Procedures for Obtaining DSCA Approval For Grant Financing of Purchase Agreements

(Source: “Procedures for Obtaining DSCA Approval For Grant Financing of Purchase Agreements,” Defense Security Cooperation Agency, 5 November 2013)

  1. General. The Defense Security Cooperation Agency (DSCA) is responsible for approving grant financing of all Purchase Agreements that the Grant Recipient wishes to finance with proceeds from the grant issued by the DSCA under the provisions of the Arms Export Control Act. The use of grant proceeds shall be approved for the financing of purchases by the Grant Recipient only of defense articles, defense services, and design and construction services of U.S. origin. In reviewing requests for financing of Purchase Agreements, DSCA is guided by objectives established by the U.S. Government for improvement of the Grant Recipient’s defense capabilities, by generally accepted financing practices, and by United States laws, regulations and policies in effect at the time the financing is requested. The U.S. Government reserves the right to refuse to finance any purchase agreement and is not required to explain its reason(s) for such refusal.
  2. Purchases from U.S. Military Departments
    1. The U.S. Military Departments effect Foreign Military Sales (“FMS”) by means of the Letter of Offer and Acceptance (“LOA”), Department of Defense Form 1513. Each LOA, also referred to as an FMS case, is identified by a three digit alphabetic code referred to as “case identifier.” If a Grant Recipient desires to fund an FMS case from this grant, it must so inform the Military Department prior to the issuance of the LOA. In turn, the Military Department will reflect the desired grant financing on the LOA and submit it to the DSCA (Business Operations/Comptroller Directorate) for approval and countersignature.
    2. When the Grant Recipient wishes to use grant funds to pay amounts due under an FMS case which has already been established as a “cash” or “dependable undertaking” case, the Grant Recipient must ask the pertinent Military Department to convert all or part of that case from cash to grant funding. The Military Department must also submit the amended case to the DSCA (Business Operations/Comptroller Directorate) for review and approval to support the requested change in funding.
    3. For each case it approves for financing from the grant, the DSCA (Business Operations/Comptroller Directorate) will reserve funds from the uncommitted grant balance in an amount equal to the entire estimated cost of the FMS case requested for grant funding. The portion of the grant so reserved will then be available only for such payments. Payments, either for deliveries of materiel or progress payments, from advances requested by the Grant Recipient, will be made by the DSCA (Business Operations/Comptroller Directorate) against the amount reserved for that purpose.


  3. Purchases from Commercial Firms
    1. Grant funds under the Arms Export Control Act may be used to finance purchases from U.S. Commercial Suppliers, provided such financing has been approved by the DSCA. In order that the DSCA may advise a Grant Recipient whether it will approve such financing, the Grant Recipient must provide a copy of the contract or proforma purchase order to the DSCA (Business Operations/Comptroller Directorate) for its review, preferably before the Grant Recipient obligates itself to a purchase which it desires to be financed with grant funds. Before the DSCA can give its final approval of grant financing, the commercial supplier must submit to DSCA the “Contractor’s Certification and Agreement with Defense Security Cooperation Agency” as illustrated in Exhibit B which is subject to change by the DSCA any time hereafter. The Grant Recipient should allow at least 90 days for DSCA’s review of the contract for approval of grant financing. Each grant financing approval shall be separately communicated by DSCA in writing to the Grant Recipient by use of the “Grant Financing Approval” illustrated as an attachment to this exhibit.
    2. Grant financing shall be approved and made available only to finance the purchase of defense articles and services authorized for such financing by the DSCA in accordance with policies and procedures in effect at the time such financing is approved. Current DSCA policies pertinent to approval of grant financing for purchase agreements are included in the Security Assistance Management Manual.
    3. In addition to the approval mentioned above, DFAS Indianapolis, at the time it approves requests for advances (disbursements) of funds pursuant to Annex II, also will require from the Grant Recipient invoices properly executed by the commercial supplier, and bills-of-lading and statements, as may be applicable, substantially in the formats described in paragraph 4 of Exhibit B (DSCA Requirements for Documentation to Support Requests for Advances).
    4. For each commercial purchase agreement for which financing is approved, the DSCA (Business Operations/ Comptroller Directorate) will assign a case identifier and will provide to the Grant Recipient a Grant Financing Approval letter in the form of the Attachment to this Exhibit. This letter will provide the case identifier assigned to the case. For each case it approves for grant financing, the DSCA (Business Operations/ Comptroller Directorate) will reserve grant funds in the amount requested. The grant funds so reserved will then be available only for payments on that case, unless the Grant Recipient directs otherwise. Payments for deliveries, progress, or advance payments, will be processed by the DSCA (Business Operations/Comptroller Directorate) against the amount reserved for the approved purchase agreement.
    5. The DSCA (Business Operations/Comptroller Directorate) will also provide letters to the commercial firm informing it of conditions of grant financing and certifications required as prerequisites to the DSCA approving grant financing for the purchase agreement, and indicating the DSCA approval of financing of the purchase agreement.

United States Shipping Board

(Source: “United States Shipping Board” Wikipedia, 5 November 2013. Links below go to Wikipedia)

The United States Shipping Board was established as an emergency agency by the Shipping Act (39 Stat. 729), 7 September 1916. It was formally organized 30 January 1917. It was sometimes referred to as the War Shipping Board.

The Shipping Board’s functions were to:

  • Regulate:
    • commercial maritime carriers and trade practices,
    • marine insurance,
    • transfers of ship registry, and
    • the rates charged in interstate waterborne commerce.
  • Investigate adequacy of port and water transportation facilities,
  • Determine the necessity for steamship lines and the characteristics of vessels on those lines,
  • Develop a naval auxiliary and merchant marine, and
  • Subsidize private ship construction.

The Board was abolished, effective 2 March 1934.

Its successor agencies have been the U.S. Shipping Board Bureau of the U.S. Department of Commerce (1933–36); the U.S. Maritime Commission (1936–50); the U.S. Federal Maritime Board of the Department of Commerce (regulatory functions only, 1950–61); the U.S. Federal Maritime Commission (regulatory functions only, 1961- ); the United States Maritime Administration of the Department of Commerce (all other functions, 1950–81); and the U.S. Maritime Administration of the U.S. Department of Transportation (all other functions, 1981- ).

Merchant Marine Act of 1920 (the Jones Act)

(Source: “Merchant Marine Act of 1920,” Wikipedia, 5 November 2013. Sources indicated the act was adopted in early June 1920. The post date assigned to this document is 1 June 1920.)

Merchant Marine Act of 1920

The Merchant Marine Act of 1920 (P.L. 66-261), also known as the Jones Act, is a United States federal statute that regulates maritime commerce in U.S. waters and between U.S. ports. Section 27 is part of the Jones Act that deals with cabotage (i.e., coastal shipping) and requires that all goods transported by water between U.S. ports be carried in U.S.-flag ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents. The Act was introduced by Senator Wesley Jones.

In addition, amendments to the Jones Act, known as the Cargo Preference Act (P.L. 83-644), provide permanent legislation for the transportation of waterborne cargoes in U.S.-flag vessels. The Merchant Marine Act of 1920 has been revised a number of times, the most recent revision was the recodified version of 2006.[1]

The Jones Act is often confused with the Death on the High Seas Act, another United States maritime law that does not apply to coastal and in-land navigable waters.

Objectives and Purpose of the Merchant Marine Act of 1920

TITLE 46, APPENDIX App. > CHAPTER 24 > 861. Purpose and policy of United States[2] It is necessary for the national defense and for the proper growth of its foreign and domestic commerce that the United States shall have a merchant marine of the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency, ultimately to be owned and operated privately by citizens of the United States; and it is declared to be the policy of the United States to do whatever may be necessary to develop and encourage the maintenance of such a merchant marine, and, insofar as may not be inconsistent with the express provisions of this Act, the Secretary of Transportation shall, in the disposition of vessels and shipping property as hereinafter provided, in the making of rules and regulations, and in the administration of the shipping laws keep always in view this purpose and object as the primary end to be attained.


Cabotage is the transport of goods or passengers between two points in the same country by a vessel or an aircraft registered in another country. Originally a shipping term, cabotage now also covers aviation, railways, and road transport. Cabotage is “trade or navigation in coastal waters, or, the exclusive right of a country to operate the air traffic within its territory”. Cabotage is used in the context of “cabotage rights”, the right of a company from one country to trade in another country. In aviation terms, it is the right to operate within the domestic borders of another country. Most countries enact cabotage laws for reasons of economic protectionism, national security or public safety.The cabotage provisions relating to the “Jones Act” restrict the carriage of goods or passengers between United States ports to U.S.-built and flagged vessels. It has been codified as portions of 46 U.S.C.  Generally, the Jones Act prohibits any foreign built or foreign flagged vessel from engaging in coastwise trade within the United States. A number of other statutes affect coastwise trade and should be consulted along with the Jones Act. These include the Passenger Services Act, 46 USC section 289 which restricts coastwise transportation of passengers and 46 USC section 12108 restricts the use of foreign vessel to commercially catch or transport fish in U.S. waters.[3]These provisions also require at least three-fourths of the crewmembers to be U.S. citizens. Moreover, the steel of foreign repair work on the hull and superstructure of a U.S.-flagged vessel is limited to ten percent by weight. This part of the policy is required for national security to maintain a shipbuilding capacity for construction and repair of vessels within the United States.

Seamen’s rights

The U.S. Congress adopted the Merchant Marine Act in early June 1920, formerly46 U.S.C. § 688 and codified on October 6, 2006 as 46 U.S.C. § 30104. The Act formalized the rights of seamen.

It allows injured sailors to make claims and collect from their employers for the negligence of the ship owner, the captain, or fellow members of the crew.[4] It operates simply by extending similar legislation already in place that allowed for recoveries by railroad workers and providing that this legislation also applies to sailors. Its operative provision is found at 46 U.S.C. § 688(a), which provides:

“Any sailor who shall suffer personal injury in the course of his employment may, at his election, maintain an action for damages at law, with the right to trial by jury, and in such action all statutes of the United States modifying or extending the common-law right or remedy in cases of personal injury to railway employees shall apply…”

This allows seamen to bring actions against ship owners based on claims of unseaworthiness or negligence. These are rights not afforded by common international maritime law.

The United States Supreme Court, in the case of Chandris, Inc., v. Latsis, 515 U.S. 347, 115 S.Ct. 2172 (1995), has set a benchmark for determining the status of any employee as a “Jones Act” seaman. Any worker who spends less than 30 percent of his time in the service of a vessel on navigable waters is presumed not to be a seaman under the Jones Act. An action under the Act may be brought either in a U.S. federal court or in a state court. The seaman/plaintiff is entitled to a jury trial, a right which is not afforded in maritime law absent a statute authorizing it.


Critics note that the legislation results in costs for moving cargo between U.S. ports that are far higher than if such restrictions did not apply[citation needed]. In essence, they argue, the act is protectionism.

Critics also contend the Jones Act has caused the U.S. shipbuilding industry to build vessels in the U.S. which are more expensive than those built elsewhere. A 2001 U.S. Department of Commerce study indicates that U.S. shipyards build only one percent of the world’s large commercial ships. Few ships are ordered from U.S. shipyards except for cabotage. U.S. operators of ships in cabotage have an economic incentive to continue operating old vessels rather than replace them with relatively high cost vessels built in the U.S. The report concluded that the lack of United States competitiveness stemmed from foreign subsidies, unfair trade practices, and lack of U.S. productivity.[citation needed] However, the same argument buttresses that of their opponents who state that without the Jones Act, all remaining US shipyards would be deconstructed or outsourced overseas resulting in the utter destruction of the US Maritime industry. In turn, this would result in higher costs for US Navy vessels and eventually require most Naval ships meant for national defense to be built overseas as well.[5][dead link]

Moreover, critics point to the lack of a U.S.-flagged international shipping fleet. They claim that it is economically impossible for U.S.-flagged, -built, and -crewed ships to compete internationally with vessels built and registered in other nations with crews willing to work for wages that are a fraction of what their U.S. counterparts earn.[citation needed] However, the same argument is used by the Seamen Union which claims the Jones Act allows for a well paid, educated, and all American merchant mariner force.[citation needed]


Supporters of the Shipping Act maintain that the legislation is of strategic economic and wartime interest to the United States. The act, they say, protects the nation’s sealift capability and its ability to produce commercial ships. In addition, the act is seen as a vital factor in helping maintain a viable workforce of trained merchant mariners for commerce and national emergencies. During the Vietnam War, ships crewed by civilian seamen carried 95% of the supplies used by the American armed forces. Many of these ships sailed into combat zones under fire. The SS Mayaguez incident involved the capture of mariners from the American merchant ship SS Mayaguez.[6] Supporters say that it also protects seafarers from deplorable living and working conditions often found on foreign-flagged ships. Finally, they point to the key role played by the US Merchant Marine in supporting Global operations against terrorism and the Iraq and Afghanistan Campaigns. They claim that without these assets, the US would be under substantial foreign influence in conducting its policy in accordance with National Security.[5][dead link]

America needs a strong and vibrant U.S.-Flag Merchant Marine. That is why you can continue to count on me to support the Jones Act (which also includes the Passenger Vessel Services Act) and the continued exclusion of maritime services in international trade agreements. Barack Obama, August 28, 2008 [7][dead link]

I can assure you that a Reagan Administration will not support legislation that would jeopardize this long-standing policy … embodied in the Jones Act … or the jobs dependent on it. President Ronald Reagan, 1980 [8]

“The [Jones Act trailership] SS NORTHERN LIGHTS made 25 voyages and 49 port calls [to the Iraqi war zone]. She carried 12,200 pieces of military gear totaling 81,000 short tons and covering over 2,000,000 square feet (190,000 m2). Those statistics clearly demonstrate the value that the U.S.-flag shipping industry brings to the Defense Transportation System. General Norton A. Schwartz, USAF, Commander in Chief, U.S. Transportation Command, 2005 [8]

When it comes to backing the Jones Act, from my standpoint, it’s a no-brainer. We need a strong maritime industry, and part of a strong industry is highly trained merchant mariners, so many of whom are employed on Jones Act ships. We need a strong shipbuilding industry. We can’t let the generations that follow us forget what America was capable of when the call went out for Liberty and Victory ships during World War II. We need the current shipping capacity to move the lifeblood of this country where it needs to go, when it needs to go. The Jones Act supports all these things. It’s vital to our national security. Rear Admiral Mark Buzby, Commander, U.S. Military Sealift Command, 2012 [8]

The Jones Act has been supported by Presidents Obama, Clinton, Bush, Reagan, Carter, and Ford, and further all the way back to Woodrow Wilson who originally signed it into law in 1920. It is supported by American military leaders. Furthermore, there are other domestic interests which support the Act both from self-interest in keeping them cost competitive in some areas in contrast to the high-cost of sea traffic as well as more altruistic policies of keeping a diversified transportation system. In fact, all of these transportation interests intersect seafaring cargo at some point in the supply line. Consequently, retention of the Jones Act is also supported from the domestic airline, trucking, and rail industries. “Reduced to its essential terms, the Jones Act simply requires companies operating in the domestic commerce of the United States to comply with U.S. laws. This requirement includes corporate taxes, the National Labor Relations Act, the Fair Labor Standards Act, Coast Guard standards, employing American citizens, etc. American ships are subject to these laws and foreign ships are not. This same fundamental principle applies to every other company doing business in the United States, from agriculture to retail.” (Quote from R.J. Pfeiffer, maritime expert former CEO of Alexander Baldwin in commentary published in the Star Advertiser 12/26/1997)

Waivers of Shipping Act provisions

Requests for waivers of certain provisions of the act are reviewed by the United States Maritime Administration on a case-by-case basis. Waivers have been granted in cases of national emergencies or in cases of strategic interest.[9]

In the wake of Hurricane KatrinaHomeland Security Secretary Michael Chertofftemporarily waived the U.S. Shipping Act for foreign vessels carrying oil and natural gas from September 1 to 19, 2005.[10][11]

In order to conduct an emergency shipment of gasoline from Dutch Harbor, Alaskato Nome in January 2012, Secretary of Homeland Security Janet Napolitanogranted a waiver to the Russian ice class marine tanker RendaRenda was originally scheduled to onload gasoline in Northern Japan for shipment but was unable due to a gale.[12]

The Department of Homeland Security issued a blanket waiver of the Jones Act to all shipping for 12 days from November 2 to 13 2012, following widespread fuel shortages caused by Hurricane Sandy.[13][14]

See also


  1. ^
  2. ^ Title 46a of the US Code as currently published by the US Government reflects the laws passed by Congress as of Jan. 3, 2012, and it is this version that is published here.—-000-.html
  3. ^ Coastwise Trade.
  4. ^ jones act
  5. a b “Maritime law tough to navigate,” Portland Press Herald/Maine Sunday Telegram. October 3, 2006.
  6. ^ Bush, George W. (May 21, 2002). “National Maritime Day, 2002”. Retrieved 2008-11-22.
  7. ^ “Obama Reaches Out to SIU and Michael Sacco in a Letter After SIU Endorsement”
  8. a b c
  9. ^ “Coast wise: the U.S. marine Jeff Ownz is keeping a close watch on Maritime Act assaults,” Workboat. January 1, 2007
  10. ^ “DHS: Update: United States Government Response to the Aftermath of Hurricane Katrina”. September 15, 2005. Retrieved July 6, 2010.
  11. ^
  12. ^ [1]
  13. ^ U.S. Gulf Gasoline Increases After Jones Act Is Suspended Bloomberg, Nov 2, 2012
  14. ^ US issues blanket Jones Act waiver for fuel tankers after Sandy Reuters, Nov 2, 2012

Further reading

  • Sethi, ArjunThe Merchant Marine Act of 1920: The Impact on American Labor (2005).


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