European Liner Affairs Association

Transcription

1 European Liner Affairs Association Response to The Commission White Paper on the Review of Regulation 4056/86 15 December 2004 Executive Summary 1. The European Liner Affairs Association ( ELAA ) 1 which represents the world s liner shipping industry (including conference members and so-called independents 2 ), welcomes the opportunity to comment on the Commission s White Paper on the review of Regulation 4056/86, published 13 October The Commission s White Paper proposes that Regulation 4056/86 be repealed and initiates a consultation on an appropriate new regulatory structure for liner shipping services operating to and from the EU. 3. The ELAA submits that as a matter of good administrative practice, it is vital that the Commission before proposing significant legislative change carefully evaluates the consequences of such change, especially as regards an industry upon which EU (and indeed global) trade and prosperity depends. Therefore, ELAA suggests that any proposal for material change to the current system requires a careful and robust impact assessment based on quantitative as well as qualitative data. 4. However, it is striking that and as pointed out by the ELAA in previous submissions the Commission s review process has failed to produce or generate any data that indicates a need to make material changes to, let alone repeal, Regulation 4056/86. In particular, ELAA questions the conclusion reached by the Commission in relation to the repeal of Regulation 4056/86 and suggests that 1 ELAA comprises among its members most of the world s main liner shipping companies, namely A.P. Møller/Maersk Sealand, Atlantic Container Line AB (Grimaldi), C P Ships Holdings Inc., China Shipping (Group) Company, CMA-CGM Group, COSCO, CSAV (Compaňia Sud- Americana de Vapores S.A.), Delmas, Evergreen Marine Corp. (Taiwan) Ltd., Hamburg Südamerikansiche Dampfschiffahrtsgesellschaft KG, Hapag Lloyd, Hanjin Shipping Co. Ltd., Hyundai Merchant Marine Co., Ltd., Kawasaki Kisen Kaisha, Ltd., Malaysia International Shipping Corporation (MISC), Mediterranean Shipping Co. S.A. (MSC), Mitsui OSK Lines, APL Co. Pte. Ltd., NYK Line (Nippon Yusen Kaisha Line), Orient Overseas Container Line Ltd., P&O Nedlloyd Limited, United Arab Shipping Co. (SAG), Yang Ming Marine Transport Corp., and Zim Israel Navigation Co. Ltd. 2 ELAA members may be conference members in some trades and independents in others, or operate as independents in all trades. The ELAA membership as a whole supports the ELAA Proposal submitted to the Commission. 1

2 what purports to be an impact assessment contained at Section 4 of the White Paper is not only incoherent and speculative but provides no proper assessment of the likely effect of any legislative change or repeal. In particular: Substantial empirical evidence presented to the Commission throughout the review (for example, the Erasmus consultants report commissioned by the Commission, the annexes to the ELAA Proposal, data submitted by ELAA in previous submissions) has not been evaluated and is simply ignored in the White Paper; The current application of Regulation 4056/86 (resulting from the Carrier Agreement of and in the Commission s recent exemption under Article 81(3) EC of Revised TACA 4 ) has proved to be a workable compromise and the current legal position is relatively clear; The ELAA has demonstrated that the conference system in place today continues to function and serve liner shipping customers by providing stability of supply 5 and a wide range of high quality services at competitive prices. Still no evidence has been provided to the contrary. The issue of international comity must be considered when changes to a regulatory framework governing worldwide industries, such as liner shipping. The ELAA is surprised that this has not been taken into account by DG Competition. 5. ELAA further proposes that this new instrument refer not only to Article 81 of the Treaty but also to Article 80 on maritime policy. This double reference had been adopted for the elaboration of Regulation 4056/86 and appropriately takes account not only of the necessity of implementing competition rules but also the objectives and constraints of the maritime sector. Introduction 6. Consistent with the ELAA Proposal 6 submitted to DG Competition on August , and its position throughout the review process to date, ELAA reconfirms its intention to participate in a positive and constructive manner in the review process. The ELAA Proposal which is without prejudice to ELAA s position that the Commission has not produced or received any convincing evidence The Carrier Agreement, October 1998 Commission Decision 2003/68/EC Revised TACA [2003] OJ L 26/53. The term stability of supply is used in this submission to refer to the matching of supply to demand as per the main objective in Regulation 4056/86. ELAA letter to Ms. Lowri Evans of 6 August 2004, Review of Regulation 4056/86: Proposal for a new Regulatory Structure (hereinafter the ELAA Proposal ). 2

3 whatsoever that Regulation 4056/86 fails to satisfy the conditions of Article 81(3) EC and hence should be repealed lays out a new business framework to accommodate the modernisation of European competition law in general, while at the same time maintaining the efficiencies (especially the crucial stability of supply) generated by the current compromise set out in the Carrier Agreement and Revised TACA. In response to the second question in the Issues Section of the White paper, ELAA states that it would be necessary and appropriate to adopt another Community instrument to cover a new business framework of cooperation between liner shipping operators on trades to and from the EU. 7. In this paper, the ELAA elaborates on the following issues raised in the White Paper: Repeal of Regulation 4056/86 and the impact assessment; Current application of Regulation 4056/86; The Commission s discussion of Article 81(3) EC; The Commission s comments on the ELAA Proposal; and International comity. 8. The ELAA appreciates the Commission s effort in keeping industry participants involved in the review process. ELAA is confident that the Commission will continue this transparent approach, and that the opportunity will be granted for interested parties to comment on the responses to the White Paper, and that further consultation will continue, particularly on alternative frameworks should Regulation 4056/86 be repealed. White Paper: Repeal of Regulation 4056/86 and Impact Assessment 9. The ELAA reiterates that all parties to the review process share a burden of proof. In the White Paper, the Commission recognises its burden to motivate and explain the reasons for any proposed change to existing legislation: naturally, it follows from Article 253 of the Treaty that, when proposing [changes to existing] legislation the Commission shall motivate its proposals. This implies, e.g., that if the Commission proposes to repeal the present block exemption for liner shipping conferences it will have to explain the reasons why price fixing and supply regulation by the conferences would, in the present market circumstances, no longer be exemptible from the prohibition of Article 81(1) of the Treaty. 7 7 White Paper, Annex, at para 28. 3

4 10. The Commission statement indicates that it is obliged, throughout the review process of Regulation 4056/86, and in particular in its impact assessment, to obtain and rely on hard evidence to demonstrate and support its arguments, rather than rely on mere speculation. However, this has not been done and the Commission s so-called impact assessment in the White Paper is a case in point: ELAA notes the Commission s unsubstantiated statement that it sees no conclusive evidence justifying the Article 81(3) assumptions on which Regulation 4056/86 was based, and that Regulation 4056/86 can be repealed 8 ; As ELAA s Executive Director Mr. Ken Bloch Soerensen stated at the Hearing of 4 December 2003, and repeated in a follow up written submission dated 20 February 2004: the Commission s consultants [from Erasmus] agree with us more work is definitely needed. Despite that conclusion by the Commission s own consultants, no further work was undertaken by anyone including DG Competition except the ELAA (see below). And that additional work (with perhaps inconvenient conclusions) has been ignored for no apparent reason in the White Paper; While the ELAA subsequently submitted additional background material and a Proposal embedded in a framework consistent with Article 81(3) EC, no further work or data gathering exercises have been undertaken by DG Competition 9 ; While listing various secondary effects of the withdrawal of the block exemption contained in Regulation 4056/86, the Commission ignores the main effect, i.e. the impact on stability of supply and does not consider and evaluate it to any proper extent; In terms of economic evidence submitted, the Erasmus Report Annexes 10 which contained empirical data and analysis have not been taken into account by the Commission; A Market Study undertaken on behalf of ELAA and a paper on Information Exchange, both submitted with the ELAA Proposal on 6 August 2004, have been ignored; White Paper, at para 15. By contrast, the review of Regulation (EC) 1400/2002 (Motor Vehicles) was the subject of at least five external studies, and the review of Regulation (EC) 2790/1999 (Vertical Agreements) was the subject of at least 15 external studies. See ELAA Issues Paper of 3 December 2003, at Table 6.1. The rush to judgement in the Regulation 4056/86 review is, by contrast, most troubling. Erasmus Universiteit Rotterdam, Final report prepared for European Commission, 12 November 2003 ( Erasmus Report ). 4

5 The evidence submitted demonstrates that the compromise (based on Regulation 4056/86) operating today is able to generate efficiencies in a significantly less restrictive framework; No evidence contradicting these economic background studies and empirical data sets has been submitted to, let alone evaluated by, the Commission. 11. Instead, the Commission s assessment in the White Paper is in the words of the Commission itself, largely hypothetical or to some extent hypothetical 11 and is based on speculation rather than hard evidence: The main point of reference remains the highly contested OECD Secretariat report 12 which relies heavily on much criticised anecdotal and unverified evidence and pre-1999 data 13 ; The secondary effects of the withdrawal of the block exemption that are discussed, contain numerous fallacies where (a) actual impact has been underestimated (e.g., effect on trade), (b) inappropriate parallels are drawn to former monopoly markets (e.g., experience from other liberalised markets), or (c) statements are based on outdated information or mere speculation (e.g., surge in demand and its effect on innovation and consumer prices). At other times, (d) they are just plain wrong (e.g. effects on investment and fleet). For an overview, see Annex 1; In addition, the few statements on impact that are contained in the White Paper are speculative or non-committal, lacking any basis in fact. Some of the language is vague and imprecise. Reference is made, in particular, to sections such as White Paper Annex, at para 69, which is full of phrases that indicate uncertainty such as this might however, a carrier might invest, while such a strategy could be profitable it might lead to overcapacity. For a more complete overview, see Annex The ELAA is disappointed with the quality of the impact assessment. It is inconsistent with the normal standards of appraisal applied by DG Competition See White Paper, Annex, at para 57 and 88. Competition Policy in Liner Shipping Final Report, OECD, Directorate for Science, Technology and Industry, Division of Transport, 16 April It is noted that contrary to how it is often referred to, the report was that of the Secretariat, not the OECD itself. Nowhere in the report is there a description of the methodology employed or the size of sample used to generate the data. This was admitted in the OECD report itself, at para 119, where it is stated that [I]t was hoped that in the context of this report carriers and shippers might provide detailed cost and rate data either supporting or refuting the need for anti-trust immunity. Unfortunately this information was not forthcoming. See already ELAA Response to the Commission Consultation Paper of 18 June 2003, at paras 3.28 and 10.21, as well as the ELAA Issues Paper of 3 December 2003, at paras 5.3 and 7.19; See also World Shipping Council, Analysis and Comments on the OECD Secretariat s Paper (2001). 5

6 and the Commission. The Commission has entirely failed in this part of the White Paper to discharge the important burden placed upon it to assess the impact of any legislative change. It certainly cannot be regarded, we suggest, as a proper assessment of the Impact of Withdrawal of the Block Exemption on the Market, see the title to Section 4 of the White Paper. There is no cogent evidence to support the Commission s assessment, let alone be found sufficient to counter the materials submitted by the ELAA throughout the review or be relied on as the grounds for repealing Regulation 4056/86. It is important to emphasise that according to the Commission s own Guidelines the modernisation of European Competition law is about better economic assessment of the impact of competition restrictions, rather than mere unsubstantiated speculation not based on empirics. 14 ELAA submits that the Commission should produce the empirical evidence upon which the conclusions in the White Paper proposing a repeal of Regulation 4056/86 are based. To date, the position taken by the Commission regarding the evidence that it seeks to rely on and that which has been put forward by the ELAA has been inconsistent and asymmetric. Current application of Regulation 4056/86 An Efficient Compromise 13. The Commission s conclusion that there is no justification for maintaining the block exemption contained in Regulation 4056/86 is all the more worrying as the system in place is actually an efficient compromise. 14. To place the current functioning of Regulation 4056/86 into the appropriate perspective, it should be put into its historical context. The White Paper states: the Legislator has thus assumed in the past that price-fixing and capacity regulation within conferences leads to stability of freight rates, and that stability assures shippers of reliable scheduled maritime transport services. 15 This statement is misleading as it suggests that this is not the case. The Commission correctly recognises that the liner shipping market has changed in the 18 years since the adoption of Regulation 4056/86. As a result of (a) regulatory changes in the US and (b) the evolution of Regulation 4056/86 through EC case law to the compromise position set out in the Carrier Agreement and Revised TACA, the strength of the economic links between the conference members has been significantly weakened and an overwhelming majority of freight rates are now negotiated on a one to one basis. 16 In addition, market shares of conferences have See Commission Guidelines on the application of Article 81(3) of the Treaty [2004] OJ C 101/97, para 4-6. White Paper, Annex, at para 21. The Commission states that conferences and liner carriers have attempted to interpret Regulation 4056/86 in broad terms. In fact, the application of Regulation 4056/86 has been continuously narrowed down, and conferences and liner carriers have adapted their practices following case law. Many examples may illustrate this, such as the giving up of conference inland freight rates 6

7 generally declined in recent years principally due to the competitive nature of the market. With the introduction of confidential individual service contracts 17, it is now no longer possible for conference members to monitor individual pricing decisions The essential aspects of the current system valued by the carriers relate to access to relevant information and the ability to exchange views on such information, as this allows for the maintenance of stability of supply. Hence, ELAA submitted during the Commission s review process that the current regulatory regime of Regulation 4056/86, as developed and interpreted in subsequent EC case law, is still justified under Article 81(3) EC, as the maintenance of the stability of supply was shown to be a benefit which outweighs any anti-competitive effects that may arise. 16. Indeed, the justification for the block exemption contained in Regulation 4056/86 is that conferences contribute to stability in a manner that could not be achieved through less restrictive means. 19 Today s system shows that stability of supply and competition are not mutually exclusive. It has been demonstrated and indeed accepted by the Commission that liner conference members face internal as well as external competition: the increase of both internal price competition within conferences and external competition by independent operators ( ) As a result, it is the ELAA s opinion that the current application of the block exemption contained in Regulation 4056/86, and the stability of supply generated, remains fully justifiable under Article 81(3) EC and that, at the very least, the Commission has not made a case for repeal (Cases T-395/94 Atlantic Container Line et al v Commission (TAA), [2002] ECR II-875, and T- 86/95 Compagnie Générale Maritime et al v Commission, (FEFC), [2002] ECR II-1011); certain capacity management programmes (Case T-395/94 Atlantic Container Line et al v Commission (TAA), [2002] ECR II-875, and Commission Decision 1999/485/EC EATA, [1999] OJ L 193/23); and prohibition of confidential individual service contracting (Case T-191/98 and /98 Atlantic Container Line et al v Commission (TACA), [2003], not yet reported, and Commission Decision 2003/68/EC Revised TACA [2003] OJ L 26/53). The term individual service contract is mostly used in US trades. However, in this submission it also used to describe any other form of price agreement between an individual customer and an individual carrier. The ELAA explained in earlier submissions that the conference tariff has ceased to be a means to detect deviation. See Nietsche/von Hinten-Reed, Charles River Associates, Competitive Impacts of Information Exchange, at page 15. ELAA Response to the Commission Consultation Paper of 18 June 2003, at Question 12 and ELAA Post Hearing Submission of 20 February 2004, at Sections 4 and 5. White Paper, Annex, at para 35. 7

8 The Commission s Discussion of Article 81(3) EC 18. Having said that, the ELAA welcomes the Commission s initial discussion of the Article 81(3) EC criteria and the opportunity to comment In general, we note that the Commission s Article 81(3) EC discussion is inherently flawed as it is predicated on the existence of a system that results in actual price fixing. But for the reasons explained above and in previous submissions, this is no longer the case(see also above, at para 14): As we argued before, confidential individual service contracts as required in Revised TACA along with other case law developments, render the effective application of conference tariffs in the industry impossible 22 ; Although the ESC, in its latest submission, still states that conferences are hard-core price fixing cartels, it also admits that the conference power to fix prices has largely disappeared in recent years 23 ; As consistently explained by the ELAA, and as supported by the Commission s own economic consultants from Erasmus, the industry today does not operate as a price-fixing cartel. 24 The much more benign compromise (from a competitive standpoint) in force today is able to generate the efficiencies in a significantly less restrictive framework. 20. From this overall perspective, the ELAA would like to submit the following comments on the Commission s discussion of the four cumulative conditions of Article 81(3) EC. 21. Efficiencies: The essential welfare benefit generated by the current regime is the stability of supply. The ELAA maintains that conferences improve maritime services by providing stability of supply and relative stability of rates: The Commission states that the data provided in respect of stability of supply has been inconclusive (see White Paper Annex, at para 34), although it does not expand on or justify this statement; In fact, the Commission entirely fails to analyse the efficiencies of stability of supply, but merely questions whether there is a sufficient causal link between The following comments do not constitute the ELAA s assessment of the application of Article 81(3) EC to liner conferences. ELAA intends to submit a more extensive analysis of the Article 81(3) EC criteria at a later stage. ELAA Issues Paper of 3 December 2003, at para 9.15; See also See von Hinten- Reed/Chipty/Scott Morton, Charles River Associates, Shipping Conferences: A Study of the Impact of FEFC Activity on Prices in the North Europe-Asia Trade ; and below, at para 29. European Shippers Council, What shippers require from liner shipping in the future and why, September 2004, compare for example at pages 3 and 6. Erasmus Report, p

9 conference price-fixing and the reliability of services (White Paper, Annex, at para 35); On the other hand, the Commission s own economic consultants from Erasmus University found that conferences caused relative stability (see Erasmus Report, at page 102). See also Annex 3 Supply and Demand Chart ; As the ELAA has pointed out before 25, the liner shipping industry has a unique blend of economic characteristics that necessitate regulatory intervention, the form of which may differ from that operated in other network industries. The combination of high fixed costs, inelastic and lumpy supply, high risk and few or no regulatory barriers to entry make the market inherently and chronically unstable. Other industries may face such factors individually, but never in combination. The special characteristics of the liner shipping industry warrant continued sector-specific treatment to ensure the crucial maintenance of stability of supply. Such stability of supply is not achievable without effective capacity planning, in the short-term as well as in the long-term. The Commission has not assessed this argument. 22. Consumer benefits: Again the Commission refers to conference operations as horizontal price-fixing against which consumer benefits must be weighed. The White Paper states that opponents contest that there is evidence of stability and even question the relevance of the concept of stability. Rather, reliable shipping services would be what matters to shippers. 26 This statement neither contains nor refers to any facts or credible evidence. Throughout the review process, the ELAA has provided evidence of stability and despite what counsel to ESC has claimed, shippers have in fact repeatedly stated that this is what matters to them. The following recent quote is illustrative: Also, contrary to the views of many managers buying liner trade capacity, [Diageo] reckons that conferences still have a valid role, providing they are not price-fixing cartels. This role is to establish standards of service, to maintain those standards, and to create and maintain stability on the liner trades Indispensability: The Commission fails to take into consideration the need for legal certainty of the industry in a time of change, such as the abolition of the individual exemption system and other procedural changes in wake of the modernisation of EC competition law, as well as the enlargement of the European Union. In addition: See in particular Response to the Commission Consultation Paper, 18 June 2003, at Section 3; and Issues Paper of 3 December 2003, at paras White Paper, Annex, at para 31. Diageo shows its Spirit, Containerization International, August

10 The Commission s argument that the growth of independents shows that conferences are not indispensable is a fallacy. 28 There is no evidence provided of a trade functioning and providing reliable services solely on the basis of so-called independents. Liner shipping companies are not identical but differ in size and structure, as do companies in all industries. Had the Commission s argument been valid, it could be used against any antitrust exemption, as there will always be examples of companies not making use of the benefit of an exemption; The Commission argues that the link between conference and consortia activities may create spill-over effects that are hard to accept under competition law. However, the distinction between consortia and conferences is not in any way blurred. Although consortia contribute to significant efficiencies by means of operational cooperation, they fall short of providing the means for ensuring sound investment policies to meet future demand on a given trade and are hence unable to fill the gap left in the event of abolition of the block exemption 29 ; Whilst the Commission contests whether conferences contribute to stable services at all, the ELAA submits that not only the Commission but also the Council, the Court, Member States, the United Nations (through UNCTAD), OECD and maritime regulators worldwide have all explicitly recognised that conferences do contribute to stable services No elimination of competition: ELAA does not agree that the elimination of competition test is a very complex exercise that would necessarily have to be made on a trade-by-trade basis. 31 First, market studies already in existence clearly show that liner conferences are subject to fierce competitive constraints both internally and externally. 32 This has also been noted by the Commission as well as by the ESC. 33 Second, the current regulatory framework as developed in case law provides for a situation where elimination of competition is impossible In sum, when reviewing the arguments under Article 81(3) EC, the ELAA repeats that the current regime, resulting from the compromise set out in the Carrier Agreement and Revised TACA (which was granted a recent exemption under White Paper, at para. 5, White Paper Annex, at para. 40 ELAA refers to its Post Hearing Submission of 20 February 2004, at paras ELAA refers to its Technical Paper: Precedents Drawn from Case Law Regarding the Concept of Stability of 3 December 2003, Section 2 and at para 3.1. White Paper Annex, para 49. Erasmus Report, p. 56 and White Paper, Annex, para 35; and European Shippers Council, What shippers require from liner shipping in the future and why, September 2004, compare for example at pages 2 and 6. ELAA refers to its Issues Paper of 3 December 2003, at paras

11 Article 81(3) EC) has been seen to be workable and the current legal position is relatively clear. The ELAA Proposal 26. Although the ELAA maintains the view summarised in the previous paragraph, it has always sought to participate in the Commission s ongoing review process in a constructive manner and engage in worthwhile discussion with the Commission and its services. Therefore, the ELAA decided to submit its Proposal (again, without prejudice to its position summarised above), which represents a significant change in the position adopted by the industry and which recommends the implementation of an alternative regulatory structure to Regulation 4056/ The ELAA is pleased that the Commission included a summary of its Proposal in the White Paper and is considering it in an open-minded manner. At the appropriate moment, ELAA would also welcome the opportunity to review comments from third parties made on its Proposal. 28. The ELAA Proposal as submitted on 6 August 2004 was developed through a robust and thorough self-assessment with the 25 members of the ELAA. It confirms the industry s commitment to modernise the present business framework without sacrificing the objective of providing stability of supply and relative stability of price going forward. The ELAA Proposal contains the minimum elements of the current system necessary to maintain the stability of supply, while it does not make any reference to price fixing or common rates. 29. In the ELAA s opinion, its Proposal constitutes a positive contribution to the Commission s review process. The ELAA has consistently argued that the liner shipping industry has a unique blend of characteristics that require a sectorspecific legal instrument to enable the industry to operate efficiently and provide the stability of supply that it seeks and European trade requires (see also para 21, above). The Proposal identifies the essential components of a new regulatory structure that would be significantly less restrictive of competition than the current legal framework, yet will result in the requisite stability and hence consumer welfare benefits. To the extent that some elements of the Proposal may fall within the scope of Article 81(1) EC, the ELAA is of the opinion that they fulfil all four requirements of Article 81(3) EC and qualify for the grant of a block exemption: The information exchange improves distribution and technical progress, and the price index and the common formulae for establishing surcharges and ancillary charges create economic efficiencies; 11

12 The Proposal s benefits will be passed on to the consumers in the form of cheaper and more reliable shipping services to meet ever-growing demand; All elements of the Proposal are indispensable for the attainment of these benefits. Information provided by independent sources have proved to be a wholly unreliable basis upon which to make sound investment decisions, and other alternatives identified during the review process do not generate equivalent efficiencies; The proposed system does not restrict competition to any significant degree as demonstrated by the economic evidence as submitted by the ELAA, which shows that the liner shipping industry, absent rate fixing, is not prone to collusion (see pages 4-6 of the ELAA Proposal). There is no risk of competition being eliminated in any relevant market as a result of the proposed system. 30. The ELAA submits that some clarifications need to be made concerning the Commission s discussion of its Proposal: In its White Paper, the Commission has correctly identified better investment decisions as a key objective of the ELAA Proposal. However, it must be kept in mind that it is not the ultimate objective of the Proposal; whereas the maintenance of stability of supply is. The industry needs to be given the means to obtain relevant information and be allowed to discuss such information and exchange views to ensure that supply and demand can be matched; The Commission suggests that currently the exchange of information is not explicitly allowed by Regulation 4056/86. However, the Revised TACA Agreement, as exempted by the Commission, states: the applicants may meet or otherwise communicate, discuss and act on any matter covered by the Agreement including, subject to the protection of confidential service contract information, the compiling and exchanging of information 35 ; Exchange of information re market shares: the lines individual market shares would not be exchanged. The lines would only receive their own market share; The price index: the Commission suggests that the ELAA Proposal contains elements of actual pricing. This is not the case. The price index relates to historic, aggregated prices and not future prices; 35 Commission Notice pursuant to Article 12(2) of Regulation 4056/86, [1999] OJ C 125/6, at para

13 Bill of Lading: the Bills of Lading themselves would not be exchanged. Only the information relating to volume, origin/destination, commodity and revenue information on the port-port leg would be exchanged. In other words, data concerning individual shippers is not part of the proposed exchange; Individual carrier information relating to individual service contracts is not exchanged today, and will not be exchanged under the terms of the ELAA Proposal. It is, however, correct that revenue information from cargo carried under various forms of contracts will be captured (without shipper reference, see above) for the calculation of the historical, aggregated price index. However, the price index would not disclose individual line data to the members. 31. The ELAA Proposal and the system of information exchange contained within is designed to replace the existing framework in the event of a repeal of Regulation 4056/86. In the absence of Regulation 4056/86 or any replacement, there would consequently be much less information available, as the information available today is largely based on input from various conference secretariats. Should the current regime disappear without an appropriate replacement such as the ELAA Proposal, industry consultants such as Clarkson s and Drewry would have significantly less information sources available. In addition, ELAA submits that the envisaged output of the industry body(ies) would be more accurate and useful in comparison to what is available today. 32. The Commission expresses concern that the proposed business framework is open to all market participants and draws parallels with Discussion Agreements: As discussed in our previous submissions, there are major differences between the ELAA Proposal and Discussion Agreements, the major one being that ELAA is not proposing any form of rate discussions and agreements or capacity management. Furthermore, there will be no discussion on how to draft contracts. The Commission suggests by including Table 8 in the White Paper, that there are a number of similarities between the two. 36 However, upon close review it must be clear that the similarities relate to noncontentious areas in competition terms 37 ; It should be noted that this version differs from the version submitted by ELAA, notably by including the price index under the Tariff heading. Discussion agreements exist particularly in the US as well as in Asia and Australia. The Commission suggests that although rates set by discussion agreements are voluntary and nonbinding, members tend in practice to stick to them. It would be interesting to see some data to support this statement. The Commission also suggests without reference to facts that discussion agreements could be worse than conferences in competition policy terms as they are liable to eliminate effective external competition to conferences (White Paper, at para 17). It is disquieting that the Commission is forming a negative opinion on a regulatory framework which 13

14 Consortia and alliances: Consortia and alliances are another alternative to conferences mentioned by the Commission. We have argued before that conferences and consortia/alliances are not alternatives. 38 One of the misconceptions about consortia is that they are a recent trend in liner shipping. This is incorrect as seen from the Commission s study on consortia in , which showed that consortia played a major role even at the time 14 years ago and as the ELAA noted in its Post Hearing Submission of 20 February Conferences and consortia have existed simultaneously for a long period of time. 33. In sum, not only does the ELAA Proposal address the main objective of sustaining stability of supply, it also addresses the major concerns expressed by the Commission and our customers, namely removing price fixing and artificial capacity management from the block exemption contained in Regulation 4056/ has worked well in other jurisdictions and which shipper groups in both the United States and Australia have openly supported. ELAA Post Hearing Submission of 20 February 2004, at paras Communication of the Commission, Report on the possibility of a group exemption for consortia in liner shipping, COM (1990) 260 final. European Shippers Council What shippers require from liner shipping in the future and why, September 2004, p

15 International Comity A Leap in the Dark 34. Attention must also be given to issues of international comity when considering changes to a regulatory framework governing worldwide industries such as liner shipping. 35. By its very nature, the liner industry facilitates and connects world trade. International liner shipping services are simultaneously subject to the maritime laws and regulations of more than one nation. Therefore, international comity is of particular importance to the industry and a broad global consensus is essential to ensure the continuation of the efficient and effective liner shipping industry that exists today. In particular, the Commission needs to consider matters very carefully if there is a risk that its regulatory regime could become incompatible with the international framework. 36. However, apart from totally disregarding the impact of the disruption of worldwide maritime transport in the wake of the envisaged repeal of Regulation 4056/86, the White Paper does not address the issues relating to international comity resulting from an eventual abolition of the liner conference system. The ELAA suggests that unilateral EU action 41 is unthinkable since liner conferences are an international system existing all over the world, for example: Of the 83 parties to who have signed or acceded to the UNCTAD Liner Code, there are 14 EU Member States. If Regulation 4056/86 is repealed those Member States will have to renounce the UNCTAD Code; Regulation 954/79 will have to be repealed; Offers to the WTO would have to be modified accordingly; 41 As Professor James Crawford, Whewell Professor of International Law at the University of Cambridge, UK said if Asia, Australasia and North America maintain existing provisions for example on discussion of forward rates there would be a practical conflict: EU law (if it were to withdraw the exemption) would prohibit in its inward trades what the law of the exporting state specifically permits and envisages in its export trade. To say in such a case that carriers may obey both laws by avoiding Conferences and Discussion Agreements is simply to assert that EU law is to trump. Shipping Australia Limited Supplementary submission to the Productivity Commission regarding the draft report reviewing Part X of the Trade Practices Act 1974: International Liner Cargo Shipping November 2004, p.22 15

16 In the ongoing Review of Part X of the Australian Trade Practices Act, it has already been pointed out that any changes to Regulation 4056/86 may completely dislodge the currently applicable framework of Part X 42 ; The EU may have to address the renegotiation of the EU/ACP agreement as well as the EU/Ukraine and EU/Russia agreements. 37. Instead of addressing the issues relating to international comity, the Commission merely states that various jurisdictions have or are reviewing the respective immunity/exemption and it is not to be excluded that they will end or substantially limit the present privileges granted to liner conferences. 43 However, and as the Commission itself admits, this is by no means a certainty. It is surprising that although the Commission acknowledges the problem, the White Paper then fails to properly address the international comity issue. The ELAA submits that its Proposal constitutes a more cautious approach that would result in a new framework for the liner shipping industry that maintains compatibility with the international system. Conclusion 38. The Commission has at times noted that shippers i.e. the ESC are willing to take the risk of abolition of the block exemption as contained in Regulation 4056/86. ELAA agrees that the consumer perspective is important, even if it rarely recognises the views expressed by ESC from the ELAA members day-today dealings with their customers. However, the ELAA submits that when deciding whether or not to repeal the block exemption, it is the interest of the EU as a whole that should be taken into account. Hence, the relevant question at this stage of the process is, as the ELAA pointed out at the Hearing of 4 December 2003, whether the Commission is ready, based on a flawed and inconclusive impact assessment, to take the risk to replace a workable regime with a system which is undoubtedly a known unknown. Even if the Commission is ready to take such a risk, the ELAA questions whether the other interested institutions and Member States are willing to take such a risk. The ELAA urges readers of this paper to review the Commission s impact assessment at Section 4 of the White Paper and decide for themselves whether they believe that it is appropriate for the EU institutions to take significant risks regarding an industry whose maintenance of the stability of supply is so fundamentally important to EU (and indeed global) trade, based upon such an analysis. Given the available evidence (including that Shipping Australia Limited, Supplementary submission to the Productivity Commission regarding the draft report reviewing Part X of the Trade Practices Act 1974: International Liner Cargo Shipping November 2004 White Paper, Annex, at para

17 which the Commission ignores in the White Paper), the ELAA submits that the EU institutions need to lean and incline towards safety, and take very cautious steps. Although containing significant changes, the ELAA considers that its Proposal fulfils these criteria. Anything else would, indeed, be a leap in the dark. 17

18 Table of Annexes 1. Detailed Comments on the Commission s Impact Assessment 2. Quotes exposing the hypothetical and speculative character of the Commission s impact assessment 3. Supply/Demand Chart 4. Vessel Chartering This will be provided in the near future 5. Clarkson extract (latest issue at p 3) 6. Annex regarding innovation This will be provided in the near future 7. Transport costs 8. Clarkson extract (latest issue at p 12) 18