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Opportunities for UK shipping outside the European Union

To identify and remove outdated and burdensome regulation through a new ‘red tape challenge’, delivering a regulatory environment for shipping that is driven globally and free from gold plating.

Shipping is a truly international industry, so should be regulated internationally through the IMO to create a level playing field for all owners and avoid skewing competition by the creation of regional and national regulation. The IMO also understands shipping, so is well placed to flag up the need for regulation and to develop it where and when required. The EU has a long track record of gold plating IMO regulations when it believes they do not go far enough, which can place European shipping at a competitive disadvantage to the rest of the world.   

The UK Government’s Red Tape Challenge scrapped or amended more than 3,000 domestic regulations, saving businesses more than £850m a year. Brexit presents the UK with an ideal opportunity to review all the EU-specific regulations and remove those that place an unreasonable burden on industry without adding true advantage.

EU gold plating is legion, and includes the following (by no means an exhaustive) list of examples:

  • The Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships 2009 – the Commission adopted the European Union Ship Recycling Regulation 1257/2013 (EUSRR). Viewed as an interim measure to address the global issue of ship recycling, the EUSRR came into force in December 2013, and its requirements apply between the end of 2015 and 2020. It broadly corresponds to the terms of the Hong Kong Convention, but includes significant additional obligations – such as banning beaching and additional materials on various lists, while the question of a ship-recycling financial instrument continues to be discussed.
  • Athens Convention – maritime liability for death or injury of passengers. The EU, while encouraging the 2002 Protocol to the Athens Convention and other IMO amendments to come into force, decided to bring in its own Passenger Liability Regulation. This extends the compulsory insurance requirements to domestic carriage by sea within a single member state on board ships of a certain category and – if a member state so wishes – to all domestic sea-going voyages. The Regulation also introduces a number of additional measures intended to enhance the payment of compensation to passengers.
  • STCW Chapter VIII-1, as amended in Manila, on fitness for duty (minimum hours of rest) was needlessly gold plated by revisions to the EU Minimum Training Directive with the insertion of a line prohibiting exceptions to the minimum 10-hour rest in any 24-hour period, which was not stated explicitly in STCW. 
  • EU MRV is likely to be more demanding than the IMO MRV, thereby adding considerably to the administrative burden faced by European shipowners and all vessels calling at EU ports.  Specifically, the EU scheme demands the inclusion of what is called ‘transport work’.     
  • EU biocidal products regulations have banned a range of anti-fouling paints that are allowed by the IMO. Those that are permitted are, generally, ineffective, can make the ship less energy efficient, and are less durable, so the hull needs treating more often.
  • The National Maritime Single Window Directive 2010/65/EU. This gold plates the IMO Fal Convention, which establishes global standard forms – and their data content – for ships to use when reporting their arrival (or departure) at ports. The directive requires these forms to be submitted electronically and before arrival, so depriving shipowners of the choice about which method of submission suits them best. In particular, it precludes the simple and age-old mechanism of the Master signing the documents and handing them to the agent when the ship comes alongside.
  • The EU Energy Efficiency Directive adds an extra layer of reporting on carbon. This has been enacted into UK law by the Energy Saving Opportunity Scheme (ESOS) and though the UK is open to exempting shipping – given that the industry is already covered by MRV and the mandatory carriage of a Ships Energy Efficiency Management Plan (SEEMP) – the Commission is reluctant to amend the directive to allow this.
  • The Sulphur Directive gold plates the IMO regulations laid down in MARPOL Annex VI, both in terms of ships in ports and, more generally, in all European waters after 2020.
  • EU Water Framework Directive (WFD). Strict compliance with the EU WFD means that scrubbers cannot be used inside the 12-mile limit of any EU MS because they discharge into the water – even though the discharges have been shown to be innocuous. This, in effect, removes any financial benefit of fitting scrubbers.
  • The EU Stockholm Agreement adds additional requirements for ro-ro stability within European waters, over and above the Safety of Life at Sea (SOLAS) regulations.   

To introduce greater flexibility into the tonnage tax regime, so that it underpins all sectors of the UK shipping industry.

The success of the UK shipping industry and the wider maritime cluster is founded largely on the tonnage tax regime. This offers a stable and low-tax environment that enables UK shipping companies to compete in global markets, renew their fleets and invest in skills. Economic analysis shows that, in 2013, £4.9bn of UK GDP was directly attributable to tonnage tax, 78,500 jobs were dependent on it, and £1.2bn of tax revenue was generated by it. Introduced in 2000, the regime reversed a long-term decline in the UK merchant fleet. In its first five years, the UK-owned fleet doubled in size and the (smaller) UK-registered fleet grew by 250%.

The UK tonnage tax regime is, however, constrained by EU state aid rules. European Commission guidelines on state aid to maritime transport make it impossible to offer an attractive tonnage tax option for ship-management companies. They also discriminate against ships flagged in the Red Ensign Group registries outside the UK and remove the freedom of tonnage tax companies, when acquiring additional ships, to choose a flag that suits the needs of their business. These arbitrary provisions will cease to apply once the UK is outside the scope of EU state aid rules, and full advantage should be taken of this opportunity to introduce greater flexibility into the UK tonnage tax regime. Permitting the introduction of more ships into tonnage tax would facilitate the renewed growth of the UK-based merchant fleet and – through the tonnage tax training commitment – increase the number of cadets in training.

In addition to constraining the design of the UK tonnage regime, EU state aid rules also inhibit the freedom of HM Revenue & Customs (HMRC) to administer it efficiently. Specifically, they require HMRC to seek approval from the European Commission before updating the regime – and this approval process is unpredictable and slow. Giving HMRC the freedom to act on its initiative – by opening new election windows for companies to opt for tonnage tax, for example; or by varying the spread of a tonnage tax company’s training obligation across cadets, rating trainees or junior officers studying for a second certificate – would enable it to administer the regime in a way that is more responsive to market developments and to shipping companies’ evolving needs for personnel.

The UK to have a stronger voice in the IMO, free from EU coordinating constraints, thereby providing leadership to others and bolstering the UK’s negotiating ability.

The UK is currently subject to EU coordination in the IMO on all issues for which the IMO can claim competence – that is, for all issues for which the EU has a directive or regulation. In effect, this means it cannot publicly take a contrary position in plenary discussions. This constrains the UK across a wide range of issues, including many of the environmental regulatory debates, safety and employment. The EU is represented in the IMO by the Commission, which in itself causes an inner tension because, in effect, a non-elected executive body instructs governments on which lines to take. 

At present, about 10-20 per cent of all IMO regulation falls under EU coordination, with another 10-20 per cent in a grey area that can be argued either way. Increasingly, the EU is seeking to bring this grey area firmly under its ‘control’

In the event that the UK is no longer bound by EU coordination, it would be able to take a contrary position to the EU if desired, across a wide range of issues. This is a situation fully realised by Norway, which seeks to influence EU regulation by taking a strong position in the IMO. By becoming more vocal, the UK should regain a position of leadership and influence within the IMO, currently diminished by EU membership, that would restore its role as a leading maritime nation in its own right and a guiding influence for future regulation. 

This may also have the positive benefit of attracting more shipping companies to the UK that would appreciate operating in an environment of strong, but pragmatic, regulation.

To ensure the continuation of mutual recognition of seafarers’ qualifications throughout the European Economic Area

The standards of competency attested to by Certificates of Competency (CoCs) – issued to UK officers by the MCA – are accepted for service on ships registered in all member states of the European Economic Area (EEA). Likewise, operators of UK-registered ships may engage holders of CoCs issued by any other EEA member, subject to them passing an English language proficiency test and – in the case of senior officers – proving their knowledge of UK legal and administrative processes.

This is to the advantage of UK shipping companies and UK seafarers. Shipowners commit an offence if they allow a vessel to put to sea without a pre-specified number of crew members on board, so frequently need to recruit crew with little notice. The ability to recruit from any EEA member state is essential, because it not only ensures that ships are able to operate in accordance with their schedules, but also that they can be kept on the UK flag. This is particularly important in instances where there is no suitable UK CoC holder available to take the role.

The system of mutual recognition also means UK officers can accept employment from companies operating ships under the flags of other EEA member states, which brings employment and earning power into the UK. In addition, some companies operate mixed-flag fleets, with some ships registered in the UK and others elsewhere in the EEA. The system enables UK officers to work on board any such ship without barriers – which increases their earning potential and facilitates the logistics functions of their companies.

It is important that the UK retains the reciprocal arrangements that exist under the EU directives on mutual recognition of professional qualifications, to ensure that the opportunities for UK nationals on ships registered in other EEA member states are not jeopardised.

To extend the Seafarers’ Earning Deduction so that all UK seafarers can benefit.

The Seafarers’ Earnings Deduction (SED) allows seafarers resident in the UK to reclaim income tax that they have paid on their annual earnings if they have physically been outside of the UK at midnight on at least 183 days in that year. This condition excludes many seafarers working on ferries, in coastal trades and in the UK’s offshore energy sector.

The restriction persists for historical reasons: the origins of the SED lie in the former Foreign Earnings Deduction, which was abolished in the 2000s. As the concession is focused on an occupational group, it is discriminatory and unfair to prevent seafarers from benefiting from it on the basis of the trading areas in which their ships operate. In some companies, there will be seafarers who are able to claim SED while others cannot – even though they may possess similar qualifications. SED supports the employment of UK seafarers who are needed for strategic reasons, and who are in great demand shore-side in the UK for the many thousands of jobs in the maritime cluster that require seagoing qualifications and experience.

The justification for the 183-day rule disappeared many years ago and its removal is long overdue. All UK-resident seafarers should be entitled to reclaim the income tax paid on their earnings as seafarers.

To protect the National Insurance Contributions of UK-resident seafarers.

Council Regulation 883/2004 on the coordination of social security systems states that seafarers resident in the EU and employed on ships registered in EU member states will, in most cases, be subject to the National Insurance Contribution (NIC) provisions of the state whose flag the ship flies.  The regulation operates to ensure that contributions paid into the social security system of one EU member state will count towards a seafarers’ eligibility for contributory benefits claimed in another.

If and when Regulation 883/2004 ceases to apply to the UK, the records of UK seafarers who have spent time working on ships registered in other EU member states may be affected. The UK might revive reciprocal agreements with other member states that were superseded by EU Regulations, although the provisions of each agreement will vary. The Chamber believes that the Government must ensure that UK seafarers suffer no adverse consequences in terms of their entitlement to social security benefits from the UK.

To restore duty-free allowances for passengers travelling between the UK and countries in the EU.

UK Chamber of Shipping members are clear: the No1 priority for the ferry sector is for trade to flow unimpeded through UK ferry ports. The restoration of duty-free allowances would be little consolation for the reintroduction of customs checks.

However, passengers on most international journeys are permitted to import a limited allowance of goods free of duty and tax – typically, 200 cigarettes, one bottle of spirits or two of fortified wine, and a small quantity of perfume. This global norm is established in the World Customs Organization’s International Convention on the Simplification and Harmonisation of Customs Procedures (‘the Kyoto Convention’). Such allowances are enjoyed by passengers arriving in the UK from outside Europe, but were abolished on international journeys within the EU in 1999.

Duty-free allowances are strongly appreciated by passengers: a visit to the duty-free shop is seen as a fun treat at the start and end of a holiday, with the added excitement of getting a bargain. In the last year in which they were available, duty-free purchases by passengers travelling within the EU – by all modes of transport – were estimated to amount to £4bn, with travel to/from the UK accounting for approximately £1bn. The volume of such sales demonstrates their value to passengers – and, clearly, the revenue from them made a material contribution to the sustainability of the ferry services concerned. There is no reason to suppose that duty free would be any less popular with passengers travelling between the UK and neighbouring countries in Europe today than it was in 1999 – or, indeed, than it still is among passengers travelling to/from countries outside the EU.

Once travel between the UK and EU countries ceases to be classified as intra-EU, the UK will be free to restore duty-free allowances to passengers on such journeys. So, too, will France and Ireland and other EU countries in respect of passengers arriving from the UK. Doing so would meet an evident demand from passengers, enhance the travel experience, and help sustain the travel market through a period of potential uncertainty. The system of vendor control that operated in the 1990s – whereby allowances were policed at the point of sale, so no-one could purchase more than their individual allowance – offers a proven way of controlling how much each passenger can bring in without the need for routine and disruptive customs checks on arrival.