REPORT FROM THE COMMISSION - Fourth report on the implementation of Council Regulation 3577/92 applying the principle of freedom to provide services to maritime cabotage (1999-2000)

TABLE OF CONTENTS

Summary

1. Legislative developments

1.1. Legislative developments in the 15 Member States

1.1.1. Access to the provision of maritime cabotage services

1.1.1.1. Liberalised services

1.1.1.2. Services which are still protected

1.1.2. Rules on manning

1.1.3. Public service obligations

1.2. Legislative developments in the EFTA States

2. Market developments

2.1. Traffic developments

2.1.1. Cargo transport

2.1.1.1. Total traffic

2.1.1.2. Categories of freight transported

2.1.1.3. Distinction between island and mainland traffic

2.1.2. Passenger transport

2.1.2.1. Total traffic

2.1.2.2. Cruises

2.2. Respective market shares of the first and second registers

2.3. Foreign flag penetration

3. Manning costs

4. Conclusions

4.1. The impact of cabotage liberalisation

4.2. Appeal for consultation on the content of forthcoming reports on the application of the cabotage Regulation

ANNEX 1 Rules on manning adopted in accordance with Article 3 of the cabotage Regulation

ANNEX 2 Public service obligations in the Member States

ANNEX 3 Overall view of provisions on cabotage in the EU and EFTA countries

ANNEX 4 Types of freight transported in the Member States

ANNEX 5 Volumes transported in 1999 by type of freight distinguishing between mainland and island cabotage (in millions of tonnes)

ANNEX 6 Comparison of manning costs for cargo vessels

ANNEX 7 Comparison of manning costs for passenger vessels

SUMMARY

This is the fourth two-yearly report on the application of the cabotage Regulation. It covers the years 1999 to 2000. Like the previous reports, this report has been based on a study carried out on behalf of the Commission.

Almost all cabotage services in Europe have been liberalised since 1 January 1999. The Greek market, which is the last to still be partly protected, will be opening up to Community shipowners as from 1 November 2002. The adaptations of Member States' legal provisions to the cabotage Regulation will soon be completed.

The first part of the report describes the state of play regarding legislation. It states which of the Community second registers may take part in cabotage. Among vessels registered in a Member State, only those in the Italian second register and passenger vessels in the Danish second register do not have access at the present time to Community cabotage. In other words, Italy and Denmark do not authorise those particular vessels to carry out cabotage in their respective countries. The report also specifies the rules on manning imposed by certain Member States on vessels carrying out cabotage with islands. Finally, for the first time, an annex recapitulates the public service obligations laid down by the Member States.

This new phase of liberalisation has not adversely affected the market. Cargo volumes (260.99 million tonnes in 1999) and the number of passengers (152 million in 1999) transported have remained relatively stable. The five Member States concerned by this new phase of liberalisation (Spain, France, Greece, Italy and Portugal) have tackled it by improving the quality of their fleets. Penetration by foreign vessels into the national cabotage markets remains limited in the majority of the Member States.

The second part of the report presents detailed statistics by country including, in the case of cargo, the breakdown according to type of cargo transported depending on whether it was island or mainland cabotage. The greatest market for cargo traffic is that of the United Kingdom, followed by that of Italy. Liquid bulk heads the league table in terms of cargo transported. In the case of passengers, Greece has the greatest traffic, followed by Italy and the United Kingdom.

Finally, the last part of the report gives manning costs for three types of cargo and three types of passenger vessel. The most expensive register is the Finnish register. The Portuguese second register, the MAR register, is the least expensive in Europe.

Given that the liberalisation of the market will soon be completed and in the light of the difficulties encountered in collecting the statistics needed to draw up this report, the Commission speculates in its conclusions on the form which future cabotage reports will have to take. It considers that forthcoming reports could be drawn up on the basis of answers from the Member States to a questionnaire addressed to them by the Commission. This would be the most economical solution because it would avoid having recourse to often costly studies. It would make it possible to set up a consistent and uniform database on the subject available to everybody. The Commission is inviting Member States and interested parties to give their opinion on this question.

REPORT

This report has three chapters. The first depicts legislative developments in the fifteen Member States and the EFTA countries. The second presents market trends in these same countries. The third recapitulates manning costs in the different registers of the EEA countries.

1. Legislative developments

1.1. Legislative developments in the 15 Member States

1.1.1. Access to the provision of maritime cabotage services

Since 1 January 1999, almost all maritime cabotage services have been open to the beneficiaries of Regulation No 3577/92. In accordance with Article 1 of the Regulation, these beneficiaries are: "Community shipowners who have their ships registered in, and flying the flag of a Member State, provided that these ships comply with all conditions for carrying out cabotage in that Member State".

This date of 1 January 1999 corresponds to the penultimate stage in the liberalisation of Community cabotage. It concerned regular passenger transport services and ferry transport as well as cabotage services with the islands of five Member States (Spain, France, Greece, Italy and Portugal).

The liberalisation of maritime cabotage will be complete when the following two categories of island cabotage services will have been liberalised in Greece: regular passenger transport services and transport by ferry as well as services performed by ships smaller than 650 gross tonnes.

1.1.1.1. Liberalised services

As far as liberalised services are concerned, there have been few changes in legislation since the last cabotage report.

Following the adoption of Law 2001-43 of 16 January 2001, French legislation complied with the Regulation as from that date. On the other hand, infringement proceedings are still pending with regard to Spanish legislation (Royal Decree 1466/1997), Portuguese legislation (Decree Law 194/98 of 10 July 1998 amended by Decree Law 331/99 of 20 August 1999) and Greek legislation (Article 165, paragraphs 1 and 6 of the Greek Shipping Code and the Circulars of 4 August 1998, 18 December 1998 and 21 December 1998).

The Spanish Royal Decree No 1466/97 has been attacked in the Spanish courts, which in turn brought the matter before the Court of Justice of the European Communities for a preliminary ruling. The Court delivered its judgment on 20 February 2001 (Case C-205/99).

The first registers of Member States all have access to cabotage. In the matter of access to the second registers of Member States to Community cabotage, the situation is identical to that described in the previous cabotage report and is reproduced below. [1]

[1] As a reminder, the "off shore" registers of ships of Member States are not beneficiaries of the cabotage Regulation (the Kerguelen Register, the French Southern and Antarctic Territories' Register (TAAF Register), the Dutch Antilles' Register, the Isle of Man Register, the Bermuda and Cayman Islands Registers).

The Regulation provides that, for a ship of a Member State to be admitted into cabotage in another Member State, it must first of all fulfil all the conditions required for admission to cabotage in the Member State in which it finds itself.

This applies to the following ships, which fulfil all the conditions required to participate fully in cabotage in the Member States of the EU:

- ships registered in the Spanish REC Register;

- ships registered in the Portuguese MAR Register;

- cargo ships registered in the Danish DIS Register.

Ships registered in the German ISR and Finnish vessels entered on the "List of cargo ships in international trade" have only a limited access to cabotage. They may only offer regular services throughout the year.

Ships registered in the Italian second register and passenger ships registered in the Danish second register do not have access to Community cabotage.

1.1.1.2. Services which are still protected

As mentioned above, the liberalisation of maritime cabotage will be complete when the following two categories of island cabotage services are liberalised in Greece: regular passenger transport services and transport by ferry as well as services performed by vessels smaller than 650 gross tonnes. These services benefit from a waiver until 2004 pursuant to the cabotage Regulation.

The greatest legal advance since the last cabotage report concerns, precisely, these services. Greece has decided to open them up to Community shipowners before the 2004 deadline. Part I of Law 2932/2001 published on 27 June 2001 provides for them to be liberalised as from 1 November 2002. Public service obligations will nevertheless continue to be imposed. This law is innovatory in that it entrusts an independent authority with supervising the sector.

In accordance with Article 9 of the cabotage Regulation, the Greek authorities notified the Commission services of the text of this law. Those services forwarded their queries to the Greek authorities and raised the question of the non-conformity in 2004 of some of the provisions of the text with the cabotage Regulation.

1.1.2. Rules on manning

Only five Member States wanted to apply the provisions of Article 3(2) of the cabotage Regulation, which permits the State in which a cabotage service is carried out (host State) to decide on the rules relating to the manning of vessels carrying out cabotage with islands and vessels smaller than 650 gross tonnes -except, in the case of cargo vessels, when the voyage concerned follows or precedes a voyage to or from another State.

The following national texts relating to the rules of the host State on manning have been deemed to comply with the cabotage Regulation: the French Decree No 99/195 of 16 March 1999, the Spanish Order of 22 July 1999, the Italian Decree and Circular of 25 November 1999. The main rules contained in these texts are set out in Annex 1.

Infringement proceedings have been initiated, however, against the Portuguese legislation (Decree Law No 194/98 of 10 July 1998, amended by Decree Law No 331/99 of 20 August 1999) and the Greek legislation (Circular of 21 December 1998). The Portuguese infringement is well on the way to being settled.

In accordance with the cabotage Regulation, the definitive system governing manning, based on a proposal from the Commission following a detailed examination of the economic and social impact of the liberalisation of island cabotage, was to be approved by the Council before 1 January 1999. The Commission submitted a report to the Council on this question on 17 June 1997 and a proposal for a regulation on 29 April 1998 (COM(1998)251 final). The residual competence of the host State concerned vessels smaller than 650 GT and the required proportion of Community nationals in the crews of ships carrying out regular passenger and ferry services (including mixed passenger/cargo services and scheduled cruise services). Seafarers from non-member countries on board this kind of vessel were to enjoy identical employment conditions to those of the residents of Member States. The Commission proposal did not meet with the favour of the Member States. The Commission accordingly withdrew its proposal on 11 December 2001.

1.1.3. Public service obligations

Article 4 of the Regulation authorises Member States to impose public service obligations and to conclude public service contracts for regular services to, from and between islands provided that these obligations are necessary and are imposed on a non-discriminatory basis in respect of all Community shipowners.

Only four of the 15 Member States do not impose public service obligations. They are Luxembourg and Austria, which are not concerned for obvious geographical reasons, and Belgium and the Netherlands, which do not have public maritime services.

Among the Member States which impose public service obligations, some have chosen to do so on the basis of an authorisation or licence system. This is currently the case in Greece (delivery of licences), in Spain, Portugal and Sweden (authorisation scheme for some services).

The principle of non-discrimination laid down in the Regulation became legally binding for all Member States (with the exception of some services in Greece) on 1 January 1999, the date on which the liberalisation of island cabotage became complete. This led to most Member States launching calls for tenders to select operators to carry out the public services.

The Regulation's provisions regarding public service are not yet however applied in their entirety in practice. For example, some public service contracts concluded before 1 January 1993 (date of entry into force of the Regulation) have not yet expired. The Regulation itself provides that these contracts may remain in force until their date of expiry. [2] Also, some Member States are still not complying entirely with the provisions of the Regulation. Following complaints it has received, the Commission has had to initiate several infringement proceedings.

[2] See the agreement concluded by the French authorities in 1976 with the SNCM company for maritime services to Corsica, which expired on 31 December 2001 for example, or the agreements concluded between the Italian authorities and the Tirrenia group companies in 1991, which will expire on 31 December 2008.

Asked for a preliminary ruling, the Court of Justice delivered its first judgment on the interpretation of the public service provisions in the Regulation on 20 February 2001 in Case C-205/99. In particular, the Court adopted a position on the lawfulness of a prior authorisation scheme and on the possibility of the co-existence of public service contracts and obligations on the same route.

With regard to the first point, the Court indicated that the Regulation permits the provision of regular maritime cabotage services to, from and between islands to be made subject to prior administrative authorisation only if:

- a real public service need arising from the inadequacy of the regular transport services under conditions of free competition can be demonstrated;

- it is also demonstrated that that prior administrative authorisation scheme is necessary and proportionate to the aim pursued;

- such a scheme is based on objective, non-discriminatory criteria which are known in advance to the undertakings concerned.

With regard to the second point, the Court indicated that the Regulation must be interpreted to mean that it permits a Member State to impose public service obligations on some shipping companies and, at the same time, to conclude public service contracts in order to ensure the same regular traffic to, from or between islands, provided that a real public service need can be demonstrated and in so far as that application of the two methods concurrently is on a non-discriminatory basis and is justified in relation to the public-interest objective pursued.

The situation regarding public service obligations in the different Member States is recapitulated in a table in Annex 2.

1.2. Legislative developments in the EFTA States

Conditions of access to the market of the EFTA States have not changed during the period.

The table reproduced in Annex 3 shows the rules governing establishment, the nationality of crews and taxes which are applied to each register.

2. Market developments

As a preliminary remark, it must be pointed out that the Commission had difficulties in collecting the data needed to draw up this report. To begin with, Member States no longer collect such detailed statistics as in the past. Data referring to the year 2000 were not always available, either.

The liberalisation on 1 January 1999 of cabotage services that were still protected (regular services for the transport of passengers and transport by ferry as well as cabotage services with islands in Spain, France, Italy, Portugal and - partly - in Greece) did not lead to any increase in traffic nor to any significant penetration of the national markets by vessels flying foreign flags. On the other hand, it appears that the quality of the services rendered increased.

2.1. Traffic developments

2.1.1. Cargo transport

2.1.1.1. Total traffic

As indicated in the table reproduced below, the volume of cargo transported by cabotage within the countries of the European Union amounted to 260.99 million tonnes in 1999.

The volume of cargo transported in the five Member States concerned by the liberalisation phase beginning on 1 January 1999 (Spain, France, Greece, Italy and Portugal) is slightly higher than the volume of cargo transported in the ten Member States where traffic was already liberalised. The market now appears stabilised.

The liberalisation of cabotage with the islands of the five States mentioned above has not generated new cargo flows. Unlike mainland cabotage, this market does not seem to offer much potential for development.

>TABLE POSITION>

Source: PWC

The market with the largest traffic is the United Kingdom (nearly a third of the total). 70% of cargo transported within the Member States of the north are transported in this country. The second [3] largest market is that of Italy, with a quarter of all traffic. Italy accounts in volume for almost half of the cargo transported in the southern Member States.

[3] The Italian market occupies first place if off-shore traffic in the United Kingdom is excluded.

>TABLE POSITION>

Source: PWC

With regard to the EFTA countries, the very small volume of Icelandic traffic has remained constant, while the volume of freight transported in Norway is high. It varies according to the off-shore oil traffic.

>TABLE POSITION>

Source: PWC - The figures in brackets represent volumes transported that were not off-shore traffic.

2.1.1.2. Categories of freight transported

Turning to the type of cargo transported, it is clear that liquid bulk is still in first place. It represents on average 55% of total traffic (76% in the United Kingdom, but only 18% in Denmark). The dry bulk and miscellaneous cargo segments are larger in the south than in the north.

>TABLE POSITION>

Source: PWC

Detailed data by country are given in Annex 4.

Where the EFTA countries are concerned, dry bulk transport predominates in Norway. The volume of off-shore traffic in this country should not however be forgotten (see table under point 2.1.1.1 above), since it exceeds the volumes of "traditional" freight.

>TABLE POSITION>

Source: PWC

2.1.1.3. Distinction between island and mainland traffic

Island cabotage accounts for 64% of the volumes of freight transported in the five Member States concerned by the liberalisation phase dating from 1 January 1999. This overall percentage masks significant differences according to country, since in Italy, 78% of cabotage is of the island type, while in France, 86% of the volume of freight transported occurs between two mainland ports.

>TABLE POSITION>

If we analyse in greater detail according to the types of cargo transported, we can see that island cabotage accounts for most of the general cargo (86%). When it comes to dry bulk and liquid bulk, the breakdown between island and mainland cabotage is more balanced.

>TABLE POSITION>

The statistics by country on which these tables are based are reproduced in Annex 5.

2.1.2. Passenger transport

2.1.2.1. Total traffic

As in the case of cargo traffic, passenger traffic appears stable overall. 152 million passengers were transported in 1999, 60% of them in the five Member States concerned by the liberalisation beginning on 1 January 1999. The largest national market for passengers is the Greek market (nearly 30% of the total), followed by the Italian and British markets (each having about a quarter of the total).

Over this period, there was an increase in demand in the southern countries. This appears to be partly due to the improvement of the services offered. In the north, on the other hand, passenger traffic fell. In particular, the fall in traffic recorded in Denmark is due to the opening of the bridge connecting Copenhagen to the mainland.

>TABLE POSITION>

Source: PWC

With regard to the EFTA countries, the number of passengers transported in Norway is very high. It exceeds the number of passengers transported in Greece.

>TABLE POSITION>

Source: PWC

2.1.2.2. Cruises

The world cruise ship fleet has a total capacity of approximately 8.5 million GT. Of these 8.5 million, 2.5 million (nearly 30%) are flying EEA flags. The largest European fleet flies the British flag (750 000 GT), followed by Italy, Norway and the Netherlands (approximately 500 000 GT each).

Quantitatively, there are more international cruises than any other type.

Among the Member States which are cruise destinations, first place is taken by Greece for the number of stops and Italy for the number of embarkations.

2.2. Respective market shares of the first and second registers

The table below gives the data available on the relative importance of the first and second registers of Member States in cabotage traffic. The data concern only five Member States and Norway. This table clearly shows the importance of the first registers for passenger transport. Nevertheless, the role of the second registers is tending to increase.

>TABLE POSITION>

Source: PWC

2.3. Foreign-flag penetration

As a general rule, the liberalisation of cabotage has not led to a significant penetration of national markets by EEA flags. These markets have in fact warded off penetration by improving their competitiveness, liberalisation being accompanied by a reduction in the cost of the national registers and a modernisation of their fleets. At the present time, the markets of the Member States concerned by the liberalisation which began on 1 January 1999 remain to a great extent dominated by national fleets: 98% of the traffic in Greece, [4] approximately 90% of the traffic in Italy, Portugal [5] and Spain. Among the five Member States concerned, the market which is most open to non-nationals is the French market, where 25% of vessels flying EEA flags and 7% of non-EEA vessels operate. In the other countries, there is a sharp distinction between Finland (90% of vessels flying the national flag) and Ireland (only 5%). The greatest number of non-EEA flags are to be found in the United Kingdom, Ireland, Germany and Sweden.

[4] This very high figure can be explained by the incomplete liberalisation of cabotage, the excentric geographical situation of Greece and the competitiveness of its fleet.

[5] Many foreign companies decided to register their ships under the highly competitive MAR flag.

>TABLE POSITION>

Source: PWC

The penetration of foreign vessels in the EFTA countries remains limited.

>TABLE POSITION>

Source: PWC.

3. Manning costs

Manning costs vary according to the composition of crews (number of seafarers on board, their training and nationality) and the taxes and social charges imposed by the national authorities.

Manning costs for cargo vessels are almost three times higher in Finland (the most costly register for this feature) than in Portugal. The Portuguese second register, the MAR register, appears the least costly in Europe.

The disparities are not so great in the case of passenger vessels.

Details of the costs for each of the Community registers are given in Annexes 6 and 7.

4. Conclusions

4.1. The impact of cabotage liberalisation

The liberalisation of the last cabotage services that were still protected (with the exception of the two abovementioned segments of the Greek market) resulted in the presence of Community operators in markets which up until then had been reserved to nationals. The percentage of non-nationals in the markets of the countries concerned by the liberalisation starting on 1 January 1999 remains, however, limited. In this respect, the Regulation's provisions on manning and on public services have certainly played a restraining role.

In other ways, liberalisation has had a positive impact, as the national fleets of the countries concerned have modernised to face the increased risk of competition.

As liberalisation has now been practically completed and the market appears stabilised, the question as to the content of forthcoming reports on the application of the cabotage Regulation must be raised.

4.2. Appeal for consultation on the content of forthcoming reports on the application of the cabotage Regulation

The impact of cabotage liberalisation in Greece on 1 November 2002 will not be known before 2004. It will only be possible to analyse it, therefore, in the two-yearly report referring to the years 2003-2004.

That is why the question must be raised as to the content of the report relating to the years 2001-2002 and to the reports which will follow the two-yearly report of 2003-2004. Should these reports confine themselves to presenting the available Community statistics on cabotage - which are fewer and fewer in number - or should they abandon this quantitative approach and focus on a more qualitative analysis of the problems encountered in implementing the Regulation and the solutions found- One might also envisage a lower frequency, with reports being produced only every three to four years, for example.

If the quantitative approach is maintained and the Commission considers it of interest, the way in which the cabotage report is compiled will have to be reviewed. Member States will have to collect the basic market statistics and forward them to the Commission, which will be responsible for their dissemination.

To shed light on this discussion, the Commission would like to know what kinds of statistics are still compiled at national level and to what extent their dissemination to all the Member States is useful. In addition, it is inviting the Member States to communicate their thoughts on the content of the cabotage reports which will have to be produced in the years to come.

For the Commission to be able to take them into account before embarking on the preparatory work for the 2001-2002 two-yearly report, these observations will have to be communicated to it before 31 May 2002. They should be sent to the following postal address:

European Commission Directorate-General for Transport and Energy Maritime Transport Directorate

Office DM 28 3/50 B-1049 Brussels

Finally, on the occasion of the publication of this report, the Commission would like to announce its intention of adopting a communication on the interpretation of the cabotage Regulation at the end of the year 2002. This communication will deal with the questions of public service in particular, including mainland connections and those with small islands.

ANNEX 1 Rules on manning adopted in accordance with Article 3 of the cabotage Regulation

>TABLE POSITION>

ANNEX 2 Public service obligations in the Member States

>TABLE POSITION>

>TABLE POSITION>

>TABLE POSITION>

ANNEX 3 Overall view of provisions on cabotage in the EU and EFTA countries

>TABLE POSITION>

>TABLE POSITION>

>TABLE POSITION>

>TABLE POSITION>

>TABLE POSITION>

>TABLE POSITION>

>TABLE POSITION>

>TABLE POSITION>

ANNEX 4 Types of freight transported in the Member States

>TABLE POSITION>

Source :PWC

ANNEX 5 Volumes transported in 1999 by type of freight distinguishing between mainland and island cabotage (in millions of tonnes)

>TABLE POSITION>

ANNEX 6 Comparison of manning costs for cargo vessels

>TABLE POSITION>

Source PWC

ANNEX 7 Comparison of manning costs for passenger vessels

>TABLE POSITION>

Source : PWC