The planned »Brexit« and its potential consequences – a highly discussed economic-political topic. The shipping industry will feel a certain impact but no immediate aftermath. It is all depending on the exit model
On 23 June 2016, a very slim majority of voters in the referendum on the UK’s continuing to be a[ds_preview] member of the European union voted to leave. The referendum’s result has no direct effect – it is merely advisory although it seems to be accepted by politicians in Westminster that the UK will now start the process of leaving the EU, the so-called »Brexit«. It is expected that the UK will, sooner or later, start the exit proceeding by serving notice under Article 50 of the Treaty on the European Union with a following two year exit period.
Whilst shipping is largely framed within international conventions and regulation, the consequences of a Brexit will be felt to a certain, but as yet unknown, extent by the industry. The impact of Brexit on the shipping industry will very much depend on the exit model that will be adopted. Possible scenarios range from joining the EEA and EFTA, entering into a customs union, bilateral accords (incl. EFTA), agreeing on free trade to relying on existing WTO rules. There is expected to be a period of two years plus of negotiations between the UK and the EU, the UK and other WTO members, and countries with whom the EU has free trade areas, the outcome of which is not foreseeable at the moment, last but not least as no-one has ever left the EU before.
Following withdrawal from the EU – and eventually depending on the adopted exit model –, the UK government will be required to review both directly applicable EU law and UK primary and secondary law to establish which EU legislation is to be repealed, retained or amended. It is likely that, initially, the government will seek to retain the status quo and make changes only to the extent necessary to ensure that the existing legislation continues to work following a Brexit. It follows, therefore, that any impact and/or change to the shipping industry will not likely be immediate or radical. Nevertheless, from a shipping perspective, laws relating to (amongst others): trade; competition; environmental regulation; labour; insurance and banks will be subject to governmental review and, arguably, these are likely to be the areas of shipping upon which a Brexit will have most impact.
With regard to trade, following a Brexit, and subject to the form of trade agreement to be entered into with the EU, the UK may still have access to the single European market. This being the case, a Brexit would not necessarily inhibit trading within the EU for UK shipping companies. However, to the extent that shipping operators (i.e., those who operate in the UK market and in Europe) will be required to comply with different EU and UK trading laws, such operators will face enhanced legal complexity and expense as a result. Furthermore, in the event that a Brexit results in a loss of access to the (presently) tariff-free single market, a reduction in trade and throughput will probably be felt by ports and terminals within the UK. It should also be noted that, following a Brexit, UK ports may, depending on the type of exit model negotiated, still be bound by the fiercely opposed Port Services Regulation. Further, any withdrawal from the EU customs union would result in the need for new UK customs laws and the implementation of the same may cause delays at UK ports and terminals.
It is likely that any Brexit scenario would require the establishment of a dual EU/UK competition law regime to regulate trade agreements and investigate conduct as between any Member State and UK entities and shipping operators are likely to be burdened accordingly. To the extent that UK employment law (being largely based on EU law) will require redrafting following a Brexit, the shipping industry may well suffer the consequences: any shipping company with both UK and EU operations possibly being required to comply with two different employment law regimes.
Shipping in London is predominantly a services industry, comprising legal, ship-broking, banking and insurance. Whilst it is doubtful whether the traditional use of UK arbitration, jurisdiction and governing law in shipping documentation will change, the potential loss of EU-passporting rights, which allow authorised banks and insurance companies carrying out their regulated services through branches in or through cross-border-services into other EU or EEA-member states, may be damaging to the UK-based marine insurance and underwriting as well as ship finance community.
Non-UK insurance companies and banks from other countries and regions such as the USA or Asia which currently use the UK as their European platform for business in the EU/EEA using the passport regime, may consider moving their UK headquarters to other cities in the EU such as Frankfurt, Paris or Amsterdam in order to keep their access to the European markets. On the other hand, the impact of Brexit on capital markets and investment structures appears to be of limited relevance for the shipping industry, since the majority of shipping IPOs and IBOs takes place in other places such as New York and Oslo, whilst investment structures are typically being set up in Luxembourg (for European institutional investors) or on the Cayman Islands (with regard to US-investors), rather than in London.
International convention governs the primary regulation of safety at sea and environmental issues. Accordingly, the status quo in this regard will not be affected by a Brexit: UK shipping companies will continue to be required to observe international regulation; namely, SOLAS and MARPOL. Nevertheless, subject to which Brexit model is adopted, a UK shipping company may be required also to continue to adhere to certain EU regulation (including, but not limited to, regulation governing the monitoring, reporting and verification of CO2) by virtue of either: (i) the UK’s remaining in the EEA; or (ii) the company’s trading to, and using ports within, the EU.
It is inevitable that a withdrawal from the EU by the UK will result in disruption to trade, the free movement of goods, and labour regardless of which exit scenario is adopted. The shipping industry may face additional legal complexity as a result the establishment of separate British and EU regulations governing shipping. Whilst the extent of the impact that a Brexit will have upon the shipping industry is not yet known, it is unlikely that the effect will be consistent across the industry: the short sea, cruise and ferry industries, will, by virtue of their nature, be affected more significantly than the container and bulk deep-sea trades.
What is certain is that this is only the start of the story – leaving the EU and its consequences is going to be a very complex and drawn out process that may take years to complete. The only definite outcome currently is that this will lead to much uncertainty and a loss of business confidence. But business has to go on. Those who expect to be most affected will need to review their business strategy and ensure that any new agreements, as far as possible, reflect this uncertainty by including clauses which allow parties to adjust to the new reality when it finally arrives.
Ludger C. Verfürth, Phil Roche
