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European Community (United Nations Liner Code)

Volume 951: debated on Friday 9 June 1978

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3.18 p.m.

I beg to move,

That this House takes note of EEC Document No. R/3245/77 on accession to the United Nations Convention on the Code of Conduct for Liner Conferences.
It seems that I am speaking almost incessantly, and, no doubt, I shall have made four speeches in a very short time, which will be a record for almost everyone.

This Commission document was submitted for parliamentary scrutiny, and at the outset I express my thanks to the Scrutiny Committee for its valuable contribution to consideration of this issue in its report, which has been made available in advance of the debate. The report sets out the essential elements of the code and the conditions required for its coming into effect. I do not, therefore, think it necessary for me to rehearse these matters to the House today.

I want, as briefly as possible, to describe to the House something of the background which has given rise to the emergence of this matter, because this is another issue which is extremely vital to the future wellbeing of our highly significant merchant fleet.

The United Kingdom in 1974—indeed, we still adhere to this position today—was in favour of a universally acceptable code for liner conferences which would give recognition to the asperations of the developing countries to carry a reasonable part of their foreign trade, and also to provide a stable framework for the development of liner trades. But much of the current support for the United Nations code derives from the desire of certain developed countries to increase their share of liner trades by cargo reservation, since it appears that they cannot win a greater share by commercial means. I see no reason why we should encourage any move at all in this direction.

However, we had certain serious reservations about the code when it was drawn up in 1974. Frankly, we still have reservations. We considered it to be unwieldy and bureaucratic, and that its adoption on a worldwide basis would lead to disruption of the international conference system, which worked generally to the benefit of shippers and in which the United Kingdom lines had won, through competitive means, a major stake.

In addition to our objections to the cargo reservation provisions, we also had major doubts about the element of interference in the setting of freight rates, the extremely cumbersome procedures for the settlement of disputes, and, indeed, the general obscurity of the text of the convention. These constituted the reasons for our voting against the code in 1974.

Should our views be fundamentally changed by events ensuing since that time? At the present moment the shares of cargo carried by individual lines within conferences reflect, in general, the competitiveness and cost effectiveness of particular carriers. In some trades, foreign Governments—notable in the developing world—have sought, though through unilateral measures of cargo reservation, to disturb commercial arrangements and to direct a greater share to their own lines.

I think it is right to say that our lines have shown considerable commercial flare in reacting pragmatically to this situation. However, having said that, we have not complacently sat back in the hope that the issue would go away or disappear from the international agenda so that there would be no need for us to give profound consideration to the matter.

The Government have, in fact, completed a wide-ranging review of United Kingdom interests in the light of the code. We have conducted this jointly with the General Council of British Shipping and with the maritime unions who, I am delighted to say, have, over the course of the last four years, been encouraged in every way to contribute to debates on international shipping policy. I believe that there is a remarkable degree of unanimity in our joint thinking.

It is clear to us that the adoption of this code on a universal basis could be seriously prejudicial to the United Kingdom, to its liner trades, and to our jobs. On the other hand, we have to recognise that the code enjoys some degree of support, and that a number of Governments, particularly those in developing countries, have sought to impose arrangements along codist lines. We understand and sympathise with the desire of these countries to get a better deal in carrying their liner trade.

We should, if it proved possible, like to obtain a solution to the code question on a Community basis. Indeed, we believe that the Community's general commitment to the maintenance of free trade could be usefully deployed in avoiding wholesale changes in the present pattern of liner shipping. Nevertheless, we share the view of the Scrutiny Committee that the current Commission proposals leave a number of important questions unanswered. These concern both the role of the EEC's competition rules, to which the Committee specifically refers, and the real intentions behind the proposed cargo-sharing regime within the OECD.

As I have said, we should still like to develop a liner policy within the Community, but the essential aspect from our point of view is that cargo sharing and the other objectionable features of the code, to which I have already alluded, should not be applied to conferences trading between developed countries.

As I have said, the idea that certain developed countries should seek artificially to benefit from the United Nations code, which was specifically drawn up to meet the concerns of the developing countries, is, in our view, indefensible.

On behalf of the Government, I shall ask the Community in Luxembourg next Monday to undertake further work towards achieving a Community position, which would meet our essential concerns while taking account of the interests of other member States.

I hope that the House will agree that it would not be appropriate for me to reveal here and now the precise contents of the Government's presentation, but I hope that we will be able to find the basis for progress towards mutually acceptable arrangements within the Community. At the same time I shall leave my Community partners in no doubt that we have major interests at stake here and we cannot subscribe to the view that we must be subordinate to purely Brussels considerations simply for the sake of achieving a consensus.

3.27 p.m.

Like many people outside the House, I had an opportunity to read the Minister's speech in advance in Lloyd's List. It was rather premature because it was published on 22nd May in expectation that this debate would take place on 25th May. Nevertheless, I welcome very much—as I did then—the Minister's remarks.

This document represents a brave and ingenious attempt on the part of the Commission to bridge the unbridgeable. The fundamental objections to the UN Code of Conduct which were made by this country in 1974 are still valid, and there are further difficulties created by this compromise solution.

There is little progress that we can make until we have had the opportunity to discuss the Commission's further proposals on a competition policy for sea transport. These are crucial to the whole subject of liner conferences. There is no draft formula as yet, although indications have been given of some kind of blanket exemption for conference activity from the Treaty of Rome. There is also some speculation whether a system of filing tariff agreements for information only will be introduced, or some mechanism for disputes machinery.

This is merely rumour and it is impossible to reach a proper conclusion in this debate until we have firm proposals on the application of the EEC rules of competition to international liner shipping. Likewise, with the continuing discussions within the OECD.

The objections to the UN Code of Conduct are stated in the evidence to the Select Committee on European Legislation. I join the Minister in thanking the Scrutiny Committee. The code was pushed through at the eleventh hour in April 1974 when there was no scrutiny by any proper legal committee. As a result, it is contradictory in many places, with imprecise drafting, and the important objections still remain. It is right for the House to rehearse briefly the major objections to the code.

The first is that the code is too rigid in respect of cargo sharing. It is difficult to apply a 40-20-20 ratio in practice because this would introduce an unacceptable degree of regulation into commercial operations. What of the position of way ports? How can they fit into an overall mechanism designed to provide an efficient regular service encompassing a range of ports in different countries at one end with a range of ports in different countries at the other?

There are of course international consortia which operate in many areas as a result of the substantial investment required in container services and how can they fit into a rigid formula. How is this 40 per cent. to be divided between national companies? There are other similar questions.

Secondly, the code lays down exceptionally cumbersome procedures for establishing freight rates and settling disputes. These procedures are very obscure and most unsatisfactory, particularly in respect of the 15-month period between variation of freight rates.

Thirdly, and perhaps this is most important, the code is questionable on judicial grounds. Disputes are to be settled between parties if possible. If not, there is eventually to be international mandatory conciliation. The outcome of conciliation is, however, only by acceptance and the code is silent as to what occurs if the conciliation judgment is ignored. There are no penalties and no indication whether it is mandatory or just a recommendation. We believe that this situation could lead to a most complicated and unhelpful position.

Fourthly, there is the veto power of the national line at one end to override any agreement at all. That is objectionable. Fifthly, and lastly, there is no provision for control over outsiders, no control over flags of convenience and the code does nothing to prevent unfair competition from State trading countries, which we discussed in the last debate. It does not take account of the United States attitude on anti-trust legislation and so on. There are many other important objections.

I agree with the Minister that it is preferable for there to be a universally acceptable code of conduct of some kind, but not as set out in the UN code, even this version as revised by the Community.

The hon. Gentleman said he agreed with my hon. Friend on one point. Would he also agree that some developing countries have a case in respect of conference traffic, because just as conference arrangements can be of advantage, they can also be a disadvantage if applied in a particular way? Is it the opinion of the Conservative Opposition that there is a case here, even although the way in which it is tackled may not be to the hon. Gentleman's own writing?

I am very grateful indeed to the hon. Gentleman for raising this issue. I should like to deal with it at some length because it is very important indeed. The Minister rehearsed the question "What is the purpose of the code?" He gave one reason. I would give two. First, to help developing countries' shipping in order to allow them easier entry into world shipping markets. Secondly—having read through most of the proceedings of UNCTAD I believe this to be a profound reason—to meet the great suspicion of developing countries that they are not getting a fair deal from the old established countries of the developed world.

I was very sorry that the Minister did not seek more adequately to defend the liner conference system, because I believe that there is a great deal of misunderstanding over its importance. Liner conferences are certainly the subject of varying misconceptions. There are now about 350 conferences or rate agreements covering world trade routes. I believe that the conference system is indispensable because it provides shippers with regular, efficient services at stable rates which are set at a level which will encourage cargo to move. There have been many inquiries into the system of liner conferences and they have all concluded that the liner conference system does provide the necessary self-regulation to restrain unrestricted and destructive competition. They provide a stabilising influence with considerable expertise in establishing economic rates combined with the highest possible standards. I am sure that in the future the conference system will continue to be indispensable.

In fact, I did refer to this, perhaps tersely, because it is widely accepted in this House and outside that the liner conference system does have the sort of values to which the hon. Gentleman has referred. I want to make it abundantly plain that I am in no way resiling from the arguments in favour of the liner conference system. But every system has room for improvement, including the liner conference system.

I accept and welcome what the Minister says, and I now wish to deal with the second part of the hon. Member's question.

When we examine the development of liner conferences we see immediately that they do not seek to exclude developing countries, but very much the opposite. Let us take, for example, the United Kingdom-West Africa Lines Joint Service, which is the United Kingdom liner conference to and from parts of the United Kingdom and Ireland and ports in West Africa. That conference contains three British lines, one Norwegian line and also, with an important part to play three African lines consisting of Black Star Ghana, Nigerian National Shipping Line and Compagnie Maritime Zairoise.

Another good example of a case in which developing countries are not excluded, but very much the opposite, is the liner conference system to the Indian sub-continent where national lines in the developing countries have at least 40 per cent. of the trade. This is very much as a result of past developments going back long before the United Nations Liner Code became a practical issue. For instance, in Brazil, Argentina, and to some degree Indonesia, in the last 20 years, Governments have encouraged national lines to claim from conferences shares gradually escalating as far as 50 per cent. It is a paradox that some of those developing countries are worried about the 40-40-20 formula because it will mean a diminution in their share of the trade. There is already some opposition to the code as nations realise the extent of the value of existing shares in liner conferences.

I shall then probably be asked by the hon. Member, "What about the other cases where national lines do not have as much as 40 per cent.?" In most of those cases, if not all, the national lines have insufficient capacity to carry 40 per cent. of the trade. There is no serious problem in that respect because established lines in conferences are gradually yielding more and more of the trade as a State's national line developes its capacity. Although I recognise that there is a need to assimilate the emerging ambitions of developing countries, I believe that we can set the record straight by appreciating that liner conferences have recognised that need for many years and have already been catering for it.

The second part of the argument must lead us to accept what the Minister said and to recognise that there is a need for a universal code. But we do not accept this incomprehensible and bureaucratic code. We welcome what has been said by the Minister in this debate and urge him, in consultation within the EEC, to find a more effective solution.

Question put and agreed to.

Resolved,

That this House takes note of EEC Document No. R/3245/77 on accession to the United Nations Convention on the Code of Conduct for Liner Conferences.