SHIPPING: LINER CODE MAY NEED AMENDMENTS AND GUIDELINES.

Oct 31, 1988

SHIPPING: LINER CODE MAY NEED AMENDMENTS AND GUIDELINES.

GENEVA, OCTOBER 26 (IFDA/CHAKRAVARTHI RAGHAVAN)—Stemming largely from the container revolution and economies of scale, the world liner shipping has undergone profound technological and structural char since the adoption in 1974 of the UN code of conduct an libber conferences, and these and other issues should be addressed at the review conference, according to the secretariat of the UN Conference on Trade and Development.

There are also other issues that have cropped up which the report conference would have to address scope of application of the convention, implications of reservations by some ratifying states modalities of implementation of the convention, and activities on non-conference lines in relation to the objectives of the code.

At the time the code was adopted, the typical cargo vessel in liner trades, particularly those serving third world countries, were vessels of about 12,000 DWT and speeding at 14 to 16 knots.

At end of 1973, cellular container ships accounted for just e percent of gross registered tonnage of world general cargo and container ships, and these container ships were exclusively in between some industrialised states.

In mid-78, 22 percent of world tonnage is of cellular container vessels, and because of the increased productivity of these vess same 60 to 80 percent of these cargoes are now carried in container.

In some liner trades, conventional cargo vessel services have been eliminated.

This container revolution has in turn resulted in development of trans-shipment services, shipping consortia, multimodal trans non-vessel-operating common carriers (NVOCCS), and changes in from tariff structures.

These changes, the report notes, do not affect the basic objectives of the convention, but could have implications for the working of the code, particularly in relation to the cargo-sharing principle, and might need amendments or modifications in the interpretations of some of the provisions of the code.

Conventional liner services involved port-to-port services.

But with the containerisation, and such developments as round-the-world services, in many geographical areas liner trade, are now by a combination of main line and feeder services, using, transhipment ports.

While such loss of direct liner shipment services may or may not prove disadvantageous to the shippers, depending an transit times and freight rates, it has some implications fur the code.

For example, rights of national shipping lines of countries origin and final destination of cargoes to an appropriate share in trans-shipment trades would need explicit recognition.

While the convention does not specify the scope of its applying explicitly, there is general agreement that it applies to confer operating in liner trades between contracting states, and that such conference trades to which the code applies, all shipping members of the conference would be bound by its provisions, where or not such shipping lines are nationals of a state which is also a contracting party.

The review conference, the secretariat suggests, should expressly affirm this. Otherwise, it would be impossible to apply the code in any practical sense.

In conference trades involving both contracting parties and others, the contracting parties would have the right to demand the application of the code in their mutual trade.

The UNCTAD report notes that some disputes have arisen as to whether the code applies only to liner ships who are members of a conference or also to non-conference liner ships.

Some governments have taken the position that the trade-sharing provisions of article two of the convention (for cargo to be shared in the 40:40 ration between imparting and exporting country, with 20 percent for third party lines) would apply to the entire liner trade - both to the conference and non-conference lines.

The secretariat suggests that while there may be some ambiguity in the wording to justify such an interpretation, if the provisions are read in their full context, and along with resolutions adopted at the 1974 plenipotentiaries conference, did not lend support to such an interpretation.

However, the secretariat notes, the convention by itself did not preclude the application of trade-sharing provision, or any other governmental regulation not inconsistent with the code, to both conference and non-conference lines.

Many governments have been operating cargo-sharing schemes to entire liner trades, and most third world countries believe that the cargo-sharing principle should apply to entire liner trades.

The review conference, UNCTAD suggests, should carefully consider this issue and reach a mutually satisfactory understanding acceptable to all parties.

Other issues in the area of scope of application that would have to be addressed would include applicability to government controlled and defence cargoes, applicability to shipping services covered by bilateral shipping agreements, and to international multimodal transport services provided by conference lines.

On the issue of reservations, the report notes that the convention has no specific provisions about reservations.

This would mean that article 19 of the Vienna law of treaties (1969 would apply and states could make reservations provided they were not incompatible with the object and purposes of the code.

And under article 20 of the Vienna treaty, a reservation could be considered to have been accepted by a state if it had riot specifically objected to it by the end of a period of 12 months after the notification of the reservations to the depository.

Of the 71 contracting parties, 19 have made reservations.

Two of these relate to non-recognition of another state.

Of the balance, nine, by EEC-member states, are on similar lines in conformity with the EEC regulations.

Seven reservations exclude liner-shipping services under bilateral shipping agreements.

One reservation has excluded the cargo sharing provisions of the code in para four of article two.

The reservations by EEC member states were a sine qua non for bringing the code into force, UNCTAD points out.

Similarly, the reservations by east European countries and three other third world countries, excluding bilateral shipping arrangements, reflected their fundamental position vis-a-vis the convention.

However several third world countries have said the review conference should consider the subject of reservations so as to develop some common principles.

Some have stated that some of the reservations are not compatible with the Vienna law of treaties and impinge on rights of other contracting parties.

The problem would appear to revolve around the rights conferred on third-country shipping lines to acquire a share in the trade.

The conference would have to consider whether there should be a specific provision in the convention to require that reservations do not restrict the right for third-country shipping lines, and whether this right is valid for any third-country shipping line or only that of a state which is a contracting party to the code, and has thus assumed some obligations to the code.

The secretariat suggests that the right could only apply to third country lines belonging to a contracting party.

As regards modalities for implementation, governments of industrialised countries favour the "self-management" approach, limiting the role of governments.

Third world countries generally support the "interventionist" approach, calling for active involvement of governments in implementation.

While some third world countries call for direct government role in administering the trade-sharing principles of the code, others, while not seeking to involve themselves directly, consider it their responsibility to monitor activities of conferences and take measures necessary to secure implementation.

The review conference, UNCTAD suggests, could agree upon some guidelines for implementation, which would be flexible enough to accommodate the views of governments at different stages of economic development and with different socio-economic situations and practices.

As regards application to non-conference lines, UNCTAD notes that in 1974 the negotiating conference adopted a resolution providing for freedom of operation for non-conference lines if they conformed to the principle of "fair competition on a commercial basis", but with only qualified support from G-77 member-states.

In 1974, non-conference lines did not warrant much attention, but in 1988, the situation has radically changed. In a number of major liner trades, non-conference lines carry a substantial share, ranging from 25 to 50 percent.

Third world countries generally feel that unregulated activities of non-conference lines have undermined the basic objectives of the code, and in particular in regard to protection given to national shipping lines through cargo-sharing provisions.

Third world countries see the cargo-sharing principles as applicable to entire liner trades.

Some third world countries have viewed the provisions of the code as flexible enough to enable them to apply to non-conference lines, and have taken such action.

This has led to some conflicts with OECD countries who consider the code as not applicable to non-conference lines, and view competition by non-conference lines as essential to efficient functioning of the code.

Socialist countries attach considerable importance to the freedom of non-conference lines to operate in competition with conference lines in accordance with the 1974 resolution.

However, UNCTAD notes, one of the objectives of the code was to ensure that national shipping lines of third world countries are able to carry-an equitable share of liner cargoes generated by their foreign trade.

This would hence require some regulation of activities of non-conference lines.

The review conference, UNCTAD suggests, might hence consider establishment of some broad and flexible guidelines, which could be adopted by governments on a case-by-case basis in consultation with their trading partners and commercial parties concerned.

The guiding principle could be that non-conference lines, within limits, could be allowed to provide a supplementary service to conference lines and exert some competitive pressure, provided such non-conference lines show a commitment to serve the trade an a long-term basis.

But if the activities of such non-conference lines resulted in disintegration of-conferences and national shipping lines, the benefits of such non-conference lines to shippers would be highly questionable.

Any attempt by the review conference to force all countries to accept unlimited competition from non-conference lines would meet with great resistance and would not be acceptable, UNCTAD notes.