The Ministry of Shipping issued the Bangladesh Flag Vessel (protection of interests) rule as per the Bangladesh Flag Vessels (Protection of Interest) Act 2019, which is framed with a provision of mandatory transportation of government-funded goods by the Bangladesh Shipping Corporation (BSC).
The rule says if the state-owned shipping corporation's ships are insufficient or if ships are unavailable, then government goods will be transported in accordance with the public procurement act 2006, international laws, existing regulations concerned, and chartering committee's ground rules.
The industry insider confirmed that the BSC has no container vessels to carry containerized goods belonging to the Bangladesh government. BSC now has eight bulk carriers with total deadweight tons of more than 262,000, too inadequate to carry government goods. The new rule gives state ships near-exclusive right to carry government-funded cargo although the shipping organization is equipped with only a small number of vessels. BSC is not in a position to carry government goods at a time when their fleet is small to transport the government goods.
However, the rule allows transport of commercial goods in coastal areas by foreign ships, if a foreign ship is licensed with an exemption certificate to transport commercial goods of Bangladesh in coastal areas, for a period of three months. More than 50% of the total manpower needs to be hired locally. But such vessels ought to appoint cent-percent local crew when afloat for one year or more in coastal areas transporting goods.
Way back in the 1980s, the Bangladesh Flag Vessel (Protection) Ordinance 1982 provided that at least 40% of the sea-borne cargoes relating to the country's foreign trade have to be carried by Bangladesh flag vessels which seem to be an impediment to the foreign trade (4). The ordinance was promulgated in 1982 to protect the interest of Bangladesh Shipping Corporation (BSC) when foreign trade in Bangladesh was much smaller than what it is today (5). Moreover, the flag vessel protection has not played any positive role in increasing local flag vessel business in the last 35 years rather the number of vessels has declined.
Despite the adverse effects of earlier laws on the economy, the government initiated another law. The Bangladesh Flag Vessels (Protection) Ordinance, 1982 repealed and the Bangladesh Flag Vessels (Protection of Interest) Act 2019 passed to give priority to Bangladeshi flag vessels in the transportation of 50% goods on international sea routes.
According to the Shipping Agents Association sources, Chittagong port handles more than three million containers annually. There is no scope to transport 50% of goods on Bangladeshi-flagged ships.
As per the law, 50% of the total cargo transported by ships is mandated to be carried on domestic flagged and state-owned ships. If the space is not vacant, the shipping agents have to obtain the mandatory waiver certificate as per the provisions of the law.
The United Nations (UN) Convention on a Code of Conduct for liner conferences 1974 came into force on October 6, 1983. One of the objectives of the convention is about the balance of interest between the trade partners.
Article 2(4)(a) declares an equal stand for trading parties. It says that the group of national shipping lines of each of two countries the foreign trade between which is carried by the conference shall have equal rights to participate in the freight and volume of traffic generated by their mutual foreign trade and carried by the conference.
However, the convention also looks at the interest of third country shipping lines. Article 2(4)(b) provides that third-country shipping lines shall have the right to acquire a significant part such as 20% in the freight and volume of traffic generated by that trade.
Article 2(6) mentions that if the national shipping lines of one country decide not to carry their full share of the trade, that portion of their share of the trade which they do not carry shall be distributed among the individual member lines participating in the trade in proportion to their respective shares.
Furthermore, Article 2(7) provides that If the national shipping lines of the countries concerned do not participate in the trade between those countries covered by a conference.
Bangladesh acceded to the convention on July 24, 1975 and promulgated the Bangladesh Flag Vessels (Protection) Ordinance on March 24, 1982. The ordinance is inconsistent in many aspects with the Convention as well as acts like an impediment to the foreign trade of Bangladesh.
Foreign feeder vessel operators are allegedly facing harassment to obtain the mandatory waiver certificate from Bangladesh authorities, which they say is increasing the shipping cost and time.
According to the Bangladesh Flag Vessels (Protection) Rules, issued as per Flag protection act of 2019, the waiver certificate is supposed to be issued by the Mercantile Marine Office within three working days of the application, but the feeder operators said that the process is taking at least 10 or more days.
As a result, even after the ship reaches the port, ship owners are not getting permission to load containers and they have to pay a fine ranging from $10,000 to $20,000 depending on the size of the ship while waiting.
It is established that maritime transport costs profoundly influence international trade and may function as a significant barrier to trade. Poor export and general trade performance of many developing countries often stems from high transport costs as a result of restrictive, protectionist national (maritime) transport policies in these countries, which ultimately result in negative economic effect.
It is well known that protectionism undermines competition, inhibits innovations, and facilitates corruption in public sector corporations that ultimately leads to stagnation and increases the cost of services. The policy has two major flaws: It provides for the carriage of 50% external trade to be carried by Bangladesh flag vessels, and that all commodities carried for and paid by the government must be carried by Bangladesh flag vessels.
Bangladesh Flag Vessels (Protection of Interest) Act 2019 and rule thereof is inconsistent with the Bangladesh Competition Commission Act 2012. This vessel protectionist and monopoly law should be repealed to make international trade competitive.
MS Siddiqui is Non-Government Adviser, Bangladesh Competition Commission.
