UNCTAD Code of Conduct for Liner Conferences: Trade Milestone or Millstone--Time Will Soon Tell, The Perspectives
UNCTAD Code of Conduct
Will Soon Tell, The P erspectives UNCTAD Code of Conduct for Liner Conferences: Trade Milestone or Millstone--Time
Leslie Kanuk 0
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Trade Milestone or Millstone
Time Will Soon Tell
Code of Conduct for Liner
At the same time that the Reagan Administration completes the
dismantling of the regulatory framework which has controlled the
transportation industry in this country for over a century, the world-wide
maritime community is gearing up for what could prove to be the most
gigantic regulatory superstructure the world has ever known. I refer, of
course, to the implementation of the Code of Conduct for Liner
Conferences developed by the United Nations Conference on Trade and
Development, more commonly known as UNCTAD. The UNCTAD Code
came into force on October 6, 1983, six months after ratification by the
requisite number of countries representing 25 percent of the total volume
* Dr. Leslie Kanuk is Lippert Distinguished Professor of Marketing at Baruch College of the
City University of New York and former Chairman of the Federal Maritime Commission. She
served as Chairman ofthe Advisory Panel on Maritime Trade and Technology for the United States
Congress Office of Technology Assessment, and was a member of the Maritime Transportation
Research Board of the National Academy of Sciences.
of world trade in the year 1974.' The UNCTAD Code is a multilateral
agreement which has the potential of "balkanizing" world trade through
the division of liner conference cargoes between trading partners. 2 It
leaves a small percentage of liner conference cargoes open to third flag
I The Code was adopted in Geneva in April 1974, to become effective six months after
Carriers can be divided into two categories: liners and tramps. Those that offer common
carriage services on a regularly scheduled basis on a regular trade route are called liners; those that
operate on an irregular basis according to the availability of cargo are called tramps. Most nations in
the world value the notion of having their own merchant fleets--for economic reasons, for national
defense reasons, and for reasons of national pride. Consequently, many nations provide direct and
indirect subsidies to their national flag carriers in order to keep them financially viable. Such
subsidies often take the form of cargo policies which reserve a large part of the nation's cargo for carriers
registered under the national flag and which meet specified minimum requirements of ownership,
operation and manning by citizens of that nation.
carriers, if agreed to by the national flag carriers in the trade.3
UNCTAD was formed in response to the developing nations
dissatisfaction with their "have-not" status in relation to the industrialized
world.4 One of the first areas which the UNCTAD secretariat addressed
was the field of liner shipping.5 The developing nations were angered by
the fact that they were barred from membership in the closed European
and Japanese conferences which controlled their trades with these
countries. They felt victimized by conference-imposed rate structures which
they believed to be disproportionately high outbound, thus impairing the
competitive position of their primary products in world markets. They
were concerned that the closed conference system prohibited the
development of their own merchant fleets, perceived by many nations to be a
symbol of national sovereignty and power. Furthermore, they felt, not
unreasonably perhaps, that they were entitled to carry a significant share
of their own foreign commerce. Their resulting "declaration of
freedom"-the UNCTAD Code of Conduct for Liner Conferences-is a
document which paradoxically supports the very provisions which
provoked its inception: closed conferences, increased anticompetitive
activity, and inflationary pricing mechanisms.
A careful examination of the Code itself reveals it to be a poorly
drafted, internally contradictory and ambiguous document-open to
varying interpretations of form and substance-which implicitly requires
an elaborately complex regulatory mechanism to assure that its
cargosharing provisions are adhered to by Codist signatories. The Code may
also prove to be the proverbial camel's nose under the tent. It purports,
as its title implies, to be a code of conduct for liner conferences.
However, various informed interpretations of the Code, and premature
unilateral efforts by some nations to implement the Code,6 indicate that
non3 The nations at either end of a trade-the importing nation and the exporting nation-are
called tradingpartners,and a ship registered in either nation that is engaged in that trade is called a
nationalflagcarrier. A carrier that is not a national carrier-that is, not registered in either the
exporting or importing nation-is called a cross traderor thirdflag carrier.
4 UNCTAD was established as a permanent organ of the United Nations General Assembly on
December 30, 1964. G.A. Res. 1995, 19 U.N. GAOR Supp. (No. 15) at 1-5, U.N. Doc. A/5815
(1964). One of its principal purposes was to speed the economic development of developing nations.
UNCTAD is comprised of six main committees which deal with specific areas of trade and
development, including a Committee on Shipping.
5 At its third session in 1972, UNCTAD requested the General Assembly to adopt a code of
conduct for liner conferences. Proceedings of the U.N. Conference on Trade and Development,
Third Session, Santiago de Chile, I UNCTAD Annex I.A. (Agenda Item 16) at 93-98, U.N. Doe.
TD/180, Vol. I (1972). This came as a result of several years of effort on the part of
LDCsoriginally known as the Group of 77-to exert control over significant shares of their own nation's
6 For example, in 1982 the government of the Phillipines decreed that 40 percent of all liner
conference carriers might very well be barred from Codist trades, thus
effectively closing the trades as well as the conferences. The developing
countries have also begun lobbying for a code of conduct for bulk trades7
and are seeking the elimination of flags of convenience.' Should they
accomplish these objectives as well, they may very well end up
controlling world trade, and ultimately destroying it.
In my view, the United States has wisely refrained from ratifying the
UNCTAD Code. I concede that it might have been useful for the State
Department to participate in the final negotiations which produced the
Code, if such participation would have enabled the United States to
influence its outcome. However, the United States did not anticipate that the
Code would actually achieve ratification by the requisite number of
nations. Indeed, it was not until 1979, when the European Community
decided to ratify the Code with reservations, that it appeared that the
Code had any chance of passage at all.
The United States totally disavowed the Code from its inception in
1974 because of its clear contradiction with United States economic
policy. However, a number of prominent people from various sectors of our
maritime community-including liner company presidents and union
leaders-have urged the government to ratify the Code. In some cases,
advocates of the Code have not fully understood its provisions, its
implications and its potential impact on United States' international trade. In
other cases, advocates of ratification have not recognized the distinction
between direct bilateral agreements and the multilateral agreement that
is the UNCTAD Code. This paper endeavors to make that distinction
KEY PROVISIONS OF THE CODE
The Code is a complex, poorly written, ambiguous, sometimes
contradictory document consisting of fifty-four articles and two non-binding
annexes. Article 1 of the Code gives the national shipping lines of two
trading partner the right of conference membership in the trade between
their two nations, and permitscross traders into the conference, if agreed
to by the national flag lines.'" Article 2 reserves dominant and equal
shares of cargo for the national flag carriers, permitting some shares for
cross traders ifagreedto by the national flag lines.1 Article 3 grants the
national shipping lines veto power over liner conference actions affecting
the trade of their home country." Articles 4 through 11 deal with the
Code mechanics, including the provision for conference self-policing and
shippers councils, purportedly as counterweights to potential abuses of
conference power. 3 Articles 12 through 17 concern freight rates, tariffs,
and other charges. 4 Articles 18 through 46 relate to the settlement of
disputes and provide for non-binding "international mandatory
conciliation."'" Articles 47 through 54 are largely administrative in nature and
concern implementation of the Code.' 6
The Code's basic issues and points of disagreement center on closed
conferences, closed trades, cargo sharing, disputes settlement, shipper/
carrier consultation, rate-making and regulation. Underlying all of these
issues is the Code's probable impact on shippers and on trade. The
following analysis of the Code's key provisions focuses on each of these
issues in turn.
Under Article 1, Code conferences are open to all national shipping
lines of each trading partner and closed to all others, though third-flag
carriers may be admitted if mutually agreed to by the national flag
car9 It should be noted that the Code is legally binding only on those nations which have ratified it
and which have enacted conforming domestic legislation. UNCTAD Liner Code, supra note 1,
(Arts. 47-49) at 17-18.
10 UNCTAD Liner Code, supra note 1, (Art. 1) at 5.
11 UNCTAD Liner Code, supra note 1, (Art. 2) at 5-6.
12 UNCTAD Liner Code, supra note 1, (Art. 3) at 6.
13 UNCTAD Liner Code, supra note 1, (Arts. 4-11) at 7-9.
14 UNCTAD Liner Code, supra note 1, (Arts. 12-17) at 9-11.
15 UNCTAD Liner Code, supra note 1, (Arts. 18-46) at 12-17.
16 UNCTAD Liner Code, supra note 1, (Arts. 47-56) at 17-19.
rier. 17 Article 3 grants veto power to the national shipping lines, which
can be exercised on "all matters defined in a conference agreement
relating to trade between two countries."1 8 The veto power gives effective
control of the conferences to the national carriers of either one of the
The Code definition of the term "conference" is so limited and
lacking in precision that it is likely to cause future problems. 19 For example,
it fails to specify exactly what constitutes a conference for Code
purposes. Indeed, the Code seems to consider the trade between two
countries as equivalent to the scope of a single conference. However, liner
conferences invariably cover more than a single pair of countries.2 0
Furthermore, several conferences frequently cover a single trade between
two countries.2 1 Sometimes these are competitive conferences,
sometimes they are complementary-operating in opposite directions. The
Code definition of "conference" also does not encompass intermodal
cargo movements,2 2 nor does it provide for membership by non-vessel
operating common carriers. 23 The definition is loose enough to include
joint services, space charter arrangements and consortia.2 4
This lack of definitional precision creates special problems in
establishing the intent and potential impact of Code provisions. The lack of
clarity extends to the exact content or effect of the legal obligations the
Code creates. For example, the Code requires self-policing, 25 but does
not provide any oversight mechanism to monitor conformance.
Furthermore, the Code leaves to the conferences themselves to define what they
consider malpractices to be.
A careful reading of the Code and observation of unilateral attempts
to implement the Code suggest that the Code is intended to close not
only conference membership but also entire trades.2 6 In fact, the Code is
totally ambiguous about the fate of independent carriers. Article 2.17 of
the Code states that the cargo sharing provisions of the Code concern
"all goods regardless of their origins, their destinations or the use for
which they are intended, with the exception of military equipment for
national defense purposes."'2 7 This suggests that all existing preference
cargoes, with the exception of military equipment for defense purposes,
must be forfeited to the pool. Since the cargo sharing provisions of the
Code are to be governed by the conference, one cannot avoid the
inference that the conferences must cover the entire trade.
As originally proposed, the Code equated conference cargoes with
the total liner trade between two countries. The developing countries
were clearly apprehensive that outside competition might erode the
conference system and render the Code ineffective. However, only in the
non-binding resolutions of Annex II is the matter of non-conference
carriers discussed at all, and then it is with the clear understanding that the
operations of independent shipping lines would be permitted only so long
as their presence did not damage the smooth operation of liner
conferences nor jeopardize the Code's cargo sharing provisions. Clearly, the
status of independents under the Code is uncertain. If independent
carriers do in fact exert a downward pressure on conference prices, the
exclusion of independents from Code trades would eliminate such pressure,
and could lead to monopoly pricing abuses.
V. CARGO SHARING
The issue that has excited most attention and interest in the Code is
the provision for cargo sharing. Article 2 specifies that cargo between
two trading partners should be shared on an equal basis, and that cross
traders, "if any," shall be permitted to acquire a significant part of the
trade, "such as 20 percent."28 This rather ambiguous statement has been
perceived by much of the world as a rigid division of cargoes into a 40/
26 See supra note 6.
27 UNCTAD Liner Code, supra note 1, (Art. 2.17) at 6.
28 See supra note 11.
40/20 scheme,2 9 which the fact is that no such mathematical formula has
been proposed. Indeed, it seems likely to this observer that the trade
share accorded to cross traders will probably range well below 20
percent, if it is granted at all.
In the several instances where developing countries have unilaterally
tried to implement the Code prior to ratification, they have sought
greater than a 40 percent cargo share.30 Because of disparities in cargo
values, most cargo-sharing regimens are operationalized through
accompanying revenue-sharing pools, so that trading partners share revenues in
the same proportions originally allocated to cargo shares. Once a
revenue pool is established, individual national flag lines might not be
concerned with actually carrying much of their own cargo at all, so long as
they receive their allotted share of the pool revenues. Revenue pools,
almost by definition, provide a built-in incentive for a national flag line to
be an undercarrierand thereby minimize its operational costs, since it is
guaranteed its full revenue share nevertheless. If a carrier systematically
carries more than its allotted share of cargo, but is allowed to keep only
the allotted share of the revenues, you can be quite certain that its share
of conference revenues not only covers its full operating costs, but also
includes a profit. Thus, revenue pooling tends to both inflate conference
shipping rates and downgrade member shipping services.
Aside from allocating cargo shares to qualified national shipping
lines, Article 2 seems to imply that nations have innate "rights" to their
cargo shares, and that these rights may be bartered or sold to the highest
bidder. Thus a developing nation without a fleet may find it financially
attractive to nominate a cross trading carrier as its national flag line in
return for a share of the revenues earned from carrying that nation's
protected pool share. This approach exemplifies the position of many
developing nations which have argued that nations that generate liner cargoes
have the innate right to control the transport of those cargoes. Since the
underlying carrier-the cross trader masquerading as the developing
country's national line-will only enter into such an agreement in order
to earn a profit, clearly its payments to the host country for the right to
carry that nation's cargo will simply be an add-on, contributing to
unnecessarily high freight rates.
29 A 40/40/20 division of cargo means that 40 percent of the trade is reserved for the national
flag ships of each trading partner, and 20 percent for the ships of third flag countries (e.g., cross
30 See supra note 6.
VI. DISPUTE SETTLEMENT
The Code includes a novel, but non-binding procedure for the
settlement of disputes between and among carriers, conferences, and shippers.
This procedure, labeled "international mandatory conciliation,, 31 can be
considered mandatory only in the sense that once a party has requested
conciliation, it must go ahead, regardless of the other party's wishes.
Neither party, however, is bound by the conciliator's decision, and the
Code applies no sanctions against a party who rejects the conciliator's
recommendation. When either or both parties disagree and disregard the
conciliation recommendation, each can take the matter to its own
national courts. Of course, the results of domestic legal resolutions to the
dispute may also be in conflict, yet the Code's legal regime only
supersedes domestic legal decisions if the disputants agree with the
conciliator's findings. Clearly, there are severe shortcomings in such an
ambiguous and nonconclusive dispute settlement mechanism.
VII. SHIPPER/CARRIER CONSULTATION
The Code authorizes the formation of shippers' councils to provide
an effective countervailing balance to the power of closed conferences.32
Shippers councils, in theory, have the ability to deny cargo to
conferences which do not negotiate in good faith. This threat presumably
provides shippers with the necessary leverage to assure conference
cooperation. However, the threat of cargo denial lacks credibility if there
are no independent carriers in the trade. Without independent carrier
alternatives, shippers in a very literal sense become captive to the
Another interesting aspect of the consultation procedure is the fact
that the shippers' councils in Codist trades are likely not to be private
sector bodies. Indeed, in many developing countries, existing shippers'
councils are quasi-governmental organizations designed to prohibit
conference exploitation. Given the fact that the Code does not expressly
require a shippers' organization to be a private sector body, it seems
likely that the shippers' councils of many developing countries will be
government sponsored groups organized to negotiate rates and
conditions of service with the liner conferences. If the national shipping line is
also government owned or sponsored, the shipper and carrier bargaining
agents of the developing country might have too much of a unanimity of
interests for true bargaining to take place. Thus, the Code's supposed
31 UNCTAD Liner Code, supranote 1, (Arts. 23-46) at 12-17.
32 UNCTAD Liner Code, supra note 1, (Art. 11) at 8-9.
Northwestern Journal of
International Law & Business
process of commercial negotiation between shippers and carriers may in
reality lead to unilateral rate regulation by the developing nations.
Consider the fact that the Code guarantees the national flag lines of
the developing countries membership in their liner conferences, gives
them veto power over all conference actions, and permits their
governments-through government-controlled shippers' councils-to be the
official negotiators with the conferences on rates and services. Under such
a scenario, both the shippers and the carriers of the developed trading
partner are in a very tenuous position in terms of striking a fair and
The Code gives the developing countries effective control over
conference rate-setting through outright government regulation, mandatory
negotiation with government-sponsored shippers' councils, and through
"guidance" to conference rate-making bodies via the national flag line's
participation in the conference. In a Codist trade, rates can be expected
to increase: first, because of the inefficiencies of operation inherent in the
captive trade, and second, because of the peculiar requirement that limits
the minimum time interval between general freight rate increases to
fifteen months.3 3 While it is likely that the drafters of this provision
intended that the restriction on increasing rates more frequently than once
every fifteen months would keep rates down, it is even more likely to
have the opposite effect. As commercial entities, carriers can be expected
to adopt risk avoidance strategies in their rate-making procedures which
provide them with buffers against unexpected downturns in business or
increased operating costs. Risk avoidance strategies would dictate that
rates be set at much higher levels than necessary in order to cover
unexpected contingencies that may arise during the fifteen month interval
between permitted rate increases.
The Code has another interesting rate provision: it permits the
developing nations to insist on special promotional freight rates for exports
they wish to promote.34 Such special rates will have to be
cross-subsidized, either by other export commodities or, which is more likely, by
imports.35 Thus, the burden of cross-subsidizing selected promotional
33 UNCTAD Liner Code, supra note 1, (Art. 14) at 9-10.
34 UNCTAD Liner Code, supra note 1, (Art. 15) at 10.
35 Rates are set on the basis of roundtrip voyages. If some rates are noncompensatory (i.e.,
"promotional") other rates must be increased accordingly. Since the developing country is not likely
to permit an increase in the CIF costs of any other of its export commodities because that would
make them uncompetitive in world markets, it will no doubt look to an increase in inbound rates for
noncritical items, particularly those for which there are more than one source.
exports is likely to fall on the developed trading partner's own exports,
making them less competitive in the marketplace.
The problem with excessive rates is that they tend to restrict trade.
The ultimate result, of course, is not only reduced trade, but reduced
revenues. This can have a downward spiralling effect on the economies
of both the developed and the developing trading partners, with the
potential consequence that UNCTAD will demand ever greater concessions
for the developing countries.
For years the international shipping community has decried what it
has perceived to be excessive regulation in the United States trades. I'm
afraid that they have not seen anything yet. While the Code goes under
the guise of an international agreement governed by commercial
negotiations between shippers and carriers, it will require an inordinate amount
of government regulation to ensure that the specified share of every
signatory nation's trade with every other signatory nation is carried on the
nominated carrier, and that the resulting revenues are divided according
to formula. With a totally bilateralized world trade, the mechanism
required for keeping track of cargo and revenue shares on a
nation-bynation basis promises to create an incredible new lawyer of government
bureaucracy across the maritime world. It is somewhat ironic that this
should occur at approximately the same time that the United States has
sharply reduced all transportation regulation.36
The closed conference provision of the Code appears to offer the
potential for greater operating efficiencies through the rationalization of
cargoes, leading to high vessel utilization and reduced unit costs. 37
However, a number of inherent factors in the Code lead me to believe that
inefficiencies will prevail instead, leading to higher rates for most
shippers and deliberately lower rates for others. First, the rigid cargo sharing
formula has no built-in rewards for carrier efficiency, such as a
redistribution of pool shares. Thus, with a captive market, carriers are unlikely
36 Passage of the Shipping Act of 1984 completed deregulation of all the transportation modes:
air, motor carrier, rail and ocean carriage. Shipping Act of 1984, Pub. L. No. 98-237, §§ 1-22, 98
Stat. 67-70, 72-77, 80-90 (codified as amended in scattered sections of 46 U.S.C.A. (Supp. 1984)).
37 Because of the high break-even costs of container vessels, high utilization permits the
allocation of fixed costs across a greater number of containers, thus reducing the cost per container. Low
utilization (i.e., over-tonnaging) requires that fixed costs be spread over fewer containers, thus
increasing the unit cost.
to expend time or money to improve service or equipment or seek ways
to reduce costs. Second, since conferences generally set their rates at a
level high enough to yield a profit for their least efficient member, more
efficient carriers in the conference tend to earn excess profits at the
conference-set rates. These excess profits are somewhat tempered by the
presence of independent competition in the trade, which, as suggested
earlier, serves to exert a downward pull on conference rates. If Codist
traders are closed to independent carrier, however, an important curb on
monopoly profits will have been lost, and rates in general can be expected
In sum, the Code can be expected to fragment world trade, eliminate
or minimize independent competition, apportion cargo without regard
for relative differences in commercial efficiency, and eliminate conference
flexibility. Furthermore, due to their relative inexperience in the field of
ocean transportation, it is likely that the shipping lines of the developing
nations will operate at higher costs and with lower service levels than the
established cross traders which they will replace. This, together with the
conference system's natural tendency to protect members with relatively
high costs, supports the conclusion that the shipper is likely to experience
much higher transportation costs and substantially decreased service in a
fully operating code environment.
UNITED STATES OPTIONS
In addition to all of the potential problems listed above, an even
bigger problem that might emerge if the United States were to ratify the
Code is the loss of United States control over the terms of its own trade.
In a forum where the majority rules, the developing nations have the
advantage of numbers. Despite their lack of economic strength, their
efforts to reorder world economic relations may very well be
accomplished simply through their superiority of numbers. Given the example
of recent actions in the United Nations, I for one fear the prospect of
having majority treaty decisions affecting United States world commerce
made by majority vote of other nations, who may not have the best
interests of this nation at heart.
The primary attraction of the Code among United States maritime
interests is its cargo sharing provision. However, a careful reading of the
Code suggests that United States carriers would have to relinquish their
hold on all government-reserved cargoes38 other than military equipment
38 At the present time, the United States has a cargo policy which requires that 50 percent of all
government-implied cargoes (e.g. AID cargoes) move on United States flag vessels. 46 U.S.C.
for national defense; thus, the effective increase in their share of
guaranteed cargo would not be as significant as they may have envisioned. If
cargo sharing is indeed the objective, there appear to be better ways to
accomplish it-ways that would not require the United States to
subordinate its own best interests to a multinational treaty. But before I
discuss other United States policy options, it may be useful to examine
the nature of the European Community's reservations to the UNCTAD
Code-the so-called Brussels package.
XII. THE EUROPEAN COMMUNITY (E.C.) RESERVATIONS
The E.C. reservations, in brief, disapply the cargo sharing provisions
of the Code to trade among the O.E.C.D. nations. This effectively
eliminates any benefits whatever to United States flag carriers if the United
States joins in the Code's ratification with the same reservations as the
Brussels package. Consider how United States participation in world
trade would be effected under three possible trade scenarios: trade
between the United States and another O.E.C.D. nation; trade between the
United States and a developing country; and trade between two
developing countries with United States carriers operating as cross traders. For
the sake of this example, let us assume a 40/40/20 cargo division (that is,
40 percent of the trade to the flag vessels of each trading partner, and 20
percent reserved for cross traders.)
In the first scenario, the cargo sharing provision would simply not
apply, so that in our trade with Europe, for example, where the United
States currently carries far less than 40 percent, United States ships
would receive no added benefit through cargo reservation. In the second
scenario, where the United States trades with a developing country, our
trading partner could claim the full 40 percent of its cargo
share; however, the United States share, together with the 20 percent
third flag share, would be open to competition by all O.E.C.D. countries.
Again, United States carriers would receive no added benefits of cargo
reservation, while the O.E.C.D. carriers presently in the trade would not
be required to relinquish any cargoes to United States carriers. In the
third scenario, where United States carriers operate as cross traders in a
trade between two developing countries, each trading partner would
retain 40 percent of the total trade, while the United States carriers would
have to compete with all other cross traders for a price of the remaining
20 percent share. Thus, under none of the possible scenarios would
United States carriers receive any added cargo benefits were the
govern§ 1241(b)(1) (1982). Under the Code, such cargo will no longer be reserved for United States
vessels, but will go into the common pool.
ment to ratify the UNCTAD Code with the E.C. reservations, as so
many of our European colleagues have urged us to do.3 9
Clearly, the United States has nothing to gain if it were to ratify the
Code with the same reservations as the E.C. Why, then, do our
European trading partners urge us to adopt it? They have made no secret of
the fact that they are trying to head the United States off from taking
what this observer considers to be a more logical course of action to
achieve the same cargo sharing benefits: the negotiation of selected
bilateral treaties. Government-to-government bilateral treaties would
guarantee United States carriers a specific share of United States
international commerce, and by doing so, would effectively limit the amount of
United States cargo available to the European Community through
direct and cross trading.
If we were living in a more perfect world, I would be totally opposed
to the notion of the United States negotiating bilateral treaties with its
trading partners. In fact, during my tenure on the Federal Maritime
Commission, I consistently voted against bilateral agreements. My views
towards bilaterals-towards any sort of protectionism-have not
changed. I believe that bilateral agreements tend to inhibit trade, that
they harm rather than help shippers, and that they are costly to the
ultimate consumer. The same problems and potential for abuse which I
identified in terms of the cargo sharing provision of the UNCTAD Code
are present in government-to-government cargo sharing schemes.
Why then do I support bilaterals? The answer is simple. We are not
living in a perfect world. Events are overtaking us. The UNCTAD
Code has already gone into effect, though its impact has so far been
minimal because the signatory nations must draft the necessary domestic
legislation to properly implement the Code. Protectionism, with all its
implied and potential abuses, is rampant throughout the maritime world.
Under these circumstances, I feel that the United States-as the largest
contributor to world commerce-must actively adopt a regime over
which it can exert and maintain significant control. We must not allow
ourselves to become pawns in a Codist world through a policy of passive
or even benign acceptance. We must do what is best for this
nationactively, aggressively, and soon. And I am convinced that it is in the best
interests of this nation to have a strong merchant marine.
39 The Consultative Shipping Group (CSG), made up of members of the European Community
and Japan, has held a series of meetings with State Department officials urging the United States to
ratify the Code.
A series of carefully drafted bilateral treaties will give the United
States the guaranteed cargo base needed to strengthen its merchant
marine. Such treaties will permit the United States to negotiate from a
position of strength and to have a full and equal say in their provisions.
In my view, a major problem with the bilateral treaties we presently
have4 is that our negotiators allowed them to be too vague and
ambiguous. They agreed to a broad-brush framework, to be filled in later
through commercial negotiation. However, I suspect that the subsequent
so-called "commercial" negotiations were strongly influenced by our
trading partners' interests, with the result that these treaties tend to favor
the carriers of our trading partners more than they do our own. It is
ironic that United States carriers have been so grateful to receive a
guaranteed share of these trades, that they have willingly accepted such
inequities without complaint. Hopefully, future bilateral treaties will be
negotiated from a position of strength, to assure that United States flag
carriers enjoy at least equivalent benefits as do other carriers in the same
In conclusion, I would like to underscore my belief that guaranteed
cargo shares tend to inhibit a carrier's service incentives, to the ultimate
detriment of shippers and the general public. A protected industry has
little motivation to innovate, to reduce costs, or to improve service.
Indeed, major shippers have reported that the worst carrier service they
receive are in the very trades which are presently covered by bilateral
An alternative to ratifying the UNCTAD Code of Conduct of Liner
Conferences is the promulgation by the United States of a network of
bilateral treaties. However, if the United States does enter into bilateral
cargo-sharing treaties, it must exert special effort to assure that United
States shippers are not hurt in the process. As a quid-pro-quo for their
guaranteed cargo shares, United States carriers must pledge to render
quality service at rates which enable United States shippers to remain
competitive with foreign exporters. United States carriers must actively
44 The United States presently has two 40/40/20 bilateral treaties: one with Argentina (Memo
of Understanding/Maritime Matters, Mar. 31, 1978, United States-Argentina, 30 U.S.T. 1054,
T.I.A.S. No. 9239.) and the other with Brazil (Agreement on Shipping: Equal Access to
Government-Controlled Cargoes, Nov. 17, 1977, United States-Brazil, 29 U.S.T. 2860, T.I.A.S. No. 8981;
Extension of Nov. 17, 1977 Agreement, Oct. 26, 1983, United States-Brazil, T.I.A.S. No. 10802).
However, as a result of a side agreement between Argentina and Brazil, each country has allotted
approximately half ofthe 20 percent third flag share to the other; thus the effective division is really
closer to 40/50/10 in each bilateral trade.
strive not to take United States shippers for granted, but should
constantly seek to anticipate and to satisfy their commercial needs.
In an increasingly ethnocentric world, United States carriers must
recognize that United States shippers are their partners in world trade.
In this regard, they can take a cue from some of our trading partners. If
the United States is to prosper as a nation, all parties must work together
to help each other achieve both individual and mutual objectives-not
least of which should be a stronger United States based on increased