A sea of change
5 August 2002
The recent headline 'EU judgment on Airtours' and the European Commission (EC) approval of the proposed P&O-Carnival merger have drawn attention to the impact of the EU on the transport sector. However, the EU's powers in relation to shipping reach far beyond such specific competition cases.
Throughout the 1990s, the EC focused on curbing the power of liner conferences. It has now largely achieved this goal through the Article 81 and 82 decisions in cases such as TAA, TACA and French-West African Shipowners Committees, and with the block exemptions on liner conferences and liner consortia setting out the limits under which shipowners could collaborate on pricing and capacity agreements.
Although the EU continues to use competition rules - including state aid provisions - as a powerful tool in regulating the industry, it is now focusing more of its attentions on other areas of the maritime sector. The main objectives of the EU's current policy are:
Maritime safety and environmental protection. This has risen up the agenda after the Erika oil spill disaster in 1999. Measures on introducing double-hull tankers and separating compartments within ships have been a priority.
Completion of the internal maritime market, notably: liberalising the cabotage (intranational coastal trade and ferrying) market via legislation and opening up the provision of internal shipping routes within a single member state to service providers throughout the EU. Public service obligations in relation to links with islands have been a key issue, and EU directives in this area look like finally opening up competitive access by 2005.
Improving the competitiveness of European fleets. Measures such as tonnage tax and the ongoing battle with Japan and South Korea over state subsidies of shipbuilding are important. So, too, is the success that has already been achieved through the Port State Control measures to enforce International Maritime Organisation (IMO) regulations on ship safety/standards in the EU, even against non-EU vessels.
Developing and maintaining open worldwide markets.
The training and promotion of employment of EU seafarers. This is a particular response to the growing number of ships operating under flags of convenience and employing non-EU seafarers.
Promotion of short sea shipping. This is a major priority of EU policy, as it is seen as a much less environmentally damaging alternative to road transport. As such, the EC is spending a considerable amount of time on reducing the administrative burdens of short sea shipping in terms of entering and leaving ports and dealing with cargo.
Introducing competition in the provision of ports services through the proposed Ports Services Directive.
The EC's overall policy for maritime activity is outlined in its transport white paper.
The most recent and one of the most controversial of these measures, the Port Services Directive, recently took a major step forward with the political agreement achieved by the Member States' Council of Transport Ministers. It addresses the competitive provision of port services, such as cargo handling, towage, mooring and pilotage, as these represent a major part of the total costs of port calls for ships and of cargo transported through ports.
Drafting legislation to liberalise port services that is effective and acceptable throughout the EU has been difficult because of the differences in the operational and organisational structures and funding of ports. In some states - notably the UK - most ports have been transferred to private ownership and management, and some states argue that further regulation is not necessary. An EC source recently said that there has been "a widespread misunderstanding" of the intentions of the directive, and that it is likely there will be further industrial action and intensive lobbying, particularly in the build-up to the second reading in the European Parliament, which may force further compromises in the text of the directive.
Ship operators, shippers, port operators and financiers looking to plan based on a firm understanding of their markets are becoming increasingly aware of the need to follow EU measures closely. All parties are finding that, without a clear understanding of the finer details of EU regulation and the schedule for proposed legislation, they could be at a competitive disadvantage. Hence there is an increasing requirement for legal advisers with European regulatory expertise.
In selecting a law firm for such work, the organisations need to consider whether there is a dedicated and experienced EC team. A relationship with a Brussels-based team with a hands-on understanding of the workings of the European institutions has become a standard requirement for the European shipping sector, although this needs to be combined with an in-depth understanding of the nature of the shipping industry.
As the EU delves deeper into this somewhat traditional sector, interpreting the implications of its decisions and complying with its antitrust and regulatory provisions can be undertaken more speedily and creatively when coupled with a practical knowledge of the shipping industry.
The potency of the EU's competition powers has been clearly demonstrated by earlier liner conference decisions, and when the imminent final TACA judgment is issued, this should provide a new level of clarity on permitted practices in the liner shipping sector. Shippers able to get the best advice early concerning the implications of this decision will have a major advantage.
It should also be noted that the various changes underway can necessitate advice based on good national knowledge - for example, the liberalisation of the cabotage and port services markets, initiated by the EU, requires understanding of the competition issues in national markets. In order for shippers to maximise benefit from the new tonnage tax regimes, they will need legal advisers able to relate the national tax schemes to their business needs. Hence, ship operators, financiers and other maritime bodies look for a firm with shipping law practitioners in their key markets.
Working in an international industry, decisions on where to build, which flag to fly and which ports to select on routes creates a need for truly international advice in order to make the most profitable decisions. Evaluating the implications of the ongoing EU dispute with Japan and South Korea over shipbuilding subsidies is another example of this.
In servicing the changing needs of the industry, the direction for law firms is towards further integration - keeping tax lawyers, competition lawyers, asset finance and EC-dedicated lawyers all talking in a shipping context, and bringing their understanding to bear on client needs.
International reach and presence in key shipping locations such as Greece, Amsterdam, Singapore and, of course, Brussels can be a further point of differentiation. With ever more intervention by the EU, in-house lawyers may be hard-pressed to follow the news, and law firms can play an invaluable part in training and updating knowledge. For key clients, firms can offer more tailored seminars and topical briefing notes, highlighting EU news and its relevance to the client's immediate market.
The EU area is one in which law firms can truly add value to their clients. n
Riccardo Celli is a partner in Norton Rose's EC and competition group and managing partner of the Brussels office