EXECUTIVE SUMMARY

FEPORT supports the aim of the directive proposal, i.e. to create a level playing field for European ports, but is disappointed that the Commission did not focus more on competition between ports. We are convinced that without clear rules for financing of ports, i.e. state aid guidelines, set on an EU level, a level playing field will never be reached. FEPORT thinks that the key principles of good governance and neutrality of port authorities are sound and should be the guiding principles in the directive proposal. The rules should furthermore apply to all port services within and outside the port area, independent of the size of the port. The main objective should be to keep the rules for ports at EU level simple so they easily can be applied to all ports. The current directive proposal, however, contains many unclarities due to the wish to preserve subsidiarity on the one hand (many key-concepts have not been defined) and too strict and inflexible rules on the other hand to achieve legal certainty, which may lead to bureaucracy and may create a culture of systematic legal disputes. Regarding article 7.2 of the directive proposal to have at least 2 operators per cargo category in each port in case of limitations, FEPORT is of the opinion that it should be left to the port authority to decide how many operators per port are needed, taking into account relevant EU environmental legislation as well as available space and /or capacity in the port and the overall efficiency of the port operations. In situations of abuse of dominant position, the competition rules should apply. With respect to the requirement of article 7 to set up separate authorities where port authorities are being judge and party at the same time, FEPORT is of the opinion that no additional competent authority is needed as long as port operators have direct access to and can complain to existing competent national authorities (such as national anti-trust organisations) and a sufficient level of transparency will be achieved by the other provisions of the proposal. As far as the duration of concessions in article 9 is concerned, FEPORT strongly holds the view that the duration of concessions should be decided between the contracting parties in line with the principle of subsidiarity. With respect to self-handling, FEPORT is of the opinion that criteria for selfhandlers should be equal to those for providers of the same or a comparable port service. Furthermore, self-handling should only take place on board the ship and should be undertaken by regular crew members only.

Feport position on proposed port services directive June 13 2001

On transitional measures, FEPORT is of the opinion that all existing contracts should remain in force unchanged. Not taking account of the legitimate expectations of terminal operators with an existing contract will lead to situations where the investments undertaken will have to be earned back in a shorter period, consequently causing prices to rise. In such cases compensation by the new operator would be indispensable. For new contracts the rules set out in this paper should be taken into account. The proposals in the Directive relating to cargo handling are therefore not acceptable in their present form and should be the subject of further study. Failing that, major amendments are required.

Feport position on proposed port services directive June 13 2001

FEPORT Federation of European Private Port Operators

POSITION ON THE DIRECTIVE PROPOSAL ON MARKET ACCESS TO PORT SERVICES

On February 13 2001, the Commission adopted the port package, which takes the form of a Communication and consists of a directive proposal on market access to port services, the inventory report on public financing and charging in ports and an interpretative summary of Community rules on transparency of public money flows into and within seaports and of state aids to seaports. This paper gives the views of FEPORT with respect to the proposed directive on market access to port services and, where necessary, slightly touches upon the communication and inventory report. First, general comments will be given relating to the basic aims of the proposed directive (keyprinciples, level playing field, market access and ownership and legal certainty and subsidiarity), which will be followed by some specific comments relating to five main issues of the proposal (duration of concessions, selfhandling, the principle of having at least 2 operators per port, the setting up of a separate competent authority and transitional measures). GENERAL COMMENTS Key-principles Even though a number of the provisions contained in the directive proposal may be controversial, FEPORT is convinced that the key-principles in it are sound. Good governance According to the principle of "good governance", Member States will have to ensure full transparency of all procedures in relation to the provision of port services, as well as the availibility of appeal procedures, including a judicial review. The appropriateness of this principle cannot be contested. Neutrality of port authorities Neutrality of port authorities towards port users is another basic principle of the proposal. It has been developed by the Commission in earlier individual competition cases, where it was linked to the 'essential facilities' theory and the right of 'third party access'. In an earlier response to the Commissions working document in preparation of this directive proposal, FEPORT drew attention to the problems that may arise where a port authority acts both as judge and interested party when allocating sites to terminal operators. This is discussed more fully below. Furthermore, FEPORT pointed to the importance of public and private service providers operating under equal conditions, without distortions through public funding of or exclusive rights for particular terminal operators. 3
Feport position on proposed port services directive June 13 2001

Level playing field From the discussion on the Commissions Green Paper on Sea Ports and Maritime Infrastructure, both within the industry as well as in Council and Parliament, it followed that measures on competition between ports (state aid guidelines) were thought to be as important as measures on competition within ports (framework on access to the market of port services). FEPORT regularly pointed to the importance of having a clear set of state aid guidelines to create a level playing field between ports and port operators, especially since such a level playing field currently does not exist. Different ways of financing port investment projects, maintenance of port access and facilities, differences in social and fiscal costs and different ways of implementing and maintaining EU rules and regulations are principal distortive factors between the EU seaports. As already pointed out in its response to the Green Paper, FEPORT is of the opinion that competition between seaports or between groups of seaports should take place on their respective strengths and weaknesses, such as quality of service, efficiency, charges and geographical location. Consequently, FEPORT is disappointed that the Commission did not make such guidelines and in its Communication merely touched the issue of state aid and rejected the idea of guidelines with unconvincing and incorrect arguments. In the proposed port package, the Commission clearly focuses on competition within ports. Even though the directive proposal states that it aims at creating a level playing field, it is questionable whether it can be achieved by the proposed framework. It is a fact that competition no longer takes place solely within a given port. Globalisation and the completion of the internal market have created a situation whereby several European seaports now serve one economic hinterland. Focussing on competition within ports is therefore not very realistic. Furthermore, one should be aware of the fact that globalisation developments have taken place in the shipping industry as well. The globalisation process in that respect has led to an increased bargaining power of major shipping lines and alliances, which participate more and more in cargo handling operations themselves by controlling terminal operators and by establishing single-user (dedicated) liner terminals. These developments have considerably intensified the competitive pressure on the terminal operator. With respect to the Commissions opinion, according to its report on the inventory of financing and charging practices, that potential operators, either public or private, whishing to enter the market in order to provide port services still face various obstacles FEPORT is of the opinion that this is debatable. The nature, frequency and importance of those obstacles is not elucidated, evidenced nor illustrated by the Commission. Furthermore, in our opinion in practice there do not seem to be many complaints or disputes that point in this direction, especially not in the cargo handling sector. Restrictions that still exist here and there often relate to certain specific labour practices.

Feport position on proposed port services directive June 13 2001

Consequently, FEPORT is of the opinion that the Commission could at least be invited to demonstrate that rules on establishment in the port sector are particularly and systematically obscure, that this has entailed real obstructions to entry to the market for port services, and that this situation requires legislation at EU level. With respect to existing restrictive labour practices, FEPORT in principle welcomes the inclusion of article 6.5. in the directive proposal. This article could and should contribute to an organisation of dock labour as required by modern standards in port activities. Wherever applicable, parties concerned should be encouraged to make optimal use of the already existing possibilities. Finally, in order not to obstruct the creation of a level playing field it would be better not to set a threshold. The introduction of a cargo throughput threshold in a European legal framework for ports presents some dangers. First, a threshold based on tonnage will result in distortions, as the economic significance of one tonne of general cargo cannot be compared to that of one tonne of dry or liquid bulk. In this sense, a tonnage threshold does not seem very pertinent. Moreover, a global port throughput threshold may not be relevant at all in cases where inter-port competition involves flows of certain types of traffic or cargo only. Second, it may be the case that a fierce competitive struggle involves a relatively small port on the one hand and a relatively large port on the other. It is not unthinkable in such a situation that the larger port, being subject to European legislation, could be put at a competitive disadvantage vis--vis the smaller port, whose size is under the threshold for applicability of that same legislation. Consequently, a European framework could actually distort competition. A third danger is that national authorities may be inspired to slice up port systems into smaller autonomous ports in order to stay under the threshold. A fourth observation is that, in the course of time, ports may fluctuate to the extent that sometimes the port remains under the threshold and at other times the threshold is exceed. How, for example, should one treat a port that reaches the threshold only twice (and intermittently) over a period of five years? The introduction of a three year's-average in the proposed Directive is only a partial solution. A fifth remark concerns the fact that a young or recently extended port presenting itself as a new player on the market may remain under the threshold in this initial phase. However, it is during this phase that the port will organise its services, and that is precisely when European legislation on access to the provision of port services should serve its purpose and be applied. FEPORT is therefore of the opinion that an equal system would have to apply to all European ports. Such a system would have to apply to services both in- and outside the port area.

Feport position on proposed port services directive June 13 2001

Given the above, FEPORT is still convinced that the best and most simple way to reach a level playing field is by making a clear set of state aid guidelines and by ensuring transparency in the financial relations between the state, port authorities and port operators, rather than attempting to regulate market access to port services, which is already largely protected by existing legislation on the abuse of dominant positions. Market access and ownership The effect of some of the provisions in the Directive could be that in some cases owners of land, buildings or equipment will be required to grant access to their facilities to third parties. Indeed the circumstance could arise in which the holder of a lease would be forced to surrender the outstanding portion of his lease to another party as a result of a tendering operation as envisaged in Article 16 of the Directive. This raises the question of whether the measures proposed are proportional to their need, noting in particular the provisions in the Treaty and the Convention on Human Rights about rights of property ownership. With respect to the compatibility of the principle of market access and ownership, reference should be made to the essential facilities doctrine on which this article seems to be based. The European Court of Justice restricts third party access to situations where the competitor on the downstream market finds no economically realistic alternative. Applied to ports this would mean that e.g. a cargo handling company is not entitled to access to a port infrastructure as long as another port is already open and available. Article 1, however, broadened the scope of third party access to port facilities to any European port (provided the threshold is attained). This definitely goes too far and should be amended to stay in line with the essential facilities doctrine as developed by the Court. Furthermore, promoting third party access to the market of cargo handling services may conflict with property rights and with promotion of new investments and R & D activities. In the long run, third party access may curb investments and the provision of efficient facilities. Moreover, competitors will not feel incited to erect competing facilities of their own. Finally, third party access may not benefit end users at all, as access fees paid by the new competitor will be passed onto them. To conclude, third party access may not be the proper way to enhance competition in markets where the provision of facilities depends on private investment. In other words, third party access can only be justified where the monopolistic provider of services is funded by government money, or, where privately funded, where the facility has been developed in a non-competitive environment. Legal certainty and subsidiarity The directive proposal furthermore seeks to enhance legal certainty as to the conditions for access to the market and selection procedures.

Feport position on proposed port services directive June 13 2001

At the same time the Commission seeks to stay in conformity with the principle of subsidiarity. According to the Commission proposal the heterogeneous nature of the port services and the diversity of the ports (in terms of status, ownership, size, function and geographical characteristics) remain important factors. It requires that appropriate account be taken of each ports specificity and its relevance for the port service providers. It is, however, questionable whether the Commission did strike the right balance between achieving legal certainty and maintaining subsidiarity. The current proposal from our point of view contains many unclarities due to the wish to preserve subsidiarity on the one hand (for instance many key-concepts have not been defined) and too strict and inflexible rules on the other hand to achieve legal certainty, which may lead to bureaucracy and may create a culture of systematic legal disputes. The result may well be that while the lack of definitions will create new disparities and increase legal uncertainty, which is contrary to the aim to create a level playing field, the inflexibility of some substantial rules contained in it lacks justification and endangers subsidiarity and local autonomy of ports. So instead of creating a level playing field, this may lead to severe distortions of competition and thus have a counterproductive effect. It can be expected that much more bureaucracy will be created and a very uncertain situation for the port industry will emerge, which will have a negative impact on the level of investments and consequently on safety and efficiency.

CONCLUSIONS AND RECOMMENDATIONS To conclude, FEPORT is of the opinion that the directive proposal increases uncertainty, is not clear on whether owned facilities can be expropriated, ignores the regulating role of the market, discourages investment in infrastructure and superstructure towards the end of lease terms (because there is no certainty of extension) and adds to uncertainty in terms of being vague in its drafting in general. In other words the directive proposal does not add to the effectiveness of ports, which is its main aim. The proposals in the Directive relating to cargo handling are not acceptable in their present form and should be the subject of further study. Failing that, major amendments are required. The key-principles on good governance and neutrality of port authorities, as mentioned above, should form the guiding principles when amending the directive proposal and should apply to all port services within and outside the port area, independent of the size of the port. The following more specific comments should in that respect be taken into account as well. Finally, article 6.5 on the right to use personnel of its own choice should remain as it is.

Feport position on proposed port services directive June 13 2001

SPECIFIC COMMENTS First of all, the concept of limitations has to be discussed. This concept is one of the key concepts in this proposal and it is unclear from the directive proposal how this concept should be applied by the respective port authorities. FEPORT believes that, by the nature of things, every port is limited in available space or capacity. The circumstance that in a given port one possible terminal site is for the moment unoccupied, may not be a sufficient reason to conclude that there are no space or capacity constraints as one has to take into account the technical and economic characteristics of the site in question as well. It may well be that notwithstanding the availibility of one or two terminal sites, these sites are not suited to handle e.g. containers or dry bulk, given the limited land surface or the limited draught at the quay. This would thus lead to the situation where all European ports are caught by the strict regime on limitations, selection procedure, duration of authorisations and on transitional measures, which would certainly not be proportionate, especially not for cargo handling. In most European seaports, restrictions have gradually been removed from the market of cargo handling services, which has become more commercially oriented with increasing participation of the private sector. FEPORT is therefore of the opinion that this concept should be omitted from the proposal, since it is very vague and leaves too much space for interpretations leading to distortions of competition. The rules in the directive proposal should be applicable to all ports independent of the fact whether there are space and/or capacity constraints.

Competent authorities (article 5, 7 and 8)

Where the managing body of the port provides, or wishes to provide, port services in competition with other service providers, it must be treated like any other competitor. This requires that the managing body must not be involved in the selection procedure of service providers, must not discriminate, in its function as managing body of the port, between service providers in which it holds an interest and other service providers and must, in particular, separate its port services accounts from the accounts of its other activities. FEPORT recognises that problems may arise where a port authority acts both as judge and interested party when allocating sites to terminal operators. Where port authorities are providing services themselves or through a subsidiary, the question may be raised, however, whether the system imposed by the Directive should not be restricted to situations where the port authority is providing competing or similar services. When the port authority is for instance involved in towage, this alone would not be a valid reason for depriving the port authority of its powers as to the authorisation and selection of cargo handling companies. In its present wording, the proposed Directive would lead to such a result. The mention of the similarity concept provides no solution as it is concerned only with the activities of the competent authority.

Feport position on proposed port services directive June 13 2001

Further, the designation of a "competent authority" apart from the port authority is in contradiction with the local autonomy of port authorities. Local port authorities (whatever their legal regime or organisational structure) enjoy large commercial autonomy and flexibility, and have developed considerable know-how in daily contacts with the private port and shipping industries. Local and commercial autonomy is the basis of the success of the best-performing European ports. Creation of a second "competent authority" deciding on limitations and the selection of port service providers would be contrary to this long-standing tradition and endanger sound assessment of the real needs of the port. It is to be feared that a "competent authority" would mean a return to bureaucratic port administration regimes far away from daily port practice, or, otherwise, that it would result in the creation of a second or parallel port authority, disturbing an integrated and co-ordinated long-term port policy. FEPORT is therefore of the opinion that since these issues are normally very well solved on a case by case basis by the national anti-trust organisation, which port operators should have direct access to, and provided that a sufficient level of transparency will be achieved by the other provisions of the proposal, no additional separate authority is needed. This also applies to certain Member States, where some ports are organised on a basis of vertical integration, whereby the port authority provides some or all of the port services. FEPORT sees no reason for these arrangements to be disturbed: here again any complaints could be referred to the competent national authorities.

At least two service providers for each category of cargo (article 7)

The provision states that in case of constraints relating to available space or capacity, and as long as there are no exceptional circumstances, the competent authority should authorise at least two service providers for each category of cargo. As mentioned earlier, port competition these days is no longer restricted to competition within a given port or range of neighbouring ports. Port operators are therefore no longer only competing with operators in the same port or in neighbouring ports. The basis for guaranteeing market access should therefore be the relevant market, i.e. this should be based on a definition of the market related to the sector of the companies in competition, and not restricted to the individual port. The relevant market covers a larger area than the area within a port. FEPORT is of the opinion that the proposed stipulation furthermore conflicts with the objective of the Directive to reduce the costs of service provision in seaports. In many cases, two providers of the same service in one port would not be capable of offering low-cost, innovative services. Particularly in smaller ports, it is often not possible to increase the number of service providers. These providers are in a situation of inter-port competition and this induces them to improve their performance.

Feport position on proposed port services directive June 13 2001

Furthermore, the requirement to allow access to at least two service providers for each category of cargo would lead to the expansion of existing ports and to an inefficient and uneconomic use of available space and facilities (see above). Such expansion would involve considerable cost which would need to be passed on to the port user in the long run. Moreover, such an expansion could have harmful environmental consequences and could well be limited by the Birds and Habitatsdirective. Finally, given the fact that this requirement only applies when there are capacity and/or space constraints this seems to even increase the space and/or capacity constraints. Given the above, FEPORT is of the opinion that it should be left to the port authority to decide how many operators per port are needed, taking into account relevant EU environmental legislation as well as available space and/or capacity in the port and the overall efficiency of the port operations. In situations of dominant positions and abuse thereof, the competition rules are well equipped to handle these cases.

Duration of concessions (article 9)

Article 9 of the directive proposal sets durations for concessions ranging from 5 to 25 years, depending on whether significant or insignificant investments are made and for significant investments whether these investments are in moveable or immoveable assets. The proposed durations are considerably less than what is usual in Member States (e.g. French Act of 1994 on "droits rels administratifs", providing for maximum duration of 70 years; compare Flemish Ports Decree, adopted on advice of Ports Commission: maximum of 99 years) and what is stipulated for fiscal depreciation purposes, so there would be an increase in cost by shortening of the write-off periods, with corresponding impact on pricing. There would also be a need for reserves to be set aside for demolition obligations in a correspondingly reduced period. For investments in personnel, the fiscal depreciation and the impact of shortening the write-off periods have to be considered as well. Furthermore, port employees are usually highly skilled personnel. In order to become highly skilled, the terminal operator has to train its employees, also during the concession period. Such investments will no longer take place a few years before the end of the concession, not knowing what will happen in the future, which may have an impact on efficiency and safety. Next to that, one should bear in mind that in the last 4 or 5 years before the end of the concession period, given the uncertainty as to whether the company will be able to continue its business, no employee will accept a job for such a short period, with such an uncertain future. The latter also applies to clients. They will not be willing to commit to a given terminal when they do not know whether the company will be able to continue in the near future.

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Feport position on proposed port services directive June 13 2001

The system proposed in the Directive further assumes that the level and the "(in)significance" of investments are assessed before the granting of the authorisation. In practice however, it happens that a stevedoring company after a few years decides on additional investments. The question arises whether this should not have repercussions on the duration of the authorisation. In some ports, additional investments will incite the port authority to grant an extension. In landlord ports, rights of renewal and/or extension are often granted to terminal operators, in order to develop customer relations and encourage new investments. This practice seems to conflict with the proposed Directive, which imposes selection procedures and thus makes relations between the port and its service providers unstable. Moreover, authorisations are in practice already at this stage of a rather precarious nature as the port authority in many countries is entitled to terminate them in the general interest. In recent law, a trend is discernable toward greater stability of port terminal contracts, in order to enhance bankability of investments (e.g. French Act on "droits rels administratifs" of 1994). The proposed Directive seems to go into exactly the opposite direction in that it limits duration and precludes renewal and extension clauses. Given the above, FEPORT is of the opinion that the option for port authorities to allow an extension of the contract should remain possible, since they are essential to encourage investments during the contract period, if not compensation by the new operator would be indispensable. The proposed rules would thus constitute serious obstacles to investment during the term of the authorisation. Required modernisation measures would not be taken towards the end of the duration of the authorisation, with corresponding impact on the competitiveness of the companies and on safety at work. The same applies to investments in personnel, as mentioned above. FEPORT therefore strongly holds the view that the duration of concessions should be decided upon on a case by case basis between the contracting parties e.g. the terminal operator and the respective competent authority and be assessed on the basis of the investments undertaken during the concession period. This is in line with the subsidiarity principle and confirms the principal regulating role of the market.

Selfhandling (article 4 and 11)

"Self-handling" has been defined as "a situation in which a port user provides for itself one or more categories of port services and where normally no contract of any description with a third party is concluded for the provision of such services". According to the proposal, self-handling may be subject to an authorisation for which the criteria must not be stricter than those applying to providers of the same or a comparable port service.

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Feport position on proposed port services directive June 13 2001

First of all, it is unclear what is meant by a "port user". The concept of self-handling in itself may refer both to a shipping company using its own pilots and mooringmen, and to an importer or exporter of goods organising its own cargo handling services. Due to the lack of a definition of "port user", discussions may arise as to which situations are covered by the Directive. FEPORT is of the opinion that port user in the case of cargo handling should only refer to the shipping companies in order not to be detrimental to safety. Finally, as a consequence of the text of the proposal, criteria for selfhandlers may be less strict than for other providers of the same or a comparable port service. The Commission has not given clear reasons why professional qualifications, the financial situation, sufficient insurance cover, maritime safety or safety of installations, equipment and persons (the only authorisation criteria allowed under article 6.2) could be applied in a less strict way for self-handlers. FEPORT is of the opinion that criteria for self-handlers should be equal to those for providers of the same or a comparable port service in order to avoid distortion of competition. Furthermore, selfhandling should only take place on board the ship and should be undertaken by regular crew-members only. Finally, selfhandling should not harm the service provided by the terminal operator or hamper the overall efficiency of operations, nor should it involve any capital equipment belonging to the terminal operator. Should these conditions not be set for selfhandlers, the safety on and insurability of the terminal could be endangered.

Transitional measures (article 16)

This provision gives transitional measures as from the date of transposition, depending on what kind of procedure was followed for allocation of the concession and on the type and level of investments. The proposal provides that, where "the number of providers of port services in a port is not limited by constraints relating to available space or capacity or maritime safety", existing authorisations may remain in force unchanged until such time as the number becomes limited. Where the number of providers of port services in a port is limited, the following applies. Where the authorisation was not granted in conformity with the rules of the Directive but was preceded by a public tender or an equivalent procedure, the maximum duration of the existing authorisation will be 10 or 25 years, depending on the type and level of investment. Where an existing authorisation was not granted in conformity with the rules of the Directive, and depending on the type and level of investments, a new authoriation procedure must be carried out between 2 to 8 years of the date of transposition of the Directive, depending on the type and level of investment.

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Feport position on proposed port services directive June 13 2001

FEPORT is of the opinion that all existing contracts should remain in force unchanged, independent of the fact whether there are space and/or capacity constraints and what the procedure was by which the contracts were allocated. Not taking account of the legitimate expectations of terminal operators with an existing contract will lead to situations where the investments undertaken will have to be earned back in a shorter period, consequently causing prices to rise. In such cases compensation by the new operator would be indispensable. Furthermore, required modernisation measures would not be taken once it is unclear what the maximum duration of the existing concession will be, with corresponding impact on the competitiveness of the companies and on safety at work. The same applies to investments in personnel, as mentioned above. Next to that, this will place an enormous burden of bureaucracy on both port authorities and port service providers, especially in bigger ports, with probably no result or added value whatsoever. For new contracts the rules set out in this paper should be taken into account.

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Feport position on proposed port services directive June 13 2001