12.11 Summary
In this chapter we have moved outside the conventional framework of market
economics to examine the regulatory system that has played such a vital part in the
shipping industry over the last 20 or 30 years. We started by identifying three
regulatory regimes which operate in the shipping industry, the Classification
Societies, the flag states and the coastal states.
The Classification Societies are the shipping industry’s internal regulatory system.
The mainstay of their authority is the Class Certificate which is issued when the
ship is built and updated by means of regular surveys throughout the life of the
ship. Without a Class Certificate a ship cannot obtain insurance and has little
commercial value.
Flag states make the laws which govern the commercial, and civil activities of the
merchant ship. Because different countries have different laws, the flag of registration
makes a difference. Registers can be subdivided into national registers, which treat
shipping companies in the same way as other national industries, and open registers
(flags of convenience) such as Liberia and Panama, which are set up with the specific
objective of earning revenue by offering commercially favourable terms of registration
as a service to shipowners. With the increasing globalization of the maritime industry,
open registers have become more prominent and half the world merchant fleet is now
registered under a foreign flag, which in practice usually means a flag of convenience.
Although each nation makes its own maritime laws, there are areas where it is
very advantageous if all countries have the same laws. On matters such as safe ship
design, collision avoidance, load lines, pollution, tonnage measurement and
certificates of competency it would be hopelessly impractical if each country had
different laws. Developing a standard framework of international law which avoids
this problem is achieved by means of international conventions. Maritime nations
meet to discuss a draft convention, which is finally agreed. Each country then
ratifies it and thereby undertakes to incorporate the terms of the convention into its
own national legislation. International conventions drawn up since the mid-1960s
cover a wide range of different subjects including the safety of life at sea, load
lines, crew training, tonnage measurement, terms and conditions of employment
of crew, oil pollution and the conduct of liner conferences. The three organizations
active in developing these conventions are IMO, ILO and the Shipping Committee
of UNCTAD.
Some countries do not ratify the conventions or allocate sufficient administrative
resources to enforcing them, leaving ‘loopholes’ in the system. Shipowners registered
in these countries are, in principle, able to operate outside the convention.
This brings us to the third form of regulation, the coastal state in whose waters
the ship is trading. The Law of the Sea permits coastal states to pass legislation
concerning the ‘good conduct’ of ships in its territorial waters. One important area
of legislation is pollution control, notably the US Oil Pollution Act 1990. In
addition there has been a recent trend towards ‘port state control’, whereby countries
enforce safety standards on the ships using their ports.