A Governmental Frame-Work for a Responsible Industry
The Dutch Experience
Address given at Mare Forum 99
Amsterdam, The Netherlands
Mr G. Nieuwpoort
Head, Division for Maritime Transport, Dutch Ministry of Transport
Tuesday, June 22nd, 1999
This session deals with the balance between
governments and market forces, between governmental regulation and
self-regulation. There can only be a balance when there is co-operation.
Hopefully this joint presentation shows the possibilities of good co-operation
between government and industry.
A governmental frame work for the industry is about
relations between government and the market. The economic theory explains that
"markets can be efficient institutions under specific conditions".
There are many arguments for questioning the efficiency of the sea transport
market, e.g. in relation to profits, safety and environment. Therefore, there
are just as many arguments to question the specific conditions for this market.
Market organisations always show rational economic behaviour. If the overall
result e.g. in terms of safety and environment is not very optimal, then
governments must not blame industry. First of all they have to reconsider the
adequacy of the present conditions governments themselves are
setting for the market.
The most basic conditions for an economic healthy and
efficient sea transport market are internationally harmonised regulation and
stringent enforcement. My next statement will not be a surprise: So far
governments have failed.
There are three main reasons.
The first one is the imbalance in the relationship
between government and the sea transport market. The market is international,
but governments show a diversity of national interests. This can be seen even in
the names: flag states, port states and coastal states. Only port states and
coastal states are confronted with external costs of sea transport, not flag
states. For this reason some flag states are optimising on registration income
only, without any worries about external costs, e.g. inspection costs, clean up
operations, etc.. No wonder that port states have taken over the role of flag
states for quality control. But while port states have taken over
responsibilities from flag states, the necessary authority and jurisdiction
still remains with flag states.
The second reason is the regulatory system itself.
Legislation can only be effective if it is supported and implemented by the
industry itself. However, the present legislation is very specific and detailed,
very prescriptive and input-directed. It only targets the ship owner. Everyone
else is very easily let off the hook. It is cost-increasing, while the focus in
the industry is on cost-reduction. It is hampering flexibility in day to day
operations, which is crucial for the industry, and it kills innovation. In
other words, it tells the industry what to do and how to do it, in a very
direct way.
The overall effect is that the regulator takes over
the responsibility from the industry. Quite the opposite from the intention of
the legislation, I suppose. It puts all the pressure on the possibilities of
governments to enforce.
In this process the industry is guilty by association.
Industry asks for more detailed regulation in order to prevent distortion of
competition. Management attention is only directed at cost reduction and it
shows calculating behaviour towards the regulations the industry has sometimes
even asked for. This will continue so as long as safety and environment are not
an integral part of management decisions. This is exactly the focal point,
decisions by management. The present regulatory system is fighting the symptoms
of a badly maintained ship, an incompetent crew, while the origin is the
management of the company. And the management simply utilises present
conditions. E.g. PSC is being used as a periodic maintenance check-up, while in
the past ship owners did their own maintenance check-ups.
Instead of blaming the industry for this behaviour,
the regulator must create a frame work, which does not take over
responsibilities but gives incentives for a responsible industry.
The third reason is the lack of effective enforcement.
Crucial here is the relation between flag state control and port state control.
Port state control can by nature only be end-of-the-line control targeted at
the ship, while flag states can control at the beginning by targeting the
shipping company. However, at this moment port state control does the mopping
up while the flag state tap keeps running. Effective enforcement is only
possible with control at both the beginning and end of the system, when both
flag state and port state control are doing what they ought to do. In this
respect the pressure is on flag states. One possible way forward is the
development of a Network of Quality Registers, as was discussed in Session 2.
All these reasons point in one direction: the checks
and balances in the sea transport market are not working. What to do about it?
The basic elements for a governmental frame work
directed at improving the necessary checks and balances can already be found in
the conference programme:
a regulatory system
created by flag states and IMO, based on output regulation. It gives incentives
for a responsible industry based on self-regulation. However, realistic
responsibility of the industry can only coincide with accountability. The flag
state must safeguard the system of self-regulation. The Network of Quality
Registers can play an important role in the dialogue between flag states and
industry.
self-regulation by
the industry, e.g. via codes of conduct , codes of best practice, total quality
management. Self-regulation of the industry is not directed at ship owners
only. It is about accountabilities of all market players, like classification
societies, insurers, cargo owners, bankers.
quality management
systems for shipping companies, inspected and certified by classification
societies. Flag states will have to inspect and certify the classification
societies. In this way control at the beginning of the system is provided.
stringent last resort
enforcement by PSC, via targeting and penalising of sub-standard vessels and
operators.
transparent
information on quality of ship and its management is essential. Only with valid
information on quality available insurers, classification societies, etc. can
quality shipping be given the necessary incentives. To realise this,
information coming from PSC and classification societies must be improved.
EQUASIS can play an important role here.
This frame work is all about checks and balances,
necessary for obtaining a better equilibrium between the striving for profits
and continuity by the industry on the one hand and the necessity to reduce
social costs of sea transport on the other. Checks and balances between e.g.
industry and government, ship owners and cargo owners, flag states and port
states, flag states and classification societies are essential for a
sustainable market for sea transport.
The shipping company needs flexibility and control in
all operational aspects. Therefore the company must be responsible for all
aspects, including safety and environment. However, this is not about unlimited
freedom for the industry. The goal is to secure self-regulation of the
industry, within the limits for e.g. safety and environment. The frame work is
directed at the output of the industry, it must be applied very strictly and
must give enough time for the industry to anticipate and seek innovative
solutions. It must create optimal conditions for companies to seek their own
solution via innovation in products or processes.
How realistic is such a frame work? What does the
industry feel about self-regulation? Questions not to be answered by me, but by
the industry. Mr. Korteland, the floor is yours.