International business laws lesson 06

88 International Business Law LESSON IATA RULES FOR CONTRACT CONTENTS 6.0 Aims and Objectives 6.1 Introduction 6.2 IATA Rules for Contract 6.3 UNCTAD Rules on Shipping 6.4 6.3.1 Objectives 6.3.2 Definitions 6.3.3 Professional Qualifications 6.3.4 Financial Qualifications 6.3.5 Code of Professional Conduct 6.3.6 Enforcement 6.3.7 Compliance Conference Systems in Shipping 6.4.1 Origin of Conference System 6.4.2 Open and Close Conference 6.4.3 Feature of Liner Conference 6.4.4 Organisation of Conferences 6.4.5 Deferred Rebate and Contract System 6.5 Let us Sum up 6.6 Lesson End Activity 6.7 Keywords 6.8 Questions for Discussion 6.9 Suggested Readings 6.0 AIMS AND OBJECTIVES After studying this lesson, you should be able to: z Learn about IATA rules for contract z Study the UNCTAD rules on shipping z Understand conference system in shipping 6.1 INTRODUCTION The International Air Transport Association (“IATA”) Arbitration Rules (the “Rules”) are for use in arbitrations between parties who agree to settle their disputes under the IATA Arbitration Rules It is agreed that the goods described herein are accepted in apparent good order and condition (except as noted) for carriage subject to the conditions of contract on the reverse hereof All goods may be carried by any other means including road or any other carrier unless specific contrary instructions are given hereon by the shipper, and shipper agrees that the shipment may be carried via intermediate stopping places which the carrier deems appropriate The shipper's attention is drawn to the notice concerning carrier's limitation of liability Shipper may increase such limitation of liability by declaring a higher value for carriage and paying a supplemental charge if required 6.2 IATA RULES FOR CONTRACT Conditions of contract are written on reverse side of the air waybill notice concerning carrier's limitation of liability If the carriage involves an ultimate destination or stop in a country other than the country of departure, the Warsaw Convention or the Montreal Convention may be applicable and in most cases limit the liability of the Carrier in respect of loss of, damage or delay to cargo Depending on the applicable regime, and unless a higher value is declared, liability of the Carrier may be limited to 17 Special Drawing Rights per kilogram or 250 French gold francs per kilogram, converted into national currency under applicable law Carrier will treat 250 French gold francs to be the conversion equivalent of 17 Special Drawing Rights unless a greater amount is specified in the Carrier's conditions of carriage This Resolution is in the hands of all IATA Cargo Agents In this contract and the Notices appearing hereon: z CARRIER includes the air carrier issuing this air waybill and all carriers that carry or undertake to carry the cargo or perform any other services related to such carriage z Special Drawing Right (SDR) is a Special Drawing Right as defined by the International Monetary Fund z Warsaw convention means whichever of the following instruments is applicable to the contract of carriage: (The Convention for the Unification of Certain Rules Relating to International Carriage by Air, signed at Warsaw, 12th October 1929.) ™ that Convention as amended at The Hague on 28th September 1955; ™ that Convention as amended at The Hague 1955 and by Montreal Protocol No 1, 2, or (1975) as the case may be Montreal convention means the Convention for the Unification of Certain Rules for International Carriage by Air, done at Montreal on 28th May 1999 Carriage is subject to the rules relating to liability established by the Warsaw Convention or the Montreal Convention unless such carriage is not "international carriage" as defined by the applicable Conventions 89 IATA Rules for Contract 90 International Business Law To the extent not in conflict with the foregoing, carriage and other related services performed by each carrier are subject to: z applicable laws and government regulations;e Minimum Standards: "Shipping agent" means any person (natural or legal) engaged on behalf of the owner, charterer or operator of a ship, or of the owner of cargo, in providing shipping services including: i Negotiating and accomplishing the sale or purchase of a ship; ii Negotiating and supervising the charter of a ship; iii Collection of freight and/or charter hire where appropriate and all related financial matters; iv Arrangements for Customs and cargo documentation and forwarding of cargo; v Arrangements for procuring, processing the documentation and performing all activities required related to dispatch of cargo; vi Organizing arrival or departure arrangements for the ship; vii Arranging for the supply of services to a ship while in port “National authority” means the body constituted under national law to implement the legislation governing the licensing/registration of shipping agents “Professional association” means an organization constituted for the purposes of: i Providing a central organization for those engaged in the profession of shipping agents; ii Establishing and upholding standards of conduct and practice for the profession; iii Exercising supervision over the members and securing for them such professional standards as may assist them in the discharge of their duties “Professional examination” means an examination carried out on subjects specifically related to the profession in order to ensure adequate knowledge and expertise 6.3.3 Professional Qualifications To be considered professionally qualified, the shipping agent must: (a) Have obtained the necessary experience in the profession by working for at least three years in a responsible capacity with a qualified shipping agent; (b) Be of good standing and be able to demonstrate his good reputation and competence For example by positive vetting and signified approval of at least two agents of good repute who are also in his business and his geographical area of activity; and (c) Have passed such professional examination(s) as required by the relevant national authorities/ professional associations The scope and details of such examination(s) shall be determined by the said authorities/ professional associations; In the case of a corporate entity, employ such persons professionally qualified as above to ensure the proper performance of the entity's functions as an agent 6.3.4 Financial Qualifications To be considered financially sound a corporate entity and where relevant the shipping agent individually must: i Have financial resources adequate to its business evidenced by references from banks, financial institutes, auditors and reputable credit reference companies, to the satisfaction of the national authorities/professional associations; and ii Have adequate liability insurance through an internationally recognized insurance company or mutual club to cover all professional liabilities Measures must be taken to ensure that the above financial standards continue to be met This could be achieved through annual scrutiny of shipping agents by the national authorities/professional associations 6.3.5 Code of Professional Conduct The shipping agent shall: i Discharge his duties to his principal(s) with honesty, integrity and impartiality; ii Apply a standard of competence in order to perform in a conscientious, diligent and efficient manner all services undertaken as shipping agent; iii Observe all national laws and other regulations relevant to the duties he undertakes; iv Exercise due diligence to guard against fraudulent practices; v Exercise due care when handling monies on behalf of his principal(s) 6.3.6 Enforcement National authorities/professional associations, as the case may be, should ensure that these rules are complied with In proved cases of non-compliance they shall determine the appropriate disciplinary measures applicable These may include: i Warnings; ii A requirement for undertakings as to the shipping agent's future conduct; iii Temporary suspension of membership from the relevant professional association; iv Temporary suspension of authorization to operate as shipping agent, if/where granted by the relevant national authority; 93 IATA Rules for Contract 94 International Business Law v Expulsion of membership from the relevant professional association; vi Cancellation of authorization to operate as shipping agent, if/where granted by the relevant national authority 6.3.7 Compliance Shipping agents already operating who not meet the foregoing standards should be given reasonable time to conform with the requirements Check Your Progress Describe the following as per UNCTAD rules: Shipping Agent ……………………………………………………………………………… ……………………………………………………………………………… Financial qualifications of shipping business ……………………………………………………………………………… ……………………………………………………………………………… 6.4 CONFERENCE SYSTEMS IN SHIPPING Liner ship owners engaged on the same trade usually operate with some measure of agreement amongst themselves This agreement may be informal or formal and usually covers such items as freight rates, the number of sailings in a given time, working conditions etc In fact, in many cases the only factor left open to competition is the efficiency and quality of service offered These associations of liner ship owners are known as conferences 6.4.1 Origin of Conference System In 1875, in the trade between India and the U.K the first shipping conference, the U.K - Calcutta Conference was formed There are now some 360 conferences with membership of from two upwards One of the largest conferences at the moment is the Far Eastern Freight Conference which has twenty-two members and controls some forty sailings a month between Europe and the far East The conferences have served the trade needs of the world for nearly 125 years The conference system was originally evolved in the colonial days and so was framed, essentially for maintaining the supply line to the paramount powers But after India got independence in 1947, it was one of the pioneer in demanding for developing countries entrance into conferences, and now Indian shipping lines are members in all the 100 and more liner conferences serving the country's foreign trade Conference system serves the general cargo trade of the world and spreads its' oligopolistic or oligopholistic tentacles In recognition of the fact that’s India had the longest experience among ,developing countries of the problems that confront the shippers in Conference trades, the first study, commissioned by UNCTAD on liner shipping dealt with liner shipping in India's foreign trade The above mentioned study, formed the basic document for the shipping committee of UNCTAD-II held in New Delhi in 1968, and proved to be an excellent guide for the developing countries during the UNCTAD discussions on shipping 6.4.2 Open and Close Conference Conferences can be open or closed A closed conference is one with restricted membership and like any other club the members reserve the right to vote on their eligibility The purpose of this is basically to avoid too many ships being employed on the run with the consequent loss of profitability This will of course seem very unfair to those shipowners who wish to join and find their entrance so blocked Some countries like the U.S.A not allow closed conferences as it violates their laws on monopolies Conferences trading to these countries are open and any shipowner is, free to join 6.4.3 Feature of Liner Conference The liner conference is an organisation whereby a number of shipowners offer their services in a given sea route on conditions agreed by the members Conferences are semi-monopolistic association of shipping lines They are formed for the purpose of restricting competition between their members and protecting them from outside competition The object of such an arrangement is to guarantee to members a certain share of the trade by limiting competition Conference agreements may also regulate sailing and ports of call It leads to the regulation of sailings and may, in some circumstances, enable the trade to be rationalised Conference achieve their object by controlling prices and by limiting entry to the trade The chief policy is to establish a common tariff of freight rates, members being left free to compete for traffic by the quality and efficiency of their service The organisation of a conference varies from one trade to another It may consist of informal regular meetings of shipowners at which rates and other matters of policy are discussed, or it may involve a formal organisation with a permanent secretariat and prescribed rules for membership, together with stipulated penalties for violations of agreement Members are often required to deposit a cash bond to cover fines in respect of non-compliance with their obligations of such conferences which are international in character For example, the Far East Freight Conference, which operates in the Far East Europe trade, comprises British, French, Dutch, Italian, Swedish, Danish and Japanese lines Shipping lines often belong to several conferences and there are several inter-conference agreements In most cases, conference policy is decided by the votes of the members Conference rights have a market value when shipping lines are sold In some conferences, there exists a pooling agreement whereby traffic or gross or net earnings in the trade are pooled, members receiving agreed percentage of the pool 6.4.4 Organisation of Conferences Conference agreement should cover all or some of the following: a) Range of ports to be serviced b) Types of membership Some conferences in addition to the ordinary members have associate members with restricted sailing rights and no right to vote This may include way port members, that is, other liner companies whose route takes them past the conference trading ports and who may wish to include these ports in their sailings c) Rules for admission, withdrawal, suspension and expulsion d) Rules for meetings and voting procedures e) Conference secretariat, officers and duties f) Obligations of member lines 95 IATA Rules for Contract 96 International Business Law g) Policing provisions and admission fee h) Appointment of Committees i) Arbitration of disputes Advantages of Conference The main advantages of conference system are: Avoidance of wasteful competition The reasonable assurance that members have a good chance of realizing a profit, and there are no rate wars Stability of rates, which enables manufacturers and merchants to make forward contracts for goods and so, diminishes undesirable risk and uncertainty in international trade Regular and frequent sailings enable the shipper/exporter to plan his supplies to overseas markets and avoids the need to carry large stocks and the operator to maximize the use of his vessels Equality of treatment, that is, rate quoted applies to all shippers whether they are large or small Economies of service which enable operators to concentrate on providing faster and better ships Disadvantages of Conference System The disadvantage from the shippers point of view arises from the fact that if he is tied to a particular conference, he cannot take advantage of tramp tonnage when rates are low Moreover if he is a large shipper he often cannot use his superior bargaining power to obtain lower rates Conferences are a constraint on free competition between ship owners Carriers who are not members of a conference object to the system because it prevents their competing successfully with conference vessels Conferences suffer from the usual monopolistic failings like: (a) excessively high freight rates (b) complacency and reluctance to accept change (c) highhanded bureaucratic attitudes In June 1979 at the UNCTAD- V Conference held in Manila, the UN Code of Conduct of 40/40120 for liner conferences was discussed The code was originally proposed in 1973, and adopted in 1983 U.S.A not favour the code Some commonwealth countries including Australia and Canada are resisting the code The legislation reflecting the liner code is found in the Merchant Shipping (Liner Conferences) Act 1982, which came into effect in 1985 Check Your Progress Fill in the blanks: "Shipping agent" means any person (natural or legal) engaged on ……………………… Charterer or operator of a ship, or of the owner of cargo, in providing ……………………… A ……………………… is a contract providing for a hiring of a whole ship 6.4.5 Deferred Rebate and Contract System Associated with Liner Conferences are the deferred rebate and contract systems The deferred rebate is a device to ensure that shippers will continue to support a conference A shipper who ships exclusively by conference vessels can, at the end of a certain period (usually six months) claim a rebate, usually 10% of the freight money paid by him during the period This system induces loyalty to conference lines, but it has tended to become less popular in some trades, in recent years, due to the high cost of clerical administration Therefore, it has been substituted by the immediate rebate system wherein 1.5 % of rebate is granted at the time freight payment is made and not some six months later A further way of retaining shippers patronage of a conference is by the contract or special contract agreement system Under this system, the shipper would be granted a cheaper freight rate than a non-contract shipper In addition, there are the special commodity agreements which are specially negotiated between the trade and conference to cover goods shipped in large quantities and often for short duration The shipper may be forwarding a "commodity such as copper, tea, rubber, foodstuffs or cotton in considerable; quantities The shippers criticism of the deferred rebate system is that it enables conferences to build up monopolies tending to keep rates at a high level Another point is that a record must be kept (meeting clerical expenses) to enable to claim rebates By 1985–non-conference vessels carried 30-40% Pioneer cargo compared to 5-10% some ten years ago This is due to many reasons: Increasing use of short-cut rates involving the land-bridge concept such as the Trans - Siberian Railway The tendency of most conference lines to charge rates about 10-15% more than non-conference line tonnage operators The growing development of non-conference line services such as the Evergreen round the world container service 6.5 LET US SUM UP To contribute to combating maritime fraud by ensuring improved services by better qualified shipping agents observe all national laws and other regulations relevant to the duties he undertakes Apply a standard of competence in order to perform in a conscientious, diligent and efficient manner all services undertaken as shipping agent; Discharge his duties to his principal(s) with honesty, integrity and impartiality To provide guidelines for national authorities/professional associations in establishing and maintaining a sound shipping agency system; To contribute to combating maritime fraud by ensuring improved services by better qualified shipping agents; To encourage operation of financially sound and stable shipping agents; To promote a high level of professional education and experience, essential to provide efficient services; To uphold a high standard of business ethics and professional conduct among shipping agents A charter party is a contract providing for a hiring of a whole ship Its terms may amount to a leasing of the ship, when the master and the crew of the ship become the servants of the charterer 97 IATA Rules for Contract 98 International Business Law 6.6 LESSON END ACTIVITY Explain the following: Definitions of system Professional qualification Personal qualification Organization of conference system 6.7 KEYWORDS IATA: The International Air Transport Association Career: Career includes the air carrier issuing this air waybill and all carriers that carry or undertake to carry the cargo or perform any other services related to such carriage Special Drawing Right (SDR): It is a Special Drawing Right as defined by the International Monetary Fund 6.8 QUESTIONS FOR DISCUSSION Explain briefly about conference system and give some definitions What are the pros and cons of conference system? Check Your Progress: Model Answers CYP 1 Shipping Agent: "Shipping agent" means any person (natural or legal) engaged on behalf of the owner, charterer or operator of a ship, or of the owner of cargo, in providing shipping services Financial Qualifications: To be considered financially sound a corporate entity and where relevant the shipping agent individually must: i Have financial resources adequate to its business evidenced by references from banks, financial institutes, auditors and reputable credit reference companies, to the satisfaction of the national authorities/professional associations; and ii Have adequate liability insurance through an internationally recognized insurance company or mutual club to cover all professional liabilities CYP behalf of the owner Shipping services Charter party 6.9 SUGGESTED READINGS Herbert M Bohlman & Mary Jane Dundas, The Legal Ethical, and International Law Environment of Business, 4th Edition, South-Western College Publishing, 1999 Miller, Roger LeRoy; Cross, Frank B., Legal Environment Today: Businessmen Its Ethical, Regulatory & International Law Krishnaveni Muttai, Logistics Management th Kapoor S K, International Law, Central Law Agency, 13 ed., Motilal Nehru Road, Allah bad, 2000 Kapoor N D, Elements of Mercantile Law, 26th ed., Sultan Chand & Sons, New Delhi, 2002 Gulshan S S, Business Law, Excel Books, New Delhi, 2002 Mithani D M, International Economics, 3rd ed., Himalaya Publishing House, Mumbai, 2000 99 IATA Rules for Contract ... Montreal Convention unless such carriage is not "international carriage" as defined by the applicable Conventions 89 IATA Rules for Contract 90 International Business Law To the extent not in conflict... crew of the ship become the servants of the charterer 97 IATA Rules for Contract 98 International Business Law 6.6 LESSON END ACTIVITY Explain the following: Definitions of system Professional qualification... Legal Ethical, and International Law Environment of Business, 4th Edition, South-Western College Publishing, 1999 Miller, Roger LeRoy; Cross, Frank B., Legal Environment Today: Businessmen Its Ethical,