Chief Executive s Foreword

Transcription

1 1 Chief Executive s Foreword For thousands of years the British Isles have exploited the sea to move trade. The small wooden rafts of our ancestors used to transport goods across rivers and narrow stretches of sea have now grown into mighty ships that can carry 20,000 containers or 2 million barrels of oil. Those who work in the industry will know that shipping moves 95% of the UK s international trade. Those who do not might find it a surprise. Shipping fundamentally underpins our national economy and facilitates our place in a global economic community. So trading with our neighbours, friends and partners around the world is nothing new. It was not founded by the Treaty of Rome, and nor will it disappear if the UK is no longer subject to it. But for 40 years, when we have talked about trade, we have talked about the European Union. The movement of goods, people and services has driven the political project. We know that in the years ahead, as the referendum on our EU membership draws near, our national debate will become polarised and simplified into a matter of political allegiances and ideologies. It will at times become ill-tempered, as those who can see neither right nor wrong with the status quo take centre stage. But this debate is too important to be left to the politicians. As one of the UK s largest industries, one at the forefront of moving our imports and exports, we have a responsibility to tell our story about our experiences in dealing with the European Union and with those that govern it. In this paper about shipping we ask: Is the single market functioning efficiently? Does the EU recognise the need for global regulation of shipping? Is the UK stronger as part of a collective negotiating and trade bloc? We look at the impact of the European Union on shipping where its engagement has been helpful, and where it has not. Our report finds that access to the single market has helped to drive growth in trade with our closest neighbours. The loss of tariffs and increased competition in the supply chain has boosted custom, driven down costs and allowed the conditions for job creation, economic and social progress to thrive. But even after all these years, barriers remain and the single market is not yet complete. The attitude of the European Commission appears to be regulate where possible and not regulate where necessary an attitude that has created a sense of mission creep resulting in a centralisation of power in Brussels. This mission creep should be borne in mind - because the consequences of staying in an unreformed European Union are every bit as vital to this debate as the consequences of leaving.

2 2 If, as the country that has persistently tried to keep its foot on the brakes of ever closer union, votes to stay in the EU without significant reforms, then the Commission could see it as a green light to finally put its foot down on the accelerator. This will likely result in more, not less regulation. For a global industry with global standards agreed through the UN s International Maritime Organisation, measures which promote consistent and effective application of those standards are welcomed. But those measures which impose extra requirements on UK shipping beyond those global standards to its detriment are undesirable, and often undermine the international process.. This paper is not intended as a strategy document, but rather to support the necessarily broad discussions that are taking place about the role of the European Union. The Prime Minister s renegotiations will soon be under way, and for him to win a deal suitable for the United Kingdom he needs a vocal industry to explain what needs to be done. Even the most pro-european of people argue the EU needs reform and with Euroscepticism rising across member states, the renegotiations provide an unprecedented opportunity not just for the Prime Minister, but for the whole of Europe. If, as many people believe, reform is necessary then the time for that is now and we must, and we will, play our part. Guy Platten CEO

3 3 Executive summary The UK Government s ongoing renegotiation of Britain s position within the EU, ahead of an in/out referendum on EU membership, has provided an opportunity for the shipping industry to analyse the impacts that European policy and legislation have had on maritime trade and assist that renegotiation process. This paper is not intended as a strategy document, but rather to give the industry the opportunity to ask questions such as: is the single market functioning efficiently? Does the EU recognise the need for global regulation of shipping? Is the UK stronger as part of a collective negotiating and trade bloc for the benefit of shipping? For the UK shipping industry, access to the European single market has undoubtedly been the single greatest benefit of Britain s EU membership. The removal of customs duties and tariffs at internal EU borders has improved supply chain efficiency and provided shipping companies with greater access to markets in all 28 Member States and the wider European Economic Area (EEA). Likewise, the single market has provided consumers with a wider range of product choice and created benefits for ferry and cruise line passengers. Over 50% of the UK s international trade is conducted with other EU Member States and 40% of goods traded within the EU are moved by sea. However, the realities of the single market in operation can often be somewhat different to the theory behind it. While action has been taken to uphold the right of free movement of goods through the Treaty on the Functioning of the European Union, there are still areas in which the shipping industry would wish to see improvement. The removal of any remaining barriers to trade would help to realise the full potential of the single market. The industry would like to see the government reinforce the need for the Commission to focus on its role as a single market watchdog to ensure the EU market is functioning efficiently. Looking wider, UK shipping companies are also active in a global marketplace. Consistency in the application of rules to ships from all Flag States is essential and allows companies to compete on a level playing field. This consistency has been achieved over decades through the participation of Flag and Port States in international forums such as the IMO, the ILO, the OECD and UNCITRAL. Implementing international regulations nationally has resulted in global policy regimes in many areas of shipping, which often predates completion of the EU market. These range from safety on board ships and at ports, ship construction and design, pollution and seafarers working conditions and training, to liability and compensation regimes for marine pollution and third party incidents. Despite clear evidence that global regulation levels the playing field for an inherently international industry, the EU often takes a unilateral approach to maritime policy. As a consequence, the UK shipping industry has faced legislative proposals from the Commission which reflect little understanding of the industry and how it is regulated. It is recognised that the length of time it takes to draft and negotiate a convention, and then gain the requisite number of ratifications from States with sufficient tonnage on their registers, for it to enter into force can be substantial. It is unsurprising therefore that on some occasions, the EU wishes to press on with a subject where IMO has been slow to act. But we would stress that where the EU wishes to do so, it considers adopting the IMO approach in its entirety, and not add additional requirements without consultation with industry and strong justification. Measures which enhance the consistent application and operation of IMO conventions at EU level, rather than adding further regional obligations, have generally been seen as helpful to the shipping industry. Collective action by EU Member States, including counter piracy operations in the Indian Ocean, has demonstrated the value of co-operation on maritime issues and strength in numbers. There is clearly an ongoing need for the UK to work with other Member States on important external policy

4 4 areas. The question is; during renegotiations, can the Government balance the need for collective EU action in some areas with the desire for increased autonomy in others? Shipping is a global industry, and like any other, it moves where the business takes it. If viewed as a single trading bloc, Europe is the world s largest economy with extraordinary potential, but it is one whose economy is stagnating. A full scale review of existing EU regulations is necessary if Europe is to realise its full economic potential. The Commission s processes should become less bureaucratic, and a red tape challenge similar to the one undertaken by the UK Government could be undertaken to remove unnecessary, failed or outdated regulations.

5 5 The single market and trade Key messages 1. Access to the single market has been of huge benefit to the UK shipping industry. Shipping operators and consumers have been provided with the opportunity to use efficient supply chains and greater choice, coupled with the abolition of restrictive import/export tariffs and other protective barriers to trade. 2. Remaining barriers to trade, such as customs reporting requirements for goods transported by sea, need to be removed in order to realise the full potential of the single market. The UK Chamber would like to see the government reinforce the need for the Commission to focus on its role as a single market watchdog, rather than seeking to claim further regulatory competence. 3. The UK Chamber believes that the principles of cabotage must be upheld and that the Commission and UK Government should both ensure that internal EU markets are fully open. Any anti-competitive practices in internal shipping markets should be identified and challenged. 4. EU state aid rules have helped to level the playing field for UK shipping companies and the industry supports their continued implementation. At the same time, the EU has recognised that the shipping industry requires assistance through the tonnage tax regime in order to compete globally and this support should be welcomed. 5. Although the single market has provided significant benefits for the industry, the UK Chamber feels that there should be a review of EU regulations that create a competitive disadvantage for Member States in global industries such as shipping, including analysis of the costs and benefits of repatriating elements of employment legislation. Introduction For the UK shipping industry and its customers, access to the European single market has undoubtedly been the single greatest benefit of Britain s EU membership. The removal of customs duties and tariffs at internal EU borders has helped to improve supply chain efficiency and provided shipping companies with greater access to markets in all 28 Member States and the wider European Economic Area (EEA). Likewise, the single market has provided consumers with a wider range of product choice and created benefits for ferry and cruise line passengers in the form of reduced border controls and the removal of duties on goods bought abroad. The EU is now the world s largest single market an economic zone larger than the USA and Japan combined, with a total GDP of around 11 trillion and a population of some 500 million people. Over 50% of the UK s international trade is conducted with other EU Member States and 40% of goods traded within the EU is moved by sea. However, the realities of the single market in operation can often be somewhat different to the theory behind it. While action has been taken to uphold the right of free movement of goods through the Treaty on the Functioning of the European Union, there are still areas in which the shipping industry would wish to see improvement as part of any renegotiated UK position. At the same time, the industry continues to support the implementation of EU state aid rules to ensure that a level playing field is in place across all internal shipping markets.

6 6 During negotiations on the UK s future relationship with the EU, the likelihood of the government agreeing to make the free movement of people a reality for intra-eu ferry and cruise passengers (in the same way that it already is for goods) through participation in the Schengen Area or otherwise is minimal. However, that is not to say that an improved trading environment for the shipping industry cannot be achieved. 1.1 Remaining barriers to single market trade Despite the successes of the single market in facilitating the movement of goods, services and people between Member States, maritime trade continues to be hampered by burdensome customs, taxation and reporting regulations. Notably, goods transported by sea from one Member State to another are treated differently to those moved by land on the basis that ships may have entered non-eu waters during a voyage and customs officers may be unsure exactly where a ship may have called en route to its final EU port of call. Due to the numerous reporting requirements that vessels on international voyages currently comply with, as well as movement towards full electronic tracking and the single reporting window outlined in Directive 2010/65/EU, the argument regarding uncertainty over a ship s previous port calls no longer holds much weight. Given the importance of an efficiently functioning single market to Britain s EU membership, with the intergovernmental nature of trade agreements having historically been preferred by the UK over the creation of supranational institutions, it is vital that this area is addressed during renegotiations. However, a note of caution must be sounded. Despite the undoubted benefits efficient electronic reporting systems can provide in facilitating maritime trade within the EU, measures such as single window reporting have the potential to create an unnecessary administrative burden for shipping companies if implemented incorrectly and as identified in Section 2, represent a missed opportunity for reform. A lack of clarity from the Commission on reporting requirements will only cause confusion and fail to address the barriers that currently hinder maritime trade in the single market. Ultimately, the industry is reliant upon the European Commission fulfilling its role as a watchdog and clamping down on any practices that further restrict free movement within the single market. The UK Government should therefore reinforce the view that the Commission must focus on the delivery of its existing tasks rather than seeking to claim new areas of regulatory competence. 1.2 Cabotage access The creation of the single market afforded UK shipping companies the opportunity to operate within the domestic markets of other Member States, a practice known as cabotage. In theory, permission to engage in cabotage allows UK companies to operate freely and without discrimination in non-uk markets such as domestic ferry services, offshore oil and gas operations and short-sea freight. However, in the passenger ferry sector in particular, there is little evidence to suggest that UK companies have taken advantage of the benefits of cabotage access and, in other sectors, the shipping industry is actively concerned that protective anti-cabotage practices remain in place. Taking offshore oil and gas support vessel operations as an example, cabotage access is essential for UK ship owners wishing to operate in the Exclusive Economic Zone (EEZ) of another EU or EEA Member State as the majority of voyages take place exclusively within the waters of the coastal state responsible for hydrocarbon exploration and extraction activities. Cabotage access through the single market prevents the coastal state from excluding any vessel from operations in its waters on the basis of flag, ownership or crew nationality. However, UK vessels continue to face barriers to

7 7 entry in certain internal markets where language requirements are placed on all crew members (ostensibly on safety grounds). This is clearly contradictory to the spirit of the single market and requires UK Government and Commission attention. This issue highlights the need for the Commission to focus on its role as a watchdog and ensure that the single market is functioning efficiently. 1.3 Trade beyond the single market While the benefits to the UK shipping industry of free trade within the single market are clear, there is progress to be made in lowering the level of customs tariffs and other barriers that affect trade with non-eu and EEA members. The UK Government should not lose sight of the need for non-eu trade to be supported by the Commission in order to supplement the benefits provided by the single market. The industry supports EU measures taken to stimulate economic activity and trade, with negotiations on proposed bilateral free trade agreements such as the Transatlantic Trade and Investment Partnership (TTIP) providing an opportunity to open up new markets and routes for UK shipping companies. The merits of EU collective influence and bargaining are discussed in greater detail in Section 4 and international trade agreements provide an opportunity to demonstrate the benefits of negotiating as a European bloc. Greater market access in the US for EU goods and services has the potential to develop transatlantic maritime trade and create significant opportunities for the shipping industry. With US legislation such as the Jones Act unlikely to be relaxed to permit greater cabotage access for EU shipping companies, the UK should seek to ensure that, during bilateral negotiations, the Commission secures a strong deal for British businesses that does not place them at a competitive disadvantage internationally or within their own domestic markets. 1.4 State aid rules and identification of anti-competitive practices With free and open competition being vital elements of a fully functioning single market, the EU has recognised the need for restrictions on state aid, i.e. assistance provided by public national authorities, given to undertakings on a discretionary basis, which has the potential to distort competition and affect trade between Member States. The UK shipping industry has historically strongly supported the EU s state aid rules, seeing them as a necessary means to avoiding market failure and providing industry and consumers with a level playing field. While the implementation of state aid rules has increased competition within EU shipping markets, the Commission has also recognised that European ship owners require a degree of support to allow them to compete on the global stage. With this in mind, Member States are permitted to operate tonnage tax regimes, whereby a shipping company s taxable profits are calculated based on the carrying capacity of its fleet. The UK implemented such a system in 2000 and, with all other Member States afforded the same opportunity to do likewise, this is not viewed by the EU as distortion of competition. The UK Government should seek to use the implementation of state aid rules as an example of positive action taken by the Commission to uphold the principles of the single market. The industry continues to welcome the Commission s pragmatism in this area and believes that a similar approach should be taken in other areas of shipping regulation to allow operators to compete in global markets. 1.5 Restrictive regulation From a shipping perspective, standardised global regulation of the industry is seen as essential in ensuring that the UK can compete on an equal footing both within and outside of the single market.

8 8 Section 2 takes a detailed look at the impacts of EU regulation on UK shipping, but it is also important to place regulatory impacts in a trade context. The Commission s decisions to act unilaterally by imposing further legislation in policy areas such as the monitoring, reporting and verification (MRV) of ships carbon emissions and reduction of sulphur limits in marine fuels, places additional costs and burdens on vessels calling at EU ports and can be viewed as implementing additional barriers to trade and distorting global competition. As already noted, the industry strongly believes the Commission should be focussed on improving the functioning of the single market and ensuring that businesses can also compete globally, rather than developing new and restrictive regulations. There is also scope for certain areas of legislation to be repatriated, allowing the UK greater flexibility in the regulation of inherently global industries such as shipping. For example, increased sovereignty over employment legislation, much of which is currently determined in accordance with the European Treaties, would potentially allow UK shipping companies with EU registered vessels to pay market wages determined by crew members country of residence. At present, these companies often have to choose between recruiting crew from outside the EU in order to avoid paying above market wages or flagging ships away from the UK to avoid EU regulations prohibiting wage discrimination on nationality grounds. The imposition of high-cost EU employment provisions makes all EU ships (not just UK ships) less competitive in global markets.

9 9 Regional versus global regulation Key messages 1. Many areas of shipping policy in which the Commission has claimed competence are either already regulated at an international level or in the process of being negotiated in international forums such as the International Maritime Organisation (IMO). 2. Some long-established international maritime conventions, including the International Convention for the Prevention of Pollution from Ships (MARPOL) and the International Convention for the Safety of Life at Sea (SOLAS), include a tacit amendment procedure which hastens the implementation of revisions. Although more recent conventions can take time to attain the level of ratification required to enter into force, undermining the IMO process through unilateral EU regional measures creates barriers to trade and can distort global competition. 3. The UK Chamber believes that EU legislation that goes beyond international requirements must achieve the right balance between consumer or environmental protection and economic growth. Legislation should not be implemented to the detriment of business interests when there is no overriding public policy objective. 4. Measures which enhance the consistent application and operation of IMO conventions at EU level, rather than adding further regional obligations, have generally been seen as helpful to the shipping industry. 5. The UK Chamber would like to see the Commission consistently committing to statements made by the European Parliament in paragraph 46 of the Strategic goals and recommendations for the EU s maritime transport policy until 2018 : [The European Parliament] stresses that shipping is a global industry and that agreements ought, for preference, to be concluded on a global scale; considers the IMO to be the most appropriate forum for this; calls on Member States to make more effort to ratify and implement quickly IMO conventions which they have signed. Introduction World economic growth and the prosperity of the shipping industry are closely linked, with UK shipping companies active in a global marketplace. Consistency in the application of rules to ships from all Flag States is essential and allows shipping companies to compete on a level playing field in often volatile market conditions. This consistency has largely been achieved over many decades through the participation of Flag and Port States in international forums such as the IMO, the International Labour Organisation (ILO), the OECD and the United Nations Commission on International Trade Law (UNCITRAL). When international conventions are adopted, it is then down to individual states to ratify them, and, once ratified, each contracting state is obliged to implement the requirements within their own national laws. Implementing international regulations nationally over the long term has resulted in global policy regimes in many areas of shipping. These range from safety on board ships and at ports, ship construction and design, pollution and seafarers working hours conditions and training, to liability and compensation regimes designed to cover various sources of marine pollution and third party incidents. The regulation of many of these areas pre-dates the formation of the EU Single Market in 1992.

10 European Union: an added layer of regional law Almost 90% of EU-international freight trade is transported by sea. It is unsurprising therefore that the EU, in its quest for ever-closer union, has taken a keen interest in maritime affairs. Transport regulation is deemed a shared competence, meaning that both the EU and its Member States can legislate in this area, but Member States can exercise their competence only in so far as the EU has not exercised, or has decided not to exercise, its competence. The EU is not a contracting party to most IMO conventions, or indeed to other international conventions. However, it has since established itself as an observer in many international forums, including the IMO. The Commission s dissatisfaction with its current role at the IMO has meant that it has sought to increase EU maritime influence in other ways. Firstly, it has an internal IMO coordination process with the delegations of EU Member States. This has caused much tension within the individual Member States, with the Commission s position on certain issues having the potential to affect individual states existing implementation of international law. The Commission also exercises its influence by introducing separate legislation, or legislation which reflects the content of the international conventions, but goes beyond them. The justification for this has been to ensure early and uniform application of new regulations, as international conventions can take a long time to come into effect. These new regulations in effect creates an extra layer of regional law, which can defeat some of the purpose of developing international policy in the first place and can add further administrative and compliance burdens because of the complexity and possible conflict created. The EU often takes a unilateral approach to maritime policy with little evidence to justify its position. As a consequence, the UK shipping industry has faced legislative proposals from the Commission which reflect little understanding of the industry and how it is regulated, leading to unnecessarily protracted and adversarial negotiations between industry, officials, Commissioners and MEPs. This is despite the Commission recognising the importance of international regulation in its communication paper on the EU s 10 year maritime transport strategy, published in It is recognised that the length of time it takes to draft and negotiate a convention, and then gain the requisite number of ratifications from States with sufficient tonnage on their registers, for it to enter into force can be substantial. The EU s ability to influence this process at IMO level is growing, though there have been and will continue to be some countries which will oppose progress at IMO on certain issues. It is unsurprising therefore that on some occasions, the EU wishes to press on with a subject where IMO has been slow to act. But we would stress that where the EU wishes to do so it considers adopting the IMO approach in its entirety, and not add additional requirements without consultation with industry and strong justification. This would ensure that as far as possible, if the IMO convention in question were to come into force there would be little difficulty in complying with both regimes, UK operators would not be unjustifiably burdened nor put at a possible competitive disadvantage to non-eu operators. It could also serve as an impetus for the IMO and its participant national governments to make further progress and where applicable encourage ratifications. In this way, the ability for the EU to encourage progress and promote ratification of international maritime conventions and guidelines can work in favour of an industry reliant on the consistency of regulations world-wide. This has been seen in the EU s Port State Control regime, the Commission s progress made in promoting the UK SOSREP model in other EU countries to depoliticise the acceptance of ships in distress into places of refuge, and through the recent EU

11 11 developments on the IMO HNS Convention and 2010 Protocol 1. In addition, measures which enhance the consistent application and operation of IMO conventions at EU level, rather than adding further regional obligations, have generally been seen as helpful to the shipping industry. 2.2 Impact of EU measures on UK implementation of international conventions and regulations The examples below illustrate the practical impacts an extra layer of EU regional measures can have on the shipping industry EU Common Port State Control and Inspection Regimes Port State Control is an essential mechanism by which a country can check that ships visiting its ports adhere to international ship safety and environmental standards. Many of IMO's technical maritime conventions contain provisions which allow ships to be inspected when they visit foreign ports to ensure that IMO requirements are met. In the EU, the Port State Control Directive 2009/16/EC as amended and its three implementing regulations form the basis of EU harmonisation of each Member State s port state control systems and procedures. This has broadly been constructive by making port state control measures throughout the EU operate more efficiently and predictably for UK operators which in turn helps to achieve a more consistent and effective control regime which serves to deter inadequate ship tonnage from the EU Sulphur emissions Under Annex VI of MARPOL, the IMO in 2005 tightened regulations to reduce sulphur emissions from shipping. These regulations stipulate the removal of sulphur, either through scrubbers or using fuel with less than 0.1% sulphur content, in designated Sulphur Emissions Control Areas (SECAs). One such SECA covers the Baltic, North Sea and parts of the English Channel. The IMO regulations recognised the difficulties in applying scrubber technology, as well as concerns over low sulphur fuel availability, and allowed flexibility with regard to the cut-off date for implementation (1 January 2015). However, an EU Directive on sulphur (2012/33/EU) did not allow for such flexibility, and came into force in full on 1 January As well as the 0.1% cap in SECAs, there is to be an IMO mandated global cap (0.5%) on the sulphur content of fuel for ships trading outside of SECAs. This is due to come into force in However, if an ongoing IMO study into fuel availability concludes that there will be insufficient lowsulphur fuel available worldwide, the IMO has the capacity to delay implementation by 5 years. Despite this agreement at the IMO, the EU has already mandated that the 0.5% sulphur cap will apply throughout the waters of all EU Member States within 200 miles of the coast, regardless of any potential IMO decision to postpone the global cap until If the IMO did decide to delay implementation, this would in theory create a narrow corridor along the coast of North Africa in which the use of less expensive residual fuel would continue to be permitted, which could lead to changes in market behaviour unacceptable to EU Member States at the IMO. The EU Directive could also have implications in the Atlantic and Pacific for vessels operating within 200 miles of EU overseas territories such as the Canary Islands and the Azores. 1 The HNS Convention and its 2010 Protocol creates strict liability on ship owners that is limited for incidents resulting from the transport by sea of hazardous and noxious substances.

12 12 The Commission and EU Member States governments have promoted scrubbers as one of the options for meeting the ECA requirements. Yet, in recent months it has become apparent that the provisions of the EU Water Framework Directive make the adoption of open loop scrubbers less practicable and commercially viable. This has placed those companies that followed Commission advice and invested early in this technology in an invidious position. The net result of the EU Sulphur Directive is that it has imposed on the industry is higher fares and freight rates than warranted under current market conditions, leading to loss of competitiveness and potential route closures in the long run, though the current unexpectedly low fuel prices have cushioned the impact. Were it not for the massive drop in fuel prices this would have led to job losses and a modal shift from sea to road which would have had a profoundly negative impact on the environment, a wholly unintended consequence and yet one that could have been easily foreseen by regulators Carbon emissions In 2013, carbon emissions regulations, applying to all ships over 400 gross tonnes (gt), were added to MARPOL Annex VI. From 2013, new ships are to be designed with compulsory efficiency standards (the Energy Efficiency Design Index), and all ships are to monitor and improve the performance of various factors in ship operations which could contribute to a reduction in carbon emissions (Ship Energy Efficiency Plan). The IMO is also developing a global data collection system to measure carbon emissions from ships. The shipping industry supports a global mandatory system through the monitoring and reporting of fuel consumption (and carbon emissions) by individual ships, as long as it is simple to administer and recognises that identical ships on identical voyages may have very different fuel consumption due to differing sea and weather conditions. Frustrated with slow progress at the IMO, the European Parliament in April 2015 endorsed EU Regulation 2015/757 on monitoring, reporting and verification of carbon dioxide emissions from ships (EU MRV). This regulation will require all ships above 5,000gt on voyages that start and/or end in EU ports to carry out monitoring, reporting and verification of carbon emissions from 1 January This move by the EU has the potential to affect European maritime trade and derail the IMO discussions on a global emissions solution. If the EU MRV scheme is incompatible with any future solution proposed at the international level, and if the EU prefers its own scheme to that developed by the IMO as is likely, it will lead to increased costs and complexity through the need to report to both the EU and IMO regimes. The Commission is also likely to push its own agenda on shipping emissions at the United Nations Framework Convention on Climate Change (UNFCCC) as a consequence of its frustration with the IMO process. This is despite the industry making it clear that the IMO is the most appropriate forum to deal with shipping emissions. The shipping industry believes that the most effective means of addressing carbon emissions from shipping is to improve the fuel efficiency and carbon footprint of ships themselves, though market based measures may be needed as well. The Commission is looking to extend its current carbon emissions pricing via the EU Emissions Trading Scheme on shipping, which may have detrimental effects on European shipping if this is not integrated into a global scheme agreed by IMO Ship recycling The Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships 2009, which is not yet in force, covers the design, construction, operation and preparation of

13 13 ships for recycling. It also covers the operation of ship recycling facilities and establishes an enforcement mechanism. Frustrated with the status of the Convention, the Commission adopted the European Union Ship Recycling Regulation 1257/2013 (EUSRR). Viewed by the Commission as an interim measure to address the global issue of ship recycling, the EUSRR entered into force in December 2013, and its requirements will apply between the end of 2015 and It broadly corresponds to the terms of the Hong Kong Convention, but includes significant additional obligations over and above the Convention requirements. The EUSRR bans the most common form of scrapping ships (beaching), unlike the Hong Kong Convention. Currently the standards employed in beaching in countries like India, Pakistan and Bangladesh are far from acceptable, but such scrapping is a major source of employment for many people living in poverty. If the Hong Kong Convention were to come into force, the standards and working conditions for those involved in beaching could be dramatically raised, without taking away their livelihood. Indeed, some ship recycling facilities have already, of their own accord, raised standards to make beaching of ships for scrapping safer and are worried that an EU blanket ban on sending ships for recycling in their countries would endanger these positive developments. It is widely acknowledged that many ship recycling facilities in the developing world would struggle to meet the EU requirements. The EUSRR could also be undermined if the Commission fails to approve a sufficient number of ship recycling facilities, especially as most of the recycling facilities that are able to accommodate larger vessels are located outside the EU. In turn, a lack of recycling capacity could contribute to the lifespan of ships being extended, which would lead to a less competitive and less energy efficient European fleet. Furthermore, the inability of European owners to realise the same price at disposal as their non-eu competitors will place them at a severe competitive disadvantage. Mitigating and transitional guidance has been prepared by the industry to cope with the potentially adverse effects of the EUSRR, especially where additional requirements are imposed on EU flagged vessels Ballast water Water has been used for centuries as ballast to stabilize vessels at sea. While it is essential for safe and efficient modern shipping operations, it can pose serious problems due to the sheer number of marine species carried in ships ballast water. At IMO level, the Ballast Water Convention governing the exchange and treatment of ballast water is on the cusp of meeting the requirements for it to come into force. In other forums, the OSPAR Convention on North East Atlantic regions and HELCOM on the Baltic regions govern substantial areas of the marine environment affected by ballast water in Europe. It is welcomed that these international developments and work streams between different sets of EU/EEA states (of which the UK is a member of OSPAR) have been respected by the EU Shipowner liability for third party incidents Many IMO conventions impose strict liability on shipowners (and corresponding caps on claims) for incidents including personal injury to crew, passengers and others on board, cargo loss and damage, oil pollution and wreck removal. These international mechanisms have been proven to work well over a number of decades and remove the need to await the outcome of potentially lengthy legal proceedings. EU Directive 2009/20/EC on the insurance of shipowners for maritime claims correspond with the content of the IMO Convention on Limitation of Liability for Maritime Claims (LLMC). Although the decision not to place additional requirements over and above the Convention was welcomed, it is

14 14 questionable whether there was any need for the EU to introduce regional legislation in the first place. Directive 2004/35/CE on environmental liability with regard to the prevention and remedying of environmental damage (ELD) was adopted in 2004 in order to establish a common framework for the prevention and remediation of environmental damage within EU Member States. Shipping is exempted from the Directive, provided that the relevant IMO Conventions on liability and compensation for pollution damages are applicable at the time a ship causes environmental damage. These exemptions were agreed following the difficult exercise of informing the Commission of the mechanism of strict liability and compulsory insurance of the insurer and direct action against the insurer. It should also be noted that the ELD regime also does not provide the same benefits as the international conventions. The Commission is required to review the ELD and the exemptions provided, and its report is due to be published in late A separate study conducted by consultants appointed by the Commission has suggested that the exception for shipping incidents should be removed, despite little evidence to support the proposal. However, on the positive side, the Directive is currently subject to the European Commission's Regulatory Fitness and Performance programme (REFIT), which aims to make EU law simpler and to reduce regulatory costs. On third party liability for hazardous and noxious substances (HNS) carried by sea, the Commission has recently proposed a Council decision on the ratification and accession on behalf of the EU to the IMO s 2010 HNS Protocol. The UK shipping industry, alongside its European and international counterparts, welcome this development as it fills an important gap in the current successful and effective IMO framework of liability and compensation for pollution damages which, without it coming into force is at the moment is unsatisfactorily filled by the ELD Seafarers working conditions The EU has adopted numerous directives regulating employment conditions and health and safety for workers, which has increased costs for employers and generated legal uncertainty. The English legal system operates on the basis of the letter of the law, whereas EU law (and the legal codes in most Member States) adopt a purposive approach to legal interpretation. Some social affairs directives were implemented in the UK via laws drafted according to English law principles, which have led to tribunal claims questioning whether the UK properly implemented the directives. Other directives have been copied out into UK legislation, which has resulted in legal uncertainty caused by the use of expressions and concepts that are undefined by UK courts. Areas covered by social affairs directives range from the organisation of working time and medical treatment on board vessels, to posted workers, collective redundancies and transfers of undertakings. Most of these measures were adopted during the 1990s and, in recent years, the pace of EU social legislation has slowed considerably Social dialogue Current EU social dialogue provisions were introduced via the 1991 Maastricht Treaty. The UK Conservative Government of the time opted out of the protocol on social policy which permitted management and unions to negotiate legal instruments on a range of issues relating to terms and conditions of employment (excluding pay and social security). Two directives on European works councils and parental leave were adopted via this means before the new Labour Government ended the opt-out in Since shipping is an international industry, both measures affected UK shipping notwithstanding the UK opt-out; companies that were required to establish works councils

15 15 elected to involve their UK personnel in these and parental leave policies likewise applied across the board. The UK shipping industry has participated actively in the EU social dialogue, especially in the development of the agreements on working time for seafarers and the Maritime Labour Convention (MLC) as well as the projects on elimination of harassment and bullying. This process has ensured that UK shipping interests have been taken fully into account in the legislation. An example of this cooperation was the agreement on the directive to modify the exclusions for seafarers from other social measures, which reflected shipowners interests more favourably than the initial Commission proposals Equal treatment The Treaty on the Functioning of the European Union includes provisions on freedom of movement, allowing citizens of Member States to take employment anywhere within the EU, without being subjected to any form of discrimination. UK laws permitting seafarers recruited abroad to be paid at lower rates that those recruited in the UK were considered to conflict with the Treaty articles, causing the UK Government to amend the law under a threat of infraction proceedings. As discussed in Section 1, repatriation of employment legislation would potentially allow the UK to take a flexible approach to the employment of seafarers, recognising the global nature of the shipping industry and its workforce. However, this would need to be balanced with the industry s requirements for freedom of movement within the EU Inclusion of seafarers within scope of five EU labour law directives There are examples of the Commission drafting labour law proposals and making assertions to justify them, where the actual evidence base has been questionable. Although EU labour law generally applies to all workers in all sectors, Member States had been allowed to exclude seafarers from the scope of the directives on employer insolvency, European Works Councils, employee information and consultation, collective redundancies and transfers of undertakings. Despite the absence of any compelling case in favour of legislation, the Commission determined that a new directive was needed to modify the exclusions for seafarers from those directives. This was asserted on the unproven basis that the exclusions were deterring young people in the EU from careers at sea, and that the differences in Member States exercise of exclusions were creating market distortions. In making this decision, the Commission failed to recognise that there are a considerable number of Member States without significant maritime industries where the exclusions had little or no impact on seafarer employment Passenger ship construction and design UK domestic ships have been and continue to be well regulated by the Maritime and Coastguard Agency (MCA). When applying standards largely derived from the International Convention for the Safety of Life at Sea (SOLAS), the MCA takes into account the specific nature of the trade and the area in which a particular ship is operating. In 2012 the Commission undertook a revision of Directive 2009/45/EC on passenger ship safety, which applies to vessels engaged on domestic voyages (non-solas vessels). Despite no major safety or internal market issues being identified during a 2012 public consultation, the Commission continued to prepare a proposal for a revision of the Directive, which could have led to a general extension of the scope to encompass a number of matters not currently regulated by the EU (including tenders on cruise ships and transport of offshore workers, as well as the potential for

16 16 covering small vessels of wooden or fibreglass construction). At the time, this move by the Commission had implications for EU maritime competency and IMO regulation of larger ships, as the range of policy options included extending the scope of the Directive to cover international voyages between EU Member States. The Commission continued its work despite receiving consultation feedback on the difficulties of complying with non-parallel regional and international regulation. It was only in 2013 that the Commission confirmed, for the time being, that it did not intend to put forward a proposal for a revision of the Directive. The IMO has recently taken a keener interest in influencing the standards and safety of domestic passenger ships, due to the number of domestic shipping incidents over the decades. If the Commission resurrects its proposals to regulate in this area without regard to developments at the IMO, it will further compound the existing complexity of compliance with multiple layers of regulation Offshore oil and gas operations and liability The implementation of Directive 2013/30/EU on offshore safety (OSD) has created an undue administrative burden for regulators and operators. The offshore sector believes that, in establishing the Directive, the Commission failed to understand the safety and regulatory cultures that have developed in long-established European offshore sectors such as the UK and Norway. Instead, the Commission cited the Deepwater Horizon explosion and sinking as justification for increased EU competency in offshore regulation, despite US safety and regulatory culture being very different to that of European oil and gas producing countries. This resulted in protracted and adversarial negotiations between those Member State governments with significant offshore sectors and the Commission. While the final Directive may create some benefits in terms of reducing subjectivity in offshore inspections and establishing standardised reporting, it remains to be seen whether it will have any quantifiable impacts on offshore safety. The determination of the Commission to gain competency over offshore safety illustrates how it often fails to recognise the strength of existing domestic legislation and multilateral arrangements. The OSD also contains an obligation to carry out a study into civil liability, financial security and compensation claims for offshore oil and gas activities in the EEA. The Commission has since submitted two reports on the subject to the Council and the European Parliament, outlining possible legislative action in these areas. The potential content of such legislation is worrying for rig owners operating in long-established offshore jurisdictions, as it could upset current regimes where liability is channelled to the licensee rather than the drilling contractor. This model has worked well as it provides the licensee with a strong incentive to choose high-quality suppliers to protect its own interests, thus reducing the risk of accidents occurring and leaving no ambiguity as to which entity is responsible should any damage or pollution occur Places of refuge The shipping industry continues to promote the proper implementation by governments of the existing measures on assisting ships in distress to enter places of refuge worldwide, such as the IMO Guidelines on Places of Refuge for Ships in need of Assistance (Assembly Resolution A.949(23)). The Commission s support on this issue for places of refuge in EU Member States is helpful to the industry. Work is continuing on the initiative of Member States, supported by the European Commission and European Maritime Safety Agency, to develop a set of Operational Guidelines on Places of Refuge, based on the requirements of the EU Vessel Traffic Monitoring Directive and the IMO Guidelines. The Commission has also highlighted this work in 2015 at IMO meetings.