2.2.2017   

EN

Official Journal of the European Union

C 34/38

Rapporteur:

Mr Martin SIECKER

Co-rapporteur:

Mr Richard ADAMS

1.1.

EU Ship owners control around 40 % of the world’s merchant fleet. They also account for around one third of the end-of-life tonnage beached in sub-standard yards in South Asia. The EU is the largest market sending end-of-life ships for dangerous and polluting shipbreaking. As home to the biggest ship owner community, the EU also has a particular responsibility for regulating ship recycling.

1.2.

The EESC argues that there is a powerful social and moral case for eliminating the abuses of irresponsible ship dismantling through a system which creates added value in an end-of-life ship that is sufficient to pay for the higher costs of responsible recycling. The majority of ship recycling would probably continue in countries with low labour costs, but with improved working and environmental conditions. At the same time this will also make it possible for EU dismantling yards to be more competitive.

1.3.

Action by the International Maritime Organisation (IMO) has had little effect to date, although every effort should continue to be made to reach a universal legally binding instrument through this forum. The EU’s role in this process can be influential and dynamic. The search for an effective solution to irresponsible shipbreaking has been on the EU’s agenda for many years, resulting so far in the EU Ship Recycling Regulation (EU SRR) which will become fully applicable no later than 31 December 2018. However, a fundamental weakness is that ship owners could easily avoid the EU SRR by simply ‘flagging out’ to a non-EU country.

1.4.

What is lacking in the Regulation is an economic instrument the Commission could use to guide developments in the desired direction. A highly detailed report has now developed a blueprint for such an instrument via the introduction of a ‘ship recycling license (SRL) scheme’. By the end of this year, the Commission will present a proposal based on this idea, which will incentivise ship owners to have their vessels that are reaching the end of their useful lives dismantled in EU-approved facilities in ways that are both socially and environmentally acceptable.

1.5.

An advantage of the proposed financial mechanism is the synergy it would bring about with the existing regulatory framework. Control mechanisms would not interfere with those of the EU SRR. Existing EU institutions are already in place to administer and implement such a licence. However, the EESC urges the Commission to also assess any risk for EU trading partners to see the proposal as anti-competitive interference into the conduct of international shipping.

1.6.

Only by recognising the responsibility of the ship owner through the ‘polluter pays principle’ and building the cost of responsible recycling into ship operating costs, can current harmful practices be eliminated. The operators and users of bulk, freight and passenger shipping all have a part to play. Firstly by acknowledging that there is a serious problem and secondly by supporting a progressive, enforceable financial mechanism such as the SRL which is capable of global extension under the auspices of the IMO and with an information campaign extending outside the EU.

1.7.

The EESC supports the European Commission in this endeavour. Apart from the fact that it fits very well within the recycling society policy of the EU it can also be a major step forward in reforming the dangerous and polluting ship-dismantling industry in South Asia and in preventing it from being re-established elsewhere. The EESC recognises the potential of the HKC provided it incorporates the principles of the EU SRR, and also stresses that a financial instrument is necessary. We encourage the EU to provide technical assistance to yards around the world to meet these requirements.

2.1.

Without shipping, the global economy would not function. Every year, approximately 1 000 large ocean-going vessels (tankers and container, cargo and passenger ships) are sold for dismantling. More than 70 % of those end-of-life ships end up on beaches in India, Bangladesh or Pakistan for hazardous breaking operations. The remainder are mainly dismantled in China and Turkey, where proper infrastructure is more conducive to cleaner and safer practices, provided that adequate procedures are applied (1).

2.2.

Most decommissioned ships are scrapped in an unacceptable way using the ‘beaching’ method. That method involves grounding the ships on sandy beaches, where they are taken apart by mostly unskilled workers, (including reported instances of child labour in Bangladesh), without fully appropriate equipment and with little or no protection against the large quantities of hazardous substances released (2).

2.3.

The ship-recycling industry moved to East Asia (China and Taiwan) in the 1970s, when stricter environmental and occupational health standards were introduced in Europe. In the 1980s, the industry also faced stricter regulation in East Asia and consequently moved to South Asia. In the last 30 years, 470 deaths have been reported in India. In 2014, 25 deaths and 50 serious injuries were reported in South Asian yards. Last year, 16 workers lost their lives in yards in Bangladesh and so far this year, twelve workers have died there. Many more workers are seriously injured or made ill by toxic fumes and suffer painful deaths due to cancers caused by exposure to hazardous materials such as asbestos. The natural environments around these beaching facilities are severely degraded (3).

3.1.

At the heart of the ship-recycling problem is the lack of effective international governance to achieve a global solution. The International Maritime Organisation (IMO), an agency of the UN, has produced the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships (HKC) which remains unratified and uncertain in effect. As in many other areas, the EU, by promoting good practice and practical solutions, can offer a regulatory and legal framework capable of yielding positive results worldwide and effective in dealing with the particular set of extra-territorial issues prevalent in the shipping industry.

3.2.

International law requires that every merchant ship be registered in a country. Unctad (United Nations Conference on Trade and Development) has reported that almost 73 % of the world shipping fleet is registered or ‘flagged’ in a country other than the one where the beneficial owner of the vessel is registered. The reasons for flagging one’s ship outside one’s country include tax avoidance, the ability to avoid national labour and environmental regulations and the ability to hire crews from lower-wage countries. Many of these open registers are also termed FOCs (Flag of Convenience) or FONCs (Flag of Non-Compliance). These are flags from countries that have a very weak record of enforcing international law. Approximately 40 % of all end-of-life ships beached in South Asia were imported under FOCs or FONCs such as the flags of St Kitts and Nevis, Comoros and Tuvalu. These ‘end-of-life’ flags are hardly used during the operational life of any ship and offer special discount rates for last voyages and quick and easy short-term registration without any nationality requirements.

3.3.

Only a small number of ship owners have taken voluntary measures to ensure clean and safe recycling of their obsolete vessels. Less than 8 % of the ships sold for breaking still have a European flag and these are mostly dismantled in a safe and sustainable way. Most vessels that reach the end of their service are sold to so-called cash buyers who bring the vessel to its final destination in South Asia. The majority of ship owners do not deal with recycling facilities themselves: they conveniently distance themselves from final disposal and leave it to these cash buyers who specialise in end-of-life ships and act as a middleman between ship owners and shipbreaking yards. Their service includes moving and crewing a ship on its last voyage and dealing with the required paperwork and authorities at the breaking destination.

Both private and public ship owners resort to these practices.

3.4.

This business is profitable to:

3.5.

Whilst voluntary coordinated actions by ship owners have existed since 2009, such as a set of guidelines on the preparation of hazardous materials inventories and other end-of-life measures in 2015, Bangladesh, where conditions are known to be the worst, was the preferred destination of end-of-life ships (4).

4.1.

In 2009, the IMO adopted a particular instrument for shipping, the HKC, which sets up a framework of regulations with the ultimate goal of delivering the required sustainable level playing field in ship recycling activities worldwide. In reality this claim does not stand up to scrutiny. While this is a small step forward, the implementation and enforcement provisions are weak and open to a wide range of interpretations, there is no independent certification or auditing stipulated and beaching is, in practice, still allowed.

4.2.

The HKC will only enter into force 24 months after ratification by 15 States representing 40 % of global tonnage and whose annual ship recycling capacity accounts for at least 3 % of the combined tonnage of the signatories. So far only five countries, with Panama as the only major flag state, have ratified the HKC, but none comply with the required ship recycling capacity for entry-into-force of the Convention. Entry into force of the Convention is thus not expected any time soon.

4.3.

Another initiative by the IMO, the International Ship Recycling Trust Fund, has not been internationally supported. Although the IMO has delivered positive maritime reform in several areas, effective action on ship dismantling is not one of them. The ship-recycling industry has tended to locate or relocate to countries with low labour costs and where environmental and health and safety standards are both low and unenforced. The ‘facilitating’ role of such states can be eliminated only by attaching a significant, independently held financial fund to every individual ship that is reclaimable, provided that it is recycled responsibly. Shipping is a global industry, while shipbreaking — with 70 % of all ships dismantled on three beaches in South Asia — is a regional scandal and deserves an effective solution.

4.4.

Within the EU, decommissioned ships are regarded as hazardous waste and fall within the scope of the Basel Convention which regulates all kinds of transport of hazardous waste and is transposed at EU level through the Waste Shipment Regulation. This should in theory have prevented EU-owned ships from being disposed of irresponsibly. The rules of the Convention and of the Waste Shipment Regulation are also being systematically circumvented by ship owners by the sale of vessels approaching end-of-life to cash buyers as soon as these vessels leave EU waters for their last trip. However, following entry into force of the Ship Recycling Regulation (SRR) within the EU, decommissioned ships that sail under the flag of an EU Member State will be excluded from the application of the EU Waste Shipment Regulation and the Basel Convention — which regulates all kinds of transports of hazardous waste — from 2019.

4.5.

After analysis, the EU and its Member States concluded that both the Hong Kong and Basel Conventions appeared to provide an equivalent level of control and enforcement for ships classified as waste. NGOs globally, the UN Special Rapporteur on Human Rights and Toxic Waste as well as the European Parliament and the EESC have denounced the HKC for not providing proper solutions.

4.6.

The search for an effective solution has been on the EU’s agenda for many years. In 2007 the European Commission produced a green paper (5) on the subject, followed by a communication in 2008 (6) and finally a proposal for the EU Ship Recycling Regulation (EU SRR) (7) in 2012. The Regulation entered into force on 30 December 2013 but is only required to become fully applicable by 31 December 2018. The Regulation brings a number of the requirements of the HKC into force early. In addition, the EU SRR establishes a European List of approved recycling facilities where EU-flagged vessels will have to be scrapped. These facilities need to be independently certified and audited. The EU SRR also goes beyond the HKC by setting more stringent standards for recycling facilities and looking at downstream waste management as well as labour rights.

4.7.

The EU SRR is, however, a rather pale reflection of the previous green paper and the communication on the same subject. These two documents provided an impeccable analysis of ship recycling problems in South Asia and expressed the view that robust measures were needed to tackle the unacceptable conditions in these countries. The measures in the EU SRR do not, however, solve these problems. Whilst the EU SRR sets high standards for ship recycling facilities that effectively exclude the sub-standard beaching method, it is very easy for ship owners to circumvent these standards by transfer of ownership or simply by flagging out to a non-EU flag. As the EESC concluded, the political will to hold the shipping industry responsible was manifestly absent and it was felt that the Commission should have produced a better, more creative and audacious proposal, richer in initiatives and in line with the level of ambition of previous Commission documents (8).

5.1.

What is lacking in the Regulation is an economic instrument the Commission could use to guide developments in the desired direction. The fundamental weakness that ship owners can easily avoid the EU SRR by simply flagging out to a non-EU country was recognised by the Commission in its 2012 initial proposal which included a clause on ‘penultimate ownership responsibility’. Whilst this clause was rejected during tripartite negotiations, the EP ensured an article was included in the Regulation that asked the Commission to look into possible alternative financial mechanisms.

5.2.

In July of this year the Commission published a new study, conducted by Ecorys, DNV-GL and the Erasmus University of Rotterdam, on a ‘ship recycling licence’ (SRL) aimed at incentivising ship owners to finally shoulder their responsibility when it comes to clean and safe ship dismantling.

5.3.

The SRL would create a dedicated fund specific to each ship, held in escrow by a major financial institution that would build up capital to finance safe and sustainable recycling. The amount of the licence would be determined by a combination of tonnage, type of transport, frequency of calling at EU ports, design based on the cradle-to-cradle principle and the presence of toxic materials on board. The capital is created by ship owners who, every time one of their vessels calls at an EU port, pay the appropriate charge to the fund that is linked to that specific vessel.

5.4.

At end-of-life this fund could be reclaimed if the ship was indeed recycled in an EU-approved yard and thus used to make up for the loss of revenue stemming from going for responsible dismantling. By the end of this year, the Commission will put forward a formal position on this study.

5.5.

A major advantage of the proposed financial mechanism is the synergy it would bring about with the existing regulatory framework. In particular, control mechanisms under the proposed financial mechanism would work very well with existing control mechanisms under the EU SRR, such as the site inspections of facilities to take place prior to and after their inclusion on the European list. The licences could also be included on the list of certificates which are to be checked regularly by port state control as part of pre-existing obligations. Similarly, the already existing European Maritime Safety Agency (EMSA) appears to be best suited to fulfil the tasks of inspection and the issuing of licences, whereas one of the European financial institutions like the European Investment Bank (EIB) or the European Investment Fund (EIF) would appear to be best placed to administer the income from a possible SRL. The EESC urges the Commission to also assess any risk for EU trading partners to see the proposal as anti-competitive interference into the conduct of international shipping.

5.6.

Such a fund would go some way towards the EESC proposal supporting a more extensive and viable ship recycling industry in Europe. There is sufficient capacity in the EU which is no longer used for building and repairing ships but which is suitable for the decommissioning and recycling of ships. This fits in with the EU’s goal of developing into a sustainable recycling society with a circular economy in which waste is turned into raw materials by means of a sophisticated and fine-meshed recycling system. In view of alternately volatile and steadily rising raw material prices and high unemployment in a number of European Member States and the fact that a number of oil rigs in EU waters are reaching the end of their economically viable life, this could be highly profitable for Europe as a whole. Moreover, an industry specialising in recycling end-of-life ships would be an opportunity for the development of maritime areas and training of both young people and the unemployed in emerging skills.

5.7.

On 12 April 2016 the Commission published technical guidance for ship recycling facilities seeking approval under the EU SRR. Facilities wishing to be listed as EU-approved need to ensure healthy and safe working conditions, pollution control — including proper downstream waste management — and enforcement of international labour rights. Facilities within and outside the EU can apply to be on the list. Apart from EU facilities, the better yards in China and Turkey will most likely feature on the list, which will be published by the end of this year. Recycling facilities using the beaching method have already applied to be on the EU list. The EESC agrees with Parliament and the Commission that the current beaching method should not be accepted on the EU list.

5.8.

If Europe wants its ships to be scrapped in a responsible way, it is reasonable that it should ensure that the cost of doing so is integrated into the operating cost of the vessel. In a market economy nothing is for free, a price has to be paid for everything. The price for responsible scrapping of ships is paid in money. When ships are scrapped in an irresponsible way the price is paid in other currencies, such as destruction of the local environment and the loss of human lives. As the EU does not wish to accept these values as a legal means of payment, it should not accept their use as a legitimate currency in its payment traffic with developing countries outside Europe.

5.9.

In a period of over-capacity and low profit in the industry there are strong indications that the great majority of ship owners are resistant to any measures which will involve higher charges. Yet the impact on ship owners will be modest. To change the behaviour of 42 % of ship owners, it is estimated that the measures required to achieve that goal will add 0,5 % to the operating costs of smaller ships and around 2 % to those of the largest categories of ships. If the licence-fee rates are increased and/or if the duration of capital accumulation is shortened, the percentage of ships sold for sustainable ship recycling will increase to up to 68 %. In the long run, the report estimates that up to 97 % of ships operating in European ports will be able to accumulate sufficient funds to cover the gap of sound recycling (9).

5.10.

The revenue fund from the SRL must however demonstrate that it meets the cost of responsible recycling and that it will be applied and levied equitably upon all operators calling at EU ports. However, a regional (continent-wide) measure such as the EU SRL cannot be effectively implemented worldwide without the cooperation of ship owners and the IMO. An EU financial instrument, applicable to any ship that calls at an EU port, might very well trigger that solution at a global level, which could be extended through the IMO. Governments of Member States with significant resident fleet owners need to make considerable efforts to take forward relevant legislation in line with fraud policies and consistent with WTO guidelines.

5.11.

Political resolve can also be generated and supported by informed public opinion. Going public on the outrageous conditions in most of the South Asian recycling facilities is having some effect but at present there is no way that concerned members of the public can directly influence the shipping industry by purchasing or boycotting relevant ship services. This needs to be changed by encouraging major corporate users of sea freight services to demand that their goods are shipped on vessels where responsible and irrevocable end-of-life policies are in place.

5.12.

As in many other areas, the EU, by promoting good practice and practical solutions, has a role to play and can offer a supportive regulatory framework capable of yielding positive results worldwide and effective in dealing with the particular set of extra territorial issues prevalent in the shipping industry.