Scrapping licence shelved by EU as pragmatism rules

Malcolm Latarche
Malcolm Latarche

15 August 2017


Last week, the EU released copies of the report from the European Commission to the European Parliament and Council on the thorny subject of the ‘feasibility of a financial instrument that would facilitate safe and sound ship recycling’. Effectively a licence to recycle, the concept was first muted last year by the EU-funded NGO Shipbreaking Platform after the EU had discarded several options for establishing financial incentives for ships to be recycled at EU approved facilities. The idea of such incentives was that shipowners would be compensated for the difference in prices of ships sold for recycling to other facilities compared to EU approved ones which would likely pay a much lower price. However, under all options, the money to be used would have been raised by contributions from the shipowners themselves under a variety of different options. The latest report includes the feedback given to last year’s proposals and notes ‘Shipowner organisations ECSA (European Community of Shipowners Associations), ASA (Asian Shipowners Association) and ICS (International Chamber of Shipping) reacted to the publication of the study in July 2016. Their position is that the Ship Recycling Licence would disrupt efforts to ratify the Hong Kong Convention. A legal opinion commissioned by the shipowner organisations further describes the Ship Recycling Licence as a "primary fiscal measure", suggests that the EU would have no competence to administer an EU ship recycling scheme and infers an incompatibility with the UN Law of the Sea Convention (UNCLOS), with World Trade Organisation rules and the Principle of Common but Differentiated Responsibilities. It should be noted that several of these points are addressed in the 2016 study ordered by the Commission. The 2017 report concludes that ‘The Commission acknowledges the merits of a potential Ship Recycling Licence, which represents the most promising option investigated thus far. Nevertheless, the Commission is aware that a number of issues deserve further analysis, including with regard to the compatibility of such a potential financial instrument with EU and international law. In line with the gradual approach first described in the 2008 Commission Communication and 2012 Impact Assessment and reflected in the final text of the Ship Recycling Regulation, the need for additional measures on financial incentives will be reassessed at a later stage, based on an analysis of the use and effects of the European List of ship recycling facilities’. Predictably objections have been raised not least from Shipbreaking Platform, saying that idea of ‘financial incentives’ should remain an option. They dislike the fact that it is perfectly legal for EU-based shipowners to sell vessels and for them to be re-flagged for the last voyage to recycling plants not on the EU-approved list. In coming to its latest decision, the EU is probably more mindful of the effect that introducing any financial incentive will have. Already European shipowners can and do flag vessels outside of the EU to avoid some of the more unfriendly aspects of EU regulation. The introduction of a tax or licence fee to call at EU ports would likely see many of the deepsea container ships making use of transhipment opportunities in existing North African terminals and potentially also in UK ports once the country finally exits the EU. That would have a detrimental effect on EU ports and although instead of the larger vessels there will be many more calls of smaller transhipment vessels, these may well be to EU Mediterranean ports rather than the Northern European ports where most of the cargo would be destined. That in turn would mean a massive increase in road traffic as well as the decline of major ports in the North. Hardly a great benefit to the EU which would incidentally miss out on the chance of including vast numbers of ships from any future RU carbon trading scheme.