishermen’s Finest. He compared it to penguins lining up at the edge of the ice, ready for one to venture in and test whether the water is safe.

“We’re the penguin and now everyone is waiting to see if we pop our head up,” he said.

What is the Jones Act?

The Jones Act, the common name for the Merchant Marine Act of 1920, regulates a wide range of ship-related laws, from workers injured at sea to when passengers can board cruise ships.

In order to fish or transport goods and people within U.S. waters, a ship must be assembled in the U.S. by American workers, and all major parts of the hull must be made with American materials.

Steel plates, beams or bars can be bought abroad and still qualify, but work on these materials must be done in an American shipyard.

“A foreign worker drilling a single hole, or making a single bend on a 2-ton steel plate will automatically disqualify the entire weight of that plate” as American-made under the Jones Act, no matter how much additional work is done on it in the U.S., according to the briefing paper by Jon Waldron, a maritime lawyer at Blank Rome in Washington, D.C.

Such foreign-made parts are limited to 1.5 percent of a ship’s weight, under Coast Guard rules.

But because Dakota Creek had parts of the hull cut and bent in Holland before being processed in the U.S., America’s Finest has about 10 percent foreign parts by weight, according to Blank Rome.

Waldron’s brief says the actual value of the foreign work on the steel was only $275,000, or 0.4 percent of the ship’s cost — but “because the foreign work was done on many different plates, all those plates are disqualified.”

Jim Gilmore, director of public affairs of At-sea Processors Association, a Seattle-based industry group for the Alaskan fishery, said he’s never heard of a similar situation with a ship coming out of an American shipyard without qualifying under the Jones Act. It’s a rule most shipyards should know, he said.

Dakota Creek Vice President Mike Nelson said the company was unfamiliar with details such as the 1.5 percent standard. Company officials were also unaware that compliance could be checked beforehand by submitting plans to a Coast Guard office, he said.

Industry shifts

Moran of Fishermen’s Finest said there’s a lot riding on the completion of the catcher processor — a ship that uses long nets for catching fish and then processes them and stores them onboard.

Dakota Creek built the last 200-plus-foot Jones Act-compliant catcher processor in the United States — the Starbound in 1989.

After that, regulations designed for fishery conservation limited which vessels could fish and made it difficult to replace or add ships to a fleet. In the past decade, fresh rules began allowing a new vessel to be added to a fleet if it replaces another.

Moran said America’s Finest would be a “big step” in bringing the industry updated technology that reduces greenhouse emissions, improves safety and uses more of the fish that are caught. Nelson believes the new technology would end up saving fishing companies money in the long run.

Moran said Dakota Creek does have a contractual obligation to give Fishermen’s Finest a Jones Act-compliant ship.

Waldron said this isn’t an attempt to set a precedent for more ships to gain exceptions, or to overturn the Jones Act; Dakota Creek is trying to get a case-specific exception for this ship only.

Political salvage effort

Jones Act waivers have been granted before, but a situation like this is extremely rare, said Papavizas, the independent attorney.

For example, someone who buys a 10- to 12-person commercial passenger vessel at a boat show might not know the Jones Act requirements and later find out that the vessel would be considered foreign, not American. In order to legally operate the ship in U.S. waters they would need to be granted an exemption.

Papavitaz said he didn’t expect the case to set any precedent. Even if Dakota Creek obtains a Coast Guard waiver, ”There’s not a high chance of this flying a second time,” he said.

The lobbying effort has gained support from U.S. Rep. Rick Larsen, whose district includes Anacortes. The House transportation and infrastructure committee on May 24 approved a Larsen-sponsored amendment to the Coast Guard Authorization Act of 2017 that would allow an exemption for America’s Finest.

Larsen told his colleagues Dakota Creek is vital to his district and “a lifeline to the U.S. maritime industry,” adding, “It’s not a mistake we made, but one we can solve.”

Douglas Wagoner, a Larsen spokesman, said the congressman had learned about the issue with the trawler the week before, and 225 Dakota Creek workers urged him to take action.

The waiver would still have to be passed by both houses of Congress.

Nelson is hoping that happens by late summer or early fall, before the expected delivery of the ship. If the companies can get past their current mess, he believes the America’s Finest embodies technology that would end up saving the fishing industry money in the long run.