Raising safety standards

Requirements

Before setting out the new safety regulations, the Announcement highlights the existing requirements that international shipping operators are to obtain appropriate permits from the relevant Chinese transportation departments if they conduct international passenger shipping which involves entry into and/or exit from ports in China. Here, international shipping operators are defined under the International Shipping Regulations to include:

(a) Chinese international shipping operators, which refers to Chinese business corporations operating international shipping businesses that have obtained the international shipping licence pursuant to the shipping regulations and the relevant implementation rules; and

(b) Foreign international shipping operators, being such foreign enterprises, which have established according to foreign laws and operating international shipping business through Chinese ports.

For vessels to operate an international liner business, operators must also be qualified for such operation in accordance with the PRC Regulations for International Maritime Transport (中华人民共和国国际海运条例). Foreign passenger ships that operate multi-stop businesses in China must additionally obtain approval for this operation from the relevant Chinese authorities in accordance with the Announcement on Special Permission for Foreign-flagged Liners to Engage in Multi-point Ports-of-call Business in China (关于外国籍邮轮在华特许开展多点挂靠业务的公告). The Announcement however stops short of specifying the documents required for approval in each of the above scenarios, or the relevant government bodies responsible for the issuance of such documentation.

The position is clearer with regard to the requisite qualifications of international shipping operators registered within China. Under Article 1.2 of the Announcement, these operators are required to obtain two documents issued by the Maritime Safety Administration or its recognised issuing bodies: a document of compliance, which must correspond to the type of international passenger ships intended for operation and a safety management certificate.

In addition, to ensure that passenger ship operators are sufficiently experienced in vessel operation and risk management, Article 1.5 of the Announcement requires operators, both Chinese and foreign, who charter vessels for operation (excluding bareboat charters), to also satisfy two conditions. They have to be the owners of at least one vessel and that such vessel must have been used for international shipping, whether that is for cargo or passenger transportation.

Required documentation

The Announcement seeks to enhance the safety requirements of international passenger ships operating within Chinese waters. Vessels that are over 30 years of age (calculated from the completion date of the vessel's construction) are now prohibited from entering into and/or departing from ports in China (see Article 1.3 of the Announcement). This requirement, while being one which passenger shipping operators must satisfy in addition to those set out previously, does not apply to international passenger liners that conduct unscheduled or single voyage itineraries in China, whose age limits will be decided by the relevant transportation department in China, taking into account the vessel's specific technological conditions. However, what constitutes international passenger liners that conduct unscheduled or a single voyage itineraries is not expressly defined under the Announcement.

Vessels whose flag state appears on the black flag lists of the Tokyo Memorandum of Understanding are also prohibited from entering into or departing from ports in China (see Article 1.6 of the Announcement). The scope of the above restrictions appears to go only as far as limiting entry into or exit from Chinese ports, and does not prevent vessels from entering into or sailing within Chinese waters.

In addition to these new requirements, vessels must continue under current regulations to obtain the relevant inspection certificates as well as certificates of classification, based on the navigational areas the vessels intend to sail within (see Article 1.5 of the Announcement). This includes having in place certain certificates issued by classification societies who are members of the International Association of Classification Societies, with such certificates being valid for no less than one year from the date on which the operators submit the relevant application documents. These certificates include:

• The safety management certificate;
• Passenger ship safety certificate;
• International ship security certificate; and
• Certificate of class.

Administration and inspection

The Announcement requires transportation departments and port management authorities at all levels to increase the supervision over the market of international passenger transportation and conduct necessary inspections. This includes prohibiting port operators from providing passenger boarding and landing services to vessels or operators that are not permitted to conduct international passenger shipping in Chinese ports. According to Article 2, any violation of the Announcement (or of the International Ocean Shipping Regulations) will be reported to the relevant transportation department in China and it is to be rectified within a certain time limit.

The impact

Although the Announcement has already come into force, exactly how it operates in practice and what effect it will have on international passenger vessels and operators are yet to be seen. In the meantime, several relevant observations apply to international shipping operators when seeking to comply with the provisions of the Announcement.

Crewmember regulations

The Announcement does not deal with the qualifications required of crewmembers working onboard international passenger vessels. This is a surprising and yet significant omission considering that competent crew capability is an indispensable factor to the successful and effective implementation of a vessel's safety procedures. While this could mean that crew members of a passenger vessel operating in China may not be required to show that they are sufficiently qualified and experienced to operate the vessel, past experience indicates Chinese authorities will take these considerations into account when reviewing applications from operators. Approval is necessary for the vessels' entry into or exit from Chinese ports, and operators should be prepared to produce this information during the application process.

Ownership

The general wording in the Announcement raises more questions than it answers, as many of the provisions do not go into detail setting out the requirements that operators and vessels must satisfy. One particular provision that is likely to cause significant uncertainty is Article 1.5 of the Announcement, which requires operators to demonstrate ownership of at least one vessel used for international shipping. This is an important provision as it sets a threshold for entry into China's international passenger shipping market, with the intended outcome of eliminating inexperienced operators from operating international passenger vessels in China.

In practice, operators may find it difficult to know if they are in compliance with this provision. It falls short of addressing the relevant questions one would ask in seeking compliance. For example, whether the vessel under the operators' ownership must be in use for international shipping, and how long the vessel must have been used for international shipping. Although a literal reading of Article 1.5 would suggest that this requirement can be easily met with a recently purchased vessel or one which has been only used for international shipping in the past, it is difficult to conceive that this is the intended outcome. If it were, it would be contrary to the provision's goal to ensure that operators are sufficiently experienced in the vessel's operation and risk management. It would be wise for operators to ascertain with the relevant authorities further details and clarification of this ownership requirement.

Age limit

The age limit of 30 years for vessels to operate in China could have potentially far-reaching legal and commercial implications for international shipping operators. According to Chinese law, existing passenger vessels which do not fall within the definition of passenger liners that conduct unscheduled or single itinerary voyages in China, and hence the exception to the 30-year age limit, could now be prohibited from entry into or exit from Chinese ports. This seems to be the case even if such vessels at present meet the required physical and operational safety standards.

From a commercial perspective, this prohibition could materially affect the profit-earning capacity of vessels over the age of 30, especially if these vessels have recently received substantial renovation and technical upgrade. This seems to be an unusually harsh consequence of the Announcement, whose primary goal is to ensure the safety management and operation of international passenger vessels.

Exceptions

The strict age limit is to be contrasted with the exception granted to passenger liners that conduct un-scheduled or single itinerary business. This gives the regulatory regime the required flexibility in enforcement, which properly reflects the generally longer service life of liners, compared with other passenger vessels. The exception may also be motivated by the practical consideration that administering and enforcing age restrictions against liner vessels may be easier, even on an individual basis, given such vessels' consistent trading patterns and comprehensive service records.

The other side of such flexibility is that the imposition of an age limit on liner vessels is at the total discretion of the relevant authorities, making it difficult for operators to predict the assessment process. This problem is heightened by the fact that Article 1.3 of the Announcement does not set out in any detail the documents required from operators when seeking assessment of the vessel's approved age limit, nor does it provide any indication as to how long the assessment process will take. It is clear from the Announcement that the vessel's technical conditions will obviously be taken into account when assessing its age limit. However, it is likely that the relevant authorities will consider other factors during the assessment process, such as the background and the operational record of the vessels' operators. It would be prudent for operators to have as much information in hand as possible for submission in order to maximise the likelihood of receiving a favourable assessment of the vessel's age limit.

International standards

The Announcement certainly represents a strong commitment by China in working towards achieving international standards of maritime safety in the passenger vessels sector. That said, the brevity of the Announcement leaves some important areas of operational safety for passenger vessels unaddressed. In addition, the general wording makes it rather difficult for operators to ensure proper compliance with its rules. It may be that further guidance or regulations will be issued in the near future, perhaps following the conclusion of the Costa Concordia investigation. However, until then, operators should take the initiative in seeking clarifications from the relevant authorities so as to avoid unnecessary violations of the Announcement.

Vincent Xu, Ince & Co, Shanghai