What will 1992 mean to EEC shipping in the world context?

Sir Frederic Bolton

MC British Maritime League

SYNOPSIS

Judging by the titles, other papers before the seminar will deal comprehensively with what 1992 will do for EEC

shipping. What this paper seeks to do is to remind readers what it will not do, and point out some of the opportunities

it will offer

to commercial interests and to governments. The paper will argue that whereas 1992 will bring some

opportunities for strengthening European shipping, it will not bring the necessary harmonisation between EEC

shipping and the shipping of the rest of the world.

The intention of 1992 is to reduce internal barriers and to eliminate or at least minimise the provisions introduced by

member countries for the support of their own industries the

creation of what is currently being called 'a level playing field'

for the EEC. But in world shipping, the competition that

matters is not simply between one member state in the EEC and

another, but between EEC shipping and that of the rest of the

world -and the shipping of the rest of the world operates under

more favourable conditions than that of the EEC. It is not

sufficient to harmonise within the Community, but the whole of EEC shipping needs to be harmonised with the rest of the world it is the world playing field which needs to be levelled,

not merely our home ground in Europe, and what is needed is

a levelling down and not up.

Unfortunately, therefore, however helpful it will be to have

the harmonisation envisaged as between member states, we deceive ourselves if we think that that is all, or indeed very much of, what the industry needs to equip itself to master the

challenge from the rest of the world. And while the EEC

Commission has shown recognition of the real problem there is woefully little evidence that it is identified by our

govern-ment, let alone is about to be tackled. There is also some

evidence that even if the problem has been identified it is not

regarded as being of sufficient importance to justify the

neces-sary steps to deal with it.

This paper is written on behalf of a body whose original name is the British Maritime League, but now also operates

under the name of the UK Centre for Maritime Policy Studies. This title is appropriate in that it is now clear that the problem it was set up to address is European and not merely British, and

that it is valuable for us to carry out studies here which can

illuminate the facts, for all who can be induced to pay heed to

them, of the value of and indeed the necessity for a European

maritime capability, and what needs to be done to foster it. Thus the new title properly reflects what we have always tried to do.

Study from the UK into maritime policy makes quite clear the benefit to 'traditional maritime countries' of all maritime

activities, to which shipping is central. In the UK, for instance, it is calculated that nearly as much is being earned for the nation

through the maritime activities of the City's institutions as by

the shipping industry itself- about £1.3 billion per annum each

in foreign exchange and this does not, of course, include

shipbuilding, repairing, the provision of marine equipment and

marine offshore services.

Not only is this of benefit in terms of foreign exchange earnings now, but there is a great potential benefit for those

Trans IMarE, Vol 102, pp 389-391

What will 1992 mean to EEC shipping in the

world context?

Sir Frederic Bolton MC was Chairman of F Bolton Group Ltd, London. He was educated at Rugby and joined the family business in 1940. During the war he

served to the rank of Major in the Welsh Guards and was awarded the Military Cross in 1945. After cessation of

hostilities he returned to the family business where he became a director and, in 1953, Chairman.

Sir Frederic has been President of the General

Council of British Shipping (1975-76), and of the British Shipping Federation and the Chamber of Shipping be-fore that. He was President of the International Shipping

Federation from 1973-1982, and has also been

Presi-dent of the Institute of Marine Engineers (1968-1970), and Chairman of the British Ports Federation 1985-87.

Sir Frederic has, for many years, been closely

con-nected with industry affairs both national and

interna-tional - having served on the Boards of a number of

shipping companies and industry bodies. In particular, he was a director of BP Shipping Ltd and a member of the Board of Sealink UK Ltd, as well as Chairman of the Dover Harbour Board. He is an Underwriting Member at Lloyd's and a member of the Baltic Exchange.

who have the expertise to increase market share and earnings

by exploiting opportunities for the carriage of as much as

possible of their own import/export trade and additionally the

cross trades between third countries which have no shipping capability of their own.

There is another, very important benefit safety, of lives and

property, and also of the environment. Without attempting to claim a European monopoly of safety, evidence shows that high standards are imposed more strictly by authorities in the traditional maritime countries than in some of those which have more recently developed large fleets under their own

national flags. While the traditional maritime countries main-tain their sizeable share of the carriage of the world's seaborne

trade they also retain the ability to influence not only the

enforcement of standards but also the drafting of international safety and pollution control regulations. And to all of this must

be added the defence benefit of having a commercially suc-cessful merchant marine.

Against this background of the value arid importance of a

maritime capability -to this country and to the other traditional maritime countries of the EEC- must be set the stark facts of

F Bolton

the catastrophic decline (actual and, worse, relative) in the size

of the commercial fleets of these countries, and with this the

inevitable decline in numbers of seafarers (see Tables I and II). Because to quote any figures on this subject is to enter into

a jungle of different definitions, the above figures have been

given to show the very broadest 'ball-park' picture of the

relative position, and it is not intended to provide any more, thus avoiding the arena of argument about which figures are

being used.

The disappointment with 1992 for EEC, and British,

ship-ping lies not in the fact that nothing will happen, for, hopefully,

much indeed will, it lies in the conviction that none of it will

make very much difference to the really important issue unless there is, by 1992, much more commitment by the government

to a prosperous future for the industry than appears at the

moment.

Other papers will deal with the issues of the moves towards

common standards for equipment and interpretation of the various international safety conventions. Equally, no doubt,

the advantages of common standards of certification and

competence and even of training and manning will be discussed. The problem of cabotage within the Community is one which 1992 might solve, oral least start moves towards a solution, and there is no doubt that the liberalisation of the

Community financial markets will, by providing readier access

to funds for investment throughout the whole Community,

make it easier to finance the renewal of the presently over-age EEC fleet. And finally, the existence of the harmonised market will hopefully lead to an increase of trade to and from Europe and the rest of the world, to the benefit of those able to carry it

by sea. It is even possible that steps will be taken from 1992

onwards to harmonise state aid by the various member states to

their own shipping industries to the end that none shall be artificially over-assisted to the competitive disadvantage of any other. But because the thrust of individual state aid, such as it is, within the EEC has been not to provide an advantage

over another Community fleet, as much as over the fleets of the

rest of the world, so no harmonising of state aid within the Community can get over the real problem, unless it is a move

by all towards the competition provided by the rest of the

world.

In 1988, the OECD registered fleet amounted to nearly 34% of the world (in grt); in that year Open Registry, Comecon and

the newly industrialised countries of the Far East claimed

48%.1 None of these fleets traded under the same accounting conventions as the OECD nations and particularly not under the same taxation regimes, and not all the other 18% were trading under OECD conventions either. It is hard to see how

governments can expect a minority of world shipping to dictate

the levels of income, thus largely controlling profitability, when the majority have considerable automatic cost advan-tages particularly when shippers continue to be emphatic that they are only interested in the cheapest carrier irrespective of the flag flown, or the accounting conventions applying.

All this should not be taken to suggest that there is nothing

which the British Shipping Industry can expect from 1992. There will surely be opportunities for a lively management to

grasp, and there is no doubt that enough lively shipping

managements still exist in this country.

In the liner trades, nowadays principally the Deep Sea

Container services, the UK fleet is sufficiently sizeable to

guarantee a significant influence in any EEC grouping to

emerge as a result of 1992. If the disappearance of nationalistic rivalry between EEC countries facilitates the creation of more

effective 'European' units it should be to the advantage of this

country.

TableI: Merchant fleets of the world

Table II: Personnel employed in merchant shipping fleet

Anything which fosters trade between the countries of the

Community must make for the development of a busier

Euro-pean internal market and must provide opportunities of in-creased business for ferries and short sea feeder services whatever impact the Channel Tunnel may have on ferries to and from the mainland of Europe and when cabotage begins

to be relaxed in the EEC arena the other UK short sea traders,

one of the strongest sections of the UK fleet, ought to be able to participate more widely in European trades.

It. is in the Wet and Dry Bulk sector, which used to be called

the Deep Sea Tramp Section, that the British Register has

suffered the most drastic decline. But here there will be

opportunities for owners to acquire the stability they need as a base from which to operate elsewhere. There are more shippers

and receivers of large flows of bulk cargoes in the rest of the EEC than in the UK, and 1992 could give UK bulk operators

a chance of the sort of relationships with European shippers and

receivers they have been unable to develop in the UK. In manpower terms the opportunities of employment on Community ships, without the sort of barriers of individual

national regulations with which we are all familiar today, will

offer new opportunities both for seafarers themselves and for employers in their planning for the recruiting and training of their seafarers, and in the way that they can most

advanta-geously employ them. We have been used to think in terms of an inexhaustible supply of seafarers from the Far East. Whether

or not these always live up to expectations, in terms of their

experience up to the highest positions on board, there seems to be a likelihood that the supply is not as inexhaustible as used to be thought. We may therefore be brought to think again of the

need for the sort of skills we used to depend on from Europe.

And whether we need them at sea or not, there is a considerable demand for those trained at sea but needed in sea-related jobs ashore. It has, in fact, been established that shore based indus-tries need to receive from seagoing employment each year four times more men than the industry is currently recruiting for all

purposes, including the manning of UK ships, so that the

chances of the necessary numbers continuing to be available

for both purposes must be problematical.

There also seems to belittleittle doubt that the creation of a wider market for employment, both for employer and employee, will

give impetus to the efforts in many of the member states

towards a reduction of the significance of the disparity of wage levels between seafarers from different parts of the world. This can be achieved by reducing the labour content of running costs

World EEC UK

MGRT MGRT % MGRT "Y. 1975 325.6 100.4 30.8 32.2 9.9

1988 378.9 58.5 15.4 7.2 1.9

Source: Ref 1,

Definitions: MGRT= Million Gross Registered Tonnage; figures are by registration and not ownership and include 'second'

registers, ieIsle of Man and Kerguelen Islands, but not Bermuda, Bahamas, Vanuatu or Hong Kong etc.

EEC UK 1979/80 1987 227 648 (excluding Greece: 79 459) 118 100 (excluding Greece) 72 061 28 772 390 '

through use of materials requiring less maintenance, and

fur-ther automation and improved shipboard systems of

organisa-tion, which could allow a safe reduction in manning. Thus it is clear that 1992 offers great opportunities for the maritime interests of this country, but it is equally clear that whatever the efforts of the shipping industry itself, it will not

be able to take proper advantage of these opportunities if it does not have the full support of our government - or at the very least is given some indication that the government, speaking for the nation, thinks that such an effort is in the national interest- and

that the government will help rather than hinder.

But competition in shipping is world wide and not confined to trading within the Community. For very many years the butt

of international criticism, as the joker in the pack of

interna-tional sea transport, has been the Flag of Convenience operator.

As long ago as 1957, the President of the then Chamber of Shipping of the UK urged in his Annual Dinner Speech at the Grosvenor House that conventional shipowners of the world

should unite in an anti-FOC club, and outlaw their unfair

practices. Since then the opposition has veered from the unions

in the traditional maritime countries trying to protect their members' jobs against undercutting by developing countries,

to attempts by the developing countries themselves to stop, by various devices such as the 'genuine link', flagged-out owners from the west retaining a hold on their import and export trades.

Finally governments, and the EEC Commission, became

forced to take a view. These views ranged from the extreme at one end of the US Government, who recognise the imperatives

to the extent of a very early acceptance of the US 'Flags of

Necessity' movement, of owners flagged-out for their nation's

good, to those governments like our own, who do not think flagging out to be really proper and collude with it as little as

they can.

The view now reached by owners internationally, who

realise that there is no option but to play on the international

field and that to do so successfully means that that field must

be level or that there must be compensating benefits for

irremovable irregularities, is that 'if you cannot beat them, you

must join them'.

The EEC Commission, in its Report of May 1989 entitled 'A

future for the Community shipping industry', seems to

recog-nise this reality, even though its solution of movement towards a Euroflag may be premature in advance of political union for the Community. But the response of governments is less clear.

Norway, of course not a member state, has produced an

international register which has not only reversed the drift

away from the national flag by Norwegian owners, but

encour-aged the acquisition of fresh tonnage, and also attracted flag-ging-in by foreign owners. Greece is another country with a government well used to accommodating its internationally minded owners - and very successfully too. The response to

current pressures of the other governments of member states is

varied, some being more supportive than others. But the

response, so far, of our own government is probably the least encouraging of all.

To the general public, the advantage FOC operation appears

to convey is identified as liberty to trade less safely and

therefore more cheaply. Though of course many, perhaps most,

of the countries accepting flagged-out ships have lower

re-quirements for standards, the introduction of Port State Control

does provide the opportunity for countries with higher

stan-dards to impose them on ships which fall short in this respect. The pattern of world trade is such that it is impossible for more than an insignificant proportion of world ships to trade without ever using a port of one of the countries with higher standards.

While it is clear that the system needs to be operated more

Trans IMarE, Vol 102, pp 389-391

strictly, the mechanism is in place [(ideal with unsafe ships -lithe will is also there.

But the main advantages of FOC operation are, of course, in flexibility to buy and sell ships, hire and fire crews and move assets and finances around the world and, of course, in the field of taxation. The absence of liability for any form of corporate tax makes it very much easier for FOC operators to finance new buildings, and indeed to expand their activities. The holding of FOC seafarers free of all income tax tips the scale for many of those owners who would prefer national crewing and would be

prepared to pay a premium to have it, but cannot face the

consequences of the tax which the crew members of their competitors are not required to pay.

Those member states who have not gone as far as Norway have satellite offshore registers which do of course go some

way towards providing FOC conditions, but these sort of

compromise arrangements have their limitations. In the UK we are often reminded that we have similar opportunities through

the Isle of Man register, but although this gives a flexibility

over the employment of non-domiciled crews, it does not

address the central points either of corporate taxation or of tax on crew wages.

In discussions with the government here, it appears that the

main difficulty in this country is the Treasury's refusal to

contemplate a 'subsidy to the private sector' - using their

definition of subsidy and rejecting any other. Thus the right to retain earnings without paying tax on them is as obnoxious to them as the payment of cash subsidies to meet additional costs

which revenue is insufficient to cover. Attempts to induce a

change of attitude have included evidence of the sort of

assistance which onshore industry receives and offshore

ship-ping does not, including the lack of any tariff barriers in

shipping, illustrations of the type of 'ring fence' which has

been put successfully round other industries to prevent taxation

concessions 'leaking' elsewhere, tabulation of the benefits

which a shipping industry restored to health would bring to the economy and the defence capability of the nation, evidence of the damage which the shrinking of manpower with the neces-sary skills will do to a wider circle of industry and commerce, and finally the international consequences of insufficient EEC maritime capability.

It has been impossible to get much response beyond the government's satisfaction with the simplicity, uniformity and low level of direct taxation levied in this country.

Response to a situation which requires solutions at odds with cherished principles takes a long time - perhaps so long

that when it comes it is too late. The signs that the other member

states of the EEC, and the Commission, are perhaps ahead of our government in their thinking may mean that satisfactory solutions will be reached without very much input from the

UK, but hopefully in sufficient time for there to remain to this

country a large enough nucleus upon which to rebuild a vital

national asset.

In the last analysis, it must finally be accepted that the

challenge of the Flags of Convenience, and of other countries

who employ artificially lower standards of profitability, can only be met by allowing national ships to trade under similar

conditions under their own flags. Of itself 1992 will not do that, but if that eventually emerges post-1992, there will be a great

future for Community shipping and Community seafarers.

REFERENCES

1. 'A future for the Community shipping industry', EEC Commis-sion Report (May 1989).

391