EU Shipping Law

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European Union competition law: the new regime relating to shipping – Regulation 1419/2006

A. Introduction

12.001 Regulation 1419/2006 has established a new European Union (“EU”) competition regime for the shipping sector.1 This is a dramatic change for the sector2 because it had for many years benefited from the protective regime embodied in Regulation 4056/863 which exempted the sector from the full rigours of EU competition law enforcement by the European Commission.4 The scope of Regulation 4056/86 meant that, in

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terms of Commission enforcement, what are now, Articles 101 and 102 of the TFEU applied before October 2008 only to liner shipping; this meant that, for example, tramp shipping and cabotage were not subject to European Commission enforcement.5 Regulation 4056/86 had enabled the Commission to apply what are now Articles 101 and 102 of the TFEU directly to maritime transport in certain but limited circumstances6 but it also contained a controversial block exemption7 for liner conferences. Since 18 October 2006, all maritime services8 are subject to the European Commission’s competition jurisdiction by virtue of Regulation 1419/20069 and the repeal of the pre-existing regime embodied in Regulation 4056/86. However, a two-year transition period was allowed for liner conferences which met the conditions of Regulation 4056/86 at the time of the entry into force of Regulation 1419/2006 (i.e. 18 October 2006). Therefore, since 18 October 2008,10 the liner conference11 block exemption in Regulation 4056/86 no longer exists and Regulation 1419/200612 is the relevant regulation along with Regulation 1/2003.13 This means that EU competition law applies to the maritime transport sector in full so that the European Commission may now apply EU competition law to the shipping sector in its entirety.14 It also means that the liner conferences operating in the context of the EU could no longer do so.15 The radical nature of the change is clear from the fact that liner conferences had operated for over 130 years and were brought to an end, as far as the EU is concerned at least, by this new regime. The repeal of Regulation 4056/86 was the lifting of the EU competition kimono on the sector. Now, the general EU competition law

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regime (including Regulation 1/2003)16 applies to the shipping sector in its entirety (including cabotage and tramp services where there is an effect on trade between EU Member States. While the full rigours of EU competition law applied to the sector since 18 September 2006, there was the two-year transition period and also a set of guidelines17 which were specific to the sector and applicable until 26 September 2013 but those guidelines are now no longer in force18 so even the sector specific guidelines have been removed so the general competition rules apply fully to the sector.

B. Debate on the old regime: Regulation 4056/86

12.002 The Commission, shippers and some others were long concerned about the block exemption for liner conferences in Regulation 4056/86. The Commission tried to limit the scope of the block exemption in Regulation 4056/86 as much as it could in terms of how it construed and applied the block exemption and it was quite forceful in that approach.19 However, there was a limit to what it could achieve by that means. Ultimately, any unease would only be removed by the repeal of the block exemption in particular and the regulation generally. The Commission conducted various rounds of public consultations, held a public hearing and published several documents including a white paper. Eventually, the Commission proposed, and the relevant other EU institutions agreed, that Regulation 4056/86 be repealed. It is useful to review this process and while there is a certain amount of repetition in the information, it is interesting to see how the reform process evolved.

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12.003 Having long been concerned about Regulation 4056/86,20 on 27 March 2003, the Commission launched a review of the liner conference block exemption in Regulation 4056/86. It was interesting that, unlike other block exemptions, Regulation 4056/86 had contained no review clause so the Commission had to initiate the review (i.e. there was no automatic review). The review was justified on several grounds. There had been changes in the way in which liner conferences operated.21 In essence, the nature of the block exemption in Regulation 4056/86 was unique because it exempted price-fixing, was open-ended in time and was never reviewed according to a pre-determined timetable (unlike other block exemptions).22 There had been the growth of containerisation, alliances and consortia since the block exemption was adopted in 1986.23 Consortia benefited from their own block exemptions which had been adopted after the adoption of Regulation 4056/86.24 There had been a significant report from the Organisation for Economic Co-operation and Development (“OECD”) in 2002 on liner conferences which called into question whether liner conferences should be exempted at all.25 The adoption of Regulation 1/2003 highlighted the unique position of liner conferences and maritime transport when compared to the rest of the economy. The Lisbon Agenda (a plan to stimulate the economy of the EU) was regarded by the Commission as another reason for reforming and repealing the regime.26 It was not surprising that the ultimate result of the review was the proposal to repeal the block exemption given the Commission’s antipathy towards the Council’s block exemption. Before analysing the debate on whether Regulation 4056/86 ought to be retained or how it might be changed, it is useful to go back to 2002. 12.004 In 2002, the OECD’s Secretariat published a report on liner conferences.27 The OECD concluded in its report:

“[many parties] have portrayed the liner shipping sector as ‘unique’ and therefore requiring special treatment under competition law. This is true insofar as any industry is unique and certainly there are convincing reasons to allow carriers to co-ordinate certain operational aspects linked to the provision of ocean shipping services. However, it is more difficult to perceive in which manner liner shipping is more ‘unique’ than any other industries, or why it should be

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treated more favourably or even differently from other transport providers with respect to price-fixing and rate discussions. The cost structure of the industry is not significantly different from that of other transport industries and returns in liner shipping are similar to those of other scheduled transport providers. While it is true that ships cost considerably more than, say, a new lorry or locomotive, each ship can also earn significantly more revenue. Seasonal and directional trade imbalances are not unique to the liner sector and must be faced by most transport service providers – in some cases these imbalances pose much more of a problem since some vehicles are not as standardised as container ships. In the end, liner shipping is about as ‘different’ from other like industries as, for example, trucking is from freight air services or freight air is from rail freight – with the exception that price-fixing is allowed in liner shipping and nearly universally dis-allowed in these other industries.”28

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