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close this bookCERES No. 101 - Septembe r- October 1984 (FAO Ceres, 1984, 50 p.)
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View the documentA fairer share of shipping

A fairer share of shipping

The Code of Conduct for Shipping Conferences took effect on 6 October 1983, more than nine years after its adoption date, 6 April 1974. The substantial delay was due to several fundamental factors, detailed further below. However, the delay was caused just as much by a provision of the convention which stipulated two conditions to be fulfilled six months before the Code would take effect. (1) Twenty-four states must sign the convention and (2) their combined gross registered tonnage must equal at least 25 per cent of world gross tonnage.

These two conditions were met on 6 April 1983, upon ratification by the Federal Republic of Germany and by the Netherlands, the fifty-seventh and fifty-eighth member states respectively. As of that date, the 58 countries represented 20 842 921 gross registered tons (GRT) or 28.67 per cent of the world total. Since then, Trinidad and Tobago also ratified the convention, increasing the tonnage of member states to 20 848 476 GRT or 28.68 per cent, exceeding the total required by article 49 of the Code.

A new international economic order

Besides its purely technical content, the Code of Conduct, concluded under the auspices of UNCTAD, may be considered an integral part of the larger process of developing a new international economic order, one more responsive to the economic aspirations of developing countries, particularly in the business of shipping.

A shipping conference is an alliance of shipping interests whose objective is to fix the conditions of service on regular shipping lanes, especially by setting uniform freight rates. Inherent in the alliance's structure is the emphasis on "arranging" the competition (examples of which occurred as early as the nineteenth century). Competition refers both to conference members and to owners outside the group. Currently, about 360 shipping conferences control portions of regular international maritime traffic.

Competition is stifled primarily by concluding tariff agreements which set minimum rates incumbent upon members. Such cooperation is liable to be complemented by traffic agreements which provide each member with prior guarantees of a specific percentage of the traffic entering and leaving each port served by the conference. The members are also assured of protection from outside competition by a tariff policy that discriminates against any shipper patronizing owners who are not conference members and favours shippers who utilize the services of member companies exclusively (loyalty rebate incentives).

Such trade practices are all the more restrictive in that the various tariffs never become a matter of public record. Furthermore, shipping conferences are based on a particularly subtle legal framework that renders their tariffs all the more difficult to circumvent. Shipping conferences do not have the status of juridical persons; they are simply agreements between private persons and constitute formally neither rights nor obligations regarding third parties. Third party effects are quite real, however, since non-member owners or shippers suffer the consequences of conference decisions. Objectively little legislation and jurisprudence applies to shipping conferences, although since 1945 several countries (including the United States of America) have imposed certain restrictions on them. The Code of Conduct is thus the first instance of international control in shipping. Moreover' it serves the pursuit of a larger objective: a better distribution of maritime traffic operating between developed and developing nations.

A proper understanding of the Code demands a preliminary inventory of the positive and negative aspects of shipping conferences. It should be remembered that they have, to their credit, ensured regular service between distant countries year after year, sometimes connecting rather unimportant low-profit ports. Such service permitted countries to develop their import and export commerce. In such cases, limiting competition is an advantage to shippers, since unbridled competition in tariff rates ultimately leads to the elimination of owners, thus creating a monopoly for the most powerful. Likewise, traffic quotas may permit only a minimum return to owners on their long-term marine investments. In short, the defenders of shipping conferences point to guarantees of stable maritime service, not only on behalf of conference member owners, but also to the advantage of shippers utilizing their services and the various countries joined by shipping lanes.

Monopoly.

On the other hand, numerous criticisms have been levelled at such groups, especially by developing countries, and the criticisms have been vigorously upheld by UNCTAD. Restricting competition in fact leads to monopoly, with secretive policies setting inflated tariffs, which are frequently changed without advance warning. UNCTAD has similarly criticized the practice of loyalty agreements, which grant rebates and other advantages to shippers in return for their exclusive custom However, such policies often demand trial periods that may impose considerable restrictions on a shipper. Other criticisms concern the closed nature of conferences contracted by owners in the developed nations. These demonstrate little inclination to grant entry to new owners from developing countries., Finally, shipping conferences are blamed for the irregular service on some important maritime routes.

Such a balance-sheet of advantages and disadvantages, accompanied by frequently contradictory appraisals, explain why the developing countries and UNCTAD see the need for a progressively imposed code of conduct for shipping conferences. Such a demand represents an evolution in the various areas of international economic relations: countries are increasingly hesitant to allow free rein to shipping interests where these are perceived to infringe on the public interest. Consequently, the less developed countries accord high priority to the development of infrastructures and other components of transportation in order to bring about change. Besides such strictly commercial imperatives and the all-important setting of freight charges, participation by national owners in maritime transport is also a levelling factor in the balance of payments.

The developing countries thus increasingly pursue a policy of action in maritime questions which cannot fail to alter the liberal character of shipping conferences. As the Naval Minister of the Ivory Coast has expressed it, the code of conduct is aimed at the restructuring of the entire business and restoring some balance to marine markets on regular shipping routes between industrialized and developing countries, thereby ending the privileges formerly provided by shipping companies to industrial nations. In pursuing their claims, developing nations point out the ambiguity of shipping conference objectives. Although created in the name of liberalism, such conferences have often led to protectionist practices which promote Malthusian policies.

Restoring a balance.

As perceived in terms of a new international maritime order, attempts to restore a balance in shipping were highlighted by, certain contradictory and irreconcilable viewpoints from the very first attempts to draft the code. At UNCTAD's First Session in 1964, the Group of 77 raised the problem of controlling the activities of shipping conferences. From then on, numerous resolutions have called for adopting a code of conduct. During its Third Session in 1972, UNCTAD petitioned the United Nations General Assembly Ministers' Conference for this purpose. Since 1972, various drafts of the text have underscored the many divergent viewpoints. In an attempt to forestall legislative developments. European ship owners and shippers formulated their own code of conduct, called the CENSA Code (named after the Committee of National Associations of European Owners). The formula simply reiterated the procedures already in use by the conferences, omitting any reference to the declared objective of the developing countries to achieve a significant increase in the transportation role allowed them by the shipping conference system. Self regulation and purely commercial decision making without state intervention of any kind characterized the text. With no common plan, the Afro-Asian and Latin American groups presented in turn two drafts which included the formulation of a code for government action and for the functioning of shipping conferences. Political and economic development aims were added to commercial considerations.

Such fundamentally opposing viewpoints continued to prevail all during the Foreign Ministers Conference. Analysis of certain stipulations in the Code provides evidence of the ambiguous co-existence of divergent positions rather than the achievement of any real compromise.

It may be worthwhile, at this point, to indicate the principal provisions adopted by the Code and to determine how the legal text may improve the international commerce of developing nations. In so doing, four interlocking and complementary elements must be kept in mind.

As far as the Code's legal form is concerned, the style proper to convention should be noted. Such a legal form differs from the principles advanced in international developmental law which are most often expressed in resolutions that are not binding upon the member states and are completely lacking in sanctions. State intervention, however, is very evident in the Code: member states are the guarantors of the Code's application. It is only logical that states should intervene to ensure that the principles of the Code prevail and to safeguard its implementation.

Objectives and purposes are another important element of the Code. Its purpose is to ensure a double balance: between the interests of owners and those of shippers; between the interests of established owners from industrialized countries and those of new owners in developing countries. The Code is no ''neutral" legal instrument. In the conduct of shipping conferences, it seeks to provide for the needs and problems specific to developing countries. The text, nevertheless, presents objectives and fundamental principles marked both by fairness and by an economic interpretation of events.

Participation in transport.

Besides objectives and principles applicable to private groups, viz, shipping conferences, the ultimate aim of the convention text is to contribute to three objectives pertaining to the countries themselves. The objectives relate most importantly to development: participation by each country in maritime operations generated by its own commerce: participation in determining freight rates; freedom for each government to control maritime service within its territorial limits.

At a practical level, the Code resolves the confrontation between the principles of competition and cooperation. At first seeming contradictory, the two principles, nevertheless, go hand in hand to meet the requirements of the new economic relationships between countries.

Such a frequently ambiguous compromise is clearly distinct from the third point in our analysis: the basic provisions of the Code. Without entering into exhaustive details we note that the principal stipulation concerns the introduction of the so called 40-40-20 principle for dividing up traffic between two countries. The formula means that each group owners from two countries served by a conference has equal rights (40 per cent) to share the freight and divide the volume of cargo loaded in reciprocal overseas transactions and transported by conference bottoms. Should owners from any other country or countries be involved., they would share the remaining 20 per cent portion The third share is hard negligible and could, in practice contribute toward limiting shipping, conference influence and indirect enhance the Code.

Regular service.

Traffic quotas should primarily benefit owners from developing countries, in keeping with the principle of opening up the conference to every national company countries on the shipping route. Such companies need only prove that they are capable and that they intend provide long-term, regular service in an efficient manner. Such conditions might have imposed difficult) on owners beginning operations developing countries, but article paragraph 2 of the Code stipulates that the conditions may be fulfilled by utilizing chartered bottoms.

The second major stipulation of the Code aims at permitting shippers intervene in setting tariffs, establishing loyalty agreements, applying St charges, etc. The Code also regulates freight rate increases, promotion freight rates, surcharges and contingencies involving foreign currency transactions. The notion of equity recommended, since article 1 stipulates that freight rates should be fixed at the lowest possible rate commensurate with a reasonable profit for owners. The text similarly provides that monetary adjustments arising out of variations in currency exchange rates shall involve no additional la nor profit for owners. The latter provision may be difficult or even impossible to achieve in practice, sin rates are set in the currency agreed upon by several countries. Such currency is subject to fluctuations that will be complicated even further by comparison to a variety of nation currencies.

The fourth and final element characteristic of the code is the binding regulatory process applied to Disputes arising out of the code itself. Efforts by UNCTAD and some developing nations did not succeed in instituting procedure of compulsory arbitration, since this was completely rejected by the market-economy countries and by several Latin American countries, opposed in principle to such regulation. The procedure finally adopted, as detailed in the text of the convention, takes precedence over every germane lawsuit before national courts and constitutes an extension of the principle stipulating that shippers must be consulted. When shippers do not agree to planned freight rate increases, process of compulsory conciliation is engaged in order to produce a recommendation. Should the conference insist on its decision to increase beyond the level proposed by such a shippers are ipso facto released from loyalty agreements with the conference but do not lose any benefits eventually accruing From rebates.

Still up-to-date?

Because the Code deals with issues which involve the rested interests of shipping owners in industrialized countries it is not surprising that nearly 10 years have passed between its adoption and its promulgation. The long delay raises he question of whether the Code is still up-to-date. Several approaches to such a question may be distinguished. Since the Code represents compromise between totally different positions, one might well ask whether recent developments in marine transport have altered this fragile balance. It may be conceded in response that, since 1974, the influence of shipping conferences declined and the importance of outside owners correspondingly increased. In some cases, conferences control only a small proportion of traffic, thus reducing he need for the Code, particularly its stipulation concerning traffic quotas, a concept introduced by the Code. Outsiders have taken over an increasing proportion of traffic, taking advantage of arbitration which has operated in their favor. Shippers contributed to the change by choosing the lowest freight rates, sometimes, however, at the cost of quality and regularity in service. In other words, if the principles determined by the Code are still up-to-date, the problems of non-conference owners should also be confronted, lest the Code's influence be weakened.

On the other hand, changing European attitudes toward the Code also entails certain ambiguities. Faced with unilateral and protectionist measures adopted by several developing countries disappointed with the slow pace of ratification, several European shipovvners came to believe that the Code would be the lesser evil and that codification would regulate growing protectionist trends.

The principles of the Code can thus guide other conventions which are contemplated in certain sectors of maritime traffic such as bulk carriers. National legislation might also profit from the Code's guidance.

Some exceptions.

Adherence by European countries to the principles of the Code is by no means universal. The European Ruling of I 5 May 1979 concerning ratification of the Code presents some "exceptions" and specifically stipulates that some provisions, including those concerning traffic quotas do not apply among member states of the EEC and OECD but to third-party countries only. The geographic domain of the Code currently remains limited to North-South relations involving about 25 per cent of the world traffic in general merchandise. It should be noted, however, that, even before the Code took effect, its principal provisions had already been incorporated into numerous bilateral North-South treaties. The long delay (1974-83) must also be measured against such developments.

Apart from such a purely Iegal appraisal of the Code, the question still remains as to whether the developing countries actually possess the appropriate means to enable them to exercise their rights under the Code. Marine transport increasingly involves high-risk capital ventures which demand state-of-the-art technology and constantly enhanced productivity. Developing economies can hardly endure such conditions. An African leader remarked that, during the past several years, West African shipping interests were equipped with classic multipurpose cargo vessels which are quickly becoming unprofitable and generally ill-adapted to multi-modular transport. They must compete, however, with integrated container ships and other sophisticated bottoms operated on the same routes by large European owners. Such technological advances imply that owners have regrouped, reconsolidating their efforts both in terms of South-to-South configurations and in terms of Northern owners and their Southern counterparts combining in Iegal associations which respect the spirit of the Code's provisions. The latter refers particularly to those stipulations aimed at an equitable quota for each country in the maritime transport generated by its own commerce.

The Code of Conduct for Shipping Conferences accomodates such a practices because it is not an inflexible legal instrument. It must evolve in the way it accommodates technological advances and in accordance with the terms of one of its own articles, convoking a review conference five years after the effective date of the Code. Since 14 years will have passed since adoption' the ''five" years will be quite a lengthy delay.

In other words, the convention is not a Definitive resolution. It is, rather, an important step toward realizing a new and fairer maritime order to be integrated into the broader enterprise of restructuring North-South commercial relations. Finally, it remains to be seen how the Code of Conduct for Shipping Conferences complements the United Nations Convention on the Law of the Sea, enacted 10 December 1982. These two legal instruments bear witness to the Decline in traditional freedom of the seas, a situation which favours powerful nations and provides widespread hegemony for coastal states, both in teens of their adjacent waters and in teens of maritime transport generated by their commercial activity.