Authors: Dimity Maybury and Melissa Tang
In our October edition of Legalseas we reported on the Australian Government's new package of shipping reforms aimed at revitalising the Australian shipping industry.
The key elements of the reforms will be the tax exemptions and the AISR. Our discussions with key players in the industry indicate that tax exemptions alone will not necessarily make Australia a persuasive business proposition when it comes to the registration of ships. In addition, it will be cost savings that may be produced by these reforms which will attract ships to the AISR.
Since the announcement in September last year, the Department of Infrastructure and Transport (Department) has consulted with shipping industry stakeholders through individual consultations and industry forums.
On 19 December 2011, the exposure draft Coastal Trading Bill (Coastal Trading Bill) and Coastal Trading (Consequential Amendments and Transitional Provisions) Bill (Coastal Trading Consequential Amendments Bill) were released for public consultation. The bills are the first two of six bills to be introduced to Parliament in 2012 as part of the package of reforms.
Key details of the new coastal trading regime
The draft Coastal Trading Bill will replace the existing regulatory framework (Part VI of the Navigation Act 1912 (Cth), the Navigation (Coasting Trade) Regulations 2007 (Cth) and Ministerial Guidelines) and establish a new licensing regime for vessels engaged in Australian coastal trading.
In brief, the implementation of the draft Coastal Trading Bill will:
- introduce a three tier licensing regime with general, temporary and emergency licences for the interstate coastal trade (see new coastal trade licensing regime below)
- allow licensed ships to receive foreign Government subsidies
- abolish the Single Voyage and Continuing Voyage Permit system
- introduce a mandatory reporting and publishing scheme (see mandatory reporting requirements below)
- introduce a civil penalty and infringement notice regime (see civil penalties below).
The intrastate shipping trade will continue to be regulated by the States and the Northern Territory although, consistent with the existing position, vessels engaged in intrastate voyages are able to opt-in and be covered by the proposed new regime.
The new coastal trade licensing regime
The Coastal Trading Bill provides that a ship must be licensed with a general, temporary or emergency coastal trading licence in order to engage in Australian coastal trading.
General licences are only available to Australian flagged ships registered under the Shipping Registration Act 1981 (Cth). Ships registered on the proposed AISR will not be eligible for a general licence.
Ships holding a general licence will:
- have unrestricted access to coastal trades for a period of up to 5 years at a time
- be subject to the Fair Work Act 2009 (Cth)
- be able to hire seafarers that are Australian residents or temporary visa holders
- be subject to annual mandatory reporting requirements, which are discussed in further detail below.
General licences will also give ships access to proposed Australian taxation incentives. Detailed information on this aspect is to be released in future bills but a summary of the proposals was discussed in the October edition of Legalseas
Foreign flagged and AISR registered ships will be entitled to operate a specified coastal trade under a temporary licence.
Ships holding a temporary licence will be:
- restricted to a nominated coastal trade (passengers or cargo) for a specific number of authorised voyages during a specified time period of up to 12 months
- able to hire foreign crew members
- subject to the Fair Work Act 2009 (Cth) for its crew members
- (in respect of ships registered on the AISR) eligible for proposed taxation incentives
- subject to making a specified number of voyages as authorised in the licence for a period of up to 12 months and mandatory reporting requirements at the end of each voyage.
The grant of emergency licences will be limited to cargo or passenger movements in emergency situations only with details of the type of emergencies to be prescribed by the Regulations. The Regulations have not yet been drafted but according to the Stakeholder Discussion Paper, such emergencies include natural disasters or other similar critical emergencies.
Australian flagged ships registered under the Shipping Registration Act 1981 (Cth), foreign flagged and AISR registered ships are entitled to apply for emergency licences.
Ships holding an emergency licence will be:
- eligible to operate the licence for a maximum period of 30 days
- able to hire foreign crew members
- subject to the Fair Work Act 2009 (Cth) for its crew members
- subject to mandatory reporting requirements at the end of a voyage.
Mandatory reporting requirements
All licence holders will be subject to mandatory reporting requirements, including information about the type of cargo carried, ports at which cargo was taken on board and unloaded (for carriage of cargo) and the number of passengers carried and ports at which passengers were taken on board and disembarked (for carriage of passengers).
The frequency of reporting obligations to the Department differs depending on the type of licence held:
- general licence holders are to provide the required information no later than 10 business days after the end of a financial year
- temporary licence holders are to provide the required information no later than 10 business days after the end of a voyage
- emergency licence holders are to provide the required information no later than 10 business days after the end of a voyage.
The Department is required under the draft legislation to publish the information obtained under the mandatory reporting requirements. This is aimed at providing a more open and transparent system of cabotage.
The draft Coastal Trading Bill introduces a civil penalty and infringement enforcement scheme. Under the proposed framework, failure to comply with the mandatory reporting requirements will result in either an infringement notice being issued by the Department or civil penalties of up to a maximum of A$275,000 in the case of a body corporate and A$5,500 in the case of an individual.
Unlicensed ships trading on the coastal trade will be subject to a maximum civil penalty of A$165,000 in the case of a body corporate and A$33,000 in the case of an individual. These penalties are significantly increased compared to the current regime where successful criminal prosecution results in the maximum penalty of A$25,000 in the case of a body corporate and A$5,000 in the case of an individual.
Transitional arrangements and consequential amendments
Under the transitional arrangements proposed under the Coastal Trading Consequential Amendments Bill, a permit or licence issued under the old regime will remain in force and will end on the earlier of 31 October 2012, the day the permit expires or when the Minister cancels the permit.
Existing licensed foreign registered vessels will be eligible to apply for a transitional general licence, and will be given a period of five years upon the grant of the transitional general licence to transition to Australian registration. Foreign registered ships holding a transitional general licence will not have access to the proposed taxation incentives.
Amendments will be made to the Navigation Act 1912 (Cth) so that ships operating on a temporary licence will be allowed to employ foreign seafarers. This is consistent with the current position with respect to ships trading on Single Voyage and Continuing Voyage Permits.
At a practical level, as currently drafted, the new proposed coastal trading regime appears to be very similar to the current regime. The only new aspects being:
- emergency licences are available to all vessels in emergency situations
- licensed ships are subject to mandatory reporting requirements
- the introduction of a civil penalty and infringement notice regime
- it will no longer be an offence for a licensed ship to be in receipt of a foreign subsidy.
The stated desire of the Government is to improve Australia’s overall maritime capability. However, an opportunity has been missed to take a fresh look at Australia’s coastal trading regime. Because the new proposed regime continues to differentiate between coastal and international shipping by failing to allow those ships on the AISR to obtain general coastal trading licences, this will, in our view, reduce the chances of success of the proposed reforms as a whole.
The success of the reforms will be measured by the success or otherwise of the proposed AISR. Australia should be focussed on making registration on the AISR as attractive as possible to the international shipping community.
When considering the proposed shipping reforms, the Bureau of Infrastructure, Transport and Regional Economics (BITRE) considered the economic impact of a system which allowed AISR registered ships to engage in both the coastal and international trades. BITRE concluded that, under this scenario, AISR registered ships would reap significant cost savings by being able to reduce the proportion of sailing days in ballast (Regulation Impact Statement, August 2010, [4.3.5]).
As stated above, it will be the cost savings that may be produced by these reforms which are what will attract ships to the AISR. Our discussions with key players in the industry indicate that tax exemptions alone will not necessarily make Australia a persuasive business proposition when it comes to the registration of ships.
The Department has gone through a public consultation process on the draft bills and the proposed reforms are currently planned (together with the other four bills not yet announced) for implementation in July 2012 for a planned commencement in mid 2013.
There have been new developments on this Bill since this article has been published. Norton Rose Australia will provide an update shortly.