Our founding partner, Dr. Maria Belen Espiñeira, was invited to be one of the speakers at the Seminar “CONTRIBUTIONS FOR A MERCHANT MARINE LAW’S REFORM PROJECT,” organized by the department of TRANSPORT & CARGO of El Cronista newspaper within the framework of the celebrations of their 25th-anniversary celebrations. The event took place at the Universidad Católica Argentina on May 4th, 2023.
Joining Dr. Espiñeira as speakers at the event were Jorge Tirabassi, President of Centro de Capitanes de Ultramar y Oficiales de la Marina Mercante, and Juan Carlos Donato, a consultant in navigation and port-related issues.
We express our gratitude to El Cronista for the invitation and the opportunity to address such a significant topic for the maritime industry alongside prominent figures from the sector.
We now provide a summary of Dr. Espiñeira’s presentation.
¨CONTRIBUTIONS FOR THE DEVELOPMENT OF A NATIONAL MERCHANT MARINE¨
The development of a national merchant marine has been a pending issue in Argentina for many years, and it had its latest initiative in December 2017 when Law 27,419 was enacted regarding the Development of the National Merchant Marine and Regional River Integration, along with Law 27,418 which created the Argentine Naval Industry Promotion Regime.
In view of understanding its importance, it is necessary to begin by defining the scope of the concept: the national merchant marine refers to shipping companies that operate and maintain ships flagged under certain country’s flag, transporting cargo and passengers within and beyond national borders. It is the organization of people and vessels devoted to a country’s trade, making it a fundamental axis for the sustained and efficient development of a nation as it has an impact on both national and international trade, and can provide a strong boost not only to the maritime sector but also to various related sectors, benefiting society as a whole.
As highlighted by experts, water transportation is a cross-cutting activity that has a direct and indirect impact on numerous other productive activities, and any improvements made in this sector (social, economic, and environmental) can enhance other productive sectors and society as a whole.
1.- Key Aspects of Law Nr. 27.419
The main objectives of Law 27,419 regarding the Development of the National Merchant Marine and Regional River Integration can be summarized as follows:
– Foster regional integration in the areas influenced by the Paraná and Paraguay rivers, in accordance with the agreement for the Paraguay-Paraná Waterway.
– Stimulate the sustainable development and growth of the national flagged merchant fleet by improving its competitiveness and increasing the demand for more affordable freight.
– Generate and increase stable job opportunities.
– Consolidate and increase the participation of the Argentine merchant fleet in the following freight categories: a) national cabotage, b) bilateral and multilateral trades covered by agreements signed by the Argentine Republic, and c) international trades, particularly by increasing its participation in the traffic of the Paraguay-Paraná Waterway and the Uruguay River.
– Promote the incorporation of ships and naval artifacts built in the country into the Argentine flagged merchant marine.
In order to fulfill the proposed objectives, the Law establishes various benefits, including:
– Tax benefits for National Shipowners, such as the reduction of the taxable base subject to mandatory employer contributions to the Social Security system, the granting of a 50% operational subsidy on fuel taxes consumed by each vessel, and the possibility of importing necessary inputs for repairs in national shipyards with a 0% extrazonal import duty.
– The possibility to permanently incorporate new or considered new foreign ships into the national flag through the possibility of permanent incorporation with a 0% extrazonal import duty, or to temporary incorporation them through bareboat charter contracts for a specified period, under an automatic import regime, without the need for guarantees to the Customs authorities, and being granted national flag treatment for the purpose of engaging in national cabotage.
It should be noted that the possibility of permanent and temporary incorporation of new ships in the mentioned manner was already in effect under previous regulations.
However, this law has relaxed the criteria for accessing the first benefit, allowing as well the permanent incorporation under the benefits mentioned above, of used but considered new ships if they meet certain requirements.
Furthermore, it has allowed the temporary incorporation of foreign ships with specific characteristics that were not allowed under previous regulations. These vessels are: suction dredgers with a capacity of more than 2500 m3, cutter suction dredgers with an installed total power of equal to or greater than 1500 hp, towing vessels with a machinery power of equal to or greater than 5000 hp, offshore tugboats with dynamic positioning technology, and crane barges with a lifting capacity of more than 300 tons.
– Regarding the promotion and protection of job opportunities, the existing requirements for Argentine vessels to have Argentine crew remain in place, with the penalty of losing the benefits established by the law under analysis, in case of infringement. Only in cases where there is a shortage of Argentine personnel, foreign personnel may be authorised, with preference given to individuals from Mercosur member countries who meet the required qualifications, until Argentine personnel become available. Additionally, the Executive Branch has been instructed to create a special Fund for the Training and Education of Crew Members and Officers.
– The mandatory requirement to contract insurance policies in the domestic market has been eliminated.
– Priority must be given to national flagged ships or ships with Argentine flag treatment owned by national shipowners who request to provide services for maritime and/or river cargoes originating from or destined to national government agencies.
– It further provided the possibility of requesting the temporary cessation of national registration for vessels engaged in international traffic for a period not exceeding three (3) years is established, provided that the owner has registered at least one other vessel with similar characteristics in the National Register of Vessels and offers sufficient guarantees that can be applied to precautionary measures or real rights registered on the vessels or naval artefacts that may exist.
Another relevant issue in practical terms is that the Law establishes that the formalities and procedures to be carried out for the implementation of the regulation before the Argentine Naval Prefecture (Prefectura Naval Argentina, PNA) and the Undersecretariat of Ports and Waterways (Subsecretaria de Puertos Vías Navegables, SPVN) must adhere to the principles of expediency, economy, simplicity, and efficiency of the processes. As a result, these procedures must not exceed a total of ninety (90) business days, and disciplinary sanctions are set forth for officials who do not comply with the regulations.
2.- Obstacles and Impediments to the compliance with the law
Notwithstanding the above, it should be noted that Regulatory Decree 650/18 suffers from significant deficiencies that hindered the achievement of the objectives of the Law. For example, the fiscal benefits related to social security contributions and fuel taxes, which could have contributed to the competitiveness of shipowners, were never regulated.
The Fund for the Training and Education of Crew Members and Officers, which would have been crucial for the training of national seafarers and officers, was also not regulated.
Although the tax benefits for the importation of spare parts and supplies that are not produced domestically and are used for repairing national ships in domestic shipyards are operational, they are affected by current import restrictions and exchange rate policies.
The same applies to the contracting of hull and machinery insurance and protection and indemnity insurance abroad. Due to exchange rate restrictions, national shipowners are unable to transfer their premiums abroad, putting them at risk of losing insurance coverage that allows them to operate with such protection.
Furthermore, excessive bureaucratic procedures in all administrative matters hinder compliance with the provisions regarding expediency. This situation is exacerbated by a lack of personnel, excessive formal requirements, and in some cases, of inadequate training of the officials responsible for different areas.
Arbitrary pressures from certain sectors with demands that undermine competitiveness, as well as the lack of loyalty and transparency in resolving conflicts, also affect the development of a national merchant marine and have discouraged foreign shipowners who have attempted to access the regime to benefit from its advantages.
3.- The current state of the Argentine Merchant Marine
Considering the above and other factors, Argentina does not have a developed and competitive merchant marine capable of meeting the demand for cargo transportation services. The offering of national-flagged ships, or ships with Argentine treatment, is primarily limited to a few traffics involving fuel and sand.
Containerized cargo transportation is handled by foreign “liner” vessels operated by large multinational companies, and the availability of services depends on the contracts between these companies and port terminals.
The transportation of solid and liquid bulk goods in the waterway is also provided by foreign vessels that have contracts with cargo providers and, in most cases, are also the operators of the port terminals. In a few cases, it is carried out by national shipowners who typically operate foreign vessels with Argentine treatment (5%).
The traffic of barges descending the waterway and transshipping at one of the terminals along the Paraná River or in Uruguay is mainly carried out by vessels flying the Paraguayan and Bolivian flags.
Passenger services, including cruises and Ro-Ro vessels accessing the Río de la Plata and various terminals along the Argentine maritime coast, are carried out by foreign-flagged ships.
4.- Factors that led to the current situation
Argentine Merchant Navy reached its peak in the early 1950s, when it ranked second in tonnage in the Americas, behind the United States. Almost 80% of that tonnage belonged to state-owned companies and organizations. However, this growth could not be sustained, and the participation of ships in the market began to decline, a situation that persists to this day.
Since the 1980s, when the first and second oil crises occurred, freight rates have been declining, and shipowners from different parts of the world have lost competitiveness. It was not a phenomenon that only affected Argentine shipowners. The major registries worldwide experienced declines, and fleets moved to flags of convenience in order to maintain competitiveness in the shipping industry.
The deregulatory and non-interventionist policies of the 1990s may have had some responsibility for the loss of the Argentine fleet, but it should be noted that there was a shift in international trade and the global transportation industry, in which Argentina was not exempt.
The problem lies in the fact that since the 1990s (or even earlier), Argentina has not developed a strategic vision and long-term planning with clear, realistic, and concrete goals for the merchant navy. In addition, there has been a neglect of integrating Argentina’s productive sectors with the ports from where exports depart and the logistical efficiency of the port system, waterways, and related services.
The actions carried out by different governments in the transportation, logistics, and port sectors have been isolated and reactive initiatives that have responded to various interests unrelated to having a long-term strategy for productive development and the overall sector.
5.- Conclusions
After five years since the enactment of Law 27,419, it is crucial to evaluate its successes and failures in order to work on them adequately in a reform project that will ultimately achieve the proposed objectives and promote the growth and sustainable development of an Argentine Merchant Navy. This would undoubtedly result in numerous benefits for the various sectors involved and the Argentine society as a whole.
It is important to consider that the development and evolution of the maritime transport industry worldwide, market globalization, the significant concentration in shipping companies, vertical integration, and the advantages enjoyed by transportation service providers benefiting from economies of scale impose significant limitations on states in terms of maritime policy.
Regardless of the regulations put in place, the regularity of services, the size of vessels calling in Argentina, and their rates will be determined by multinational companies that have contracts with port terminals and cargo owners.
Argentina is currently at a moment where all sectors should be called upon to analyze the convenience or necessity of extending or modifying Law 27,419, based on the results achieved and the current state of the industry and international market.
The Law has positive objectives and establishes a good framework for action, but it is necessary to concretize them into real, viable, and specific measures that enable the reactivation of the Merchant Navy within the context of a strategic, comprehensive, and long-term maritime policy.
In determining these measures and the comprehensive strategy, the commitment of all sectors is fundamental, and personal interests must be set aside in order to prioritize those that serve the common interest.
In the execution of the strategy, an active and efficient State is essential, with solid institutions that guarantee transparency, compliance with regulations, and equality under the law.
The reactivation of the Merchant Navy must no longer be considered in isolation but rather be part of a plan to integrate productive sectors from the interior of the country into ports and improve the efficiency of all modes of transportation, navigable waterways, ports, and overall logistics.
Only in this way can the development of the Merchant Navy improve the competitiveness of Argentine producers in the international market, drive other sectors of the economy, and enhance social welfare.
Maria Belen Espiñeira
Maritime Lawyer – Managing Partner to IT&L
