Shipping Regulations Add Another Layer of Pain to Trade Wars

Every week, a new front opens up in the never-ending trade wars pitting the United States against allies and adversaries alike. Even as fights between the United States, Canada, and the European Union simmer, the United States levied new 25 percent tariffs on Chinese products worth $16 billion on Aug. 23, with China responding in kind.

As America looks to negotiate to end this wide-ranging turmoil, it would be wise to examine all options that could alleviate taxes on imports. Critically, not all trade-related taxes are branded as “tariffs” and transparently assigned. Onerous regulations on ships docking in certain ports have the same impact on consumers as import taxes, and add considerable uncertainty during a low-point in international relations. Identifying these regulations and lightening burdens can lead to much-needed breakthroughs in trade negotiations, and make life easier for billions of consumers across the globe.

According to the United Nations, shipping accounts for more than 80 percent of global trade by volume, and roughly 70 percent by value. It’s puzzling, then, that its shipping-focused agency known as the International Maritime Organization is keen on strapping shippers with ever-higher costs. Meeting for the first time (in present form) in 1959, the IMO has grown to include 174 member states. This includes the United States and all of her major trading partners, including China, Canada, Mexico, and the European Union.

While the idea of regulating common usage of the seas sounds reasonable, the IMO went the way of many regulatory agencies by overprescribing “remedies” at maximum cost. Take, for instance, the International Safety Management Code put into place in 1998. The bundle of regulations was meant to strictly limit the activities of passenger ships, gas carriers, bulk carriers, and oil and chemical tankers, in order to reduce hazards on the open seas. But costs quickly proliferated — according to Marine Chief Engineer Mohit Sanguri, “Seafarers complain about the extreme paperwork and record keeping which has made their life difficult.”

In addition, vessel operators cite a lack of available training and support, as well as difficult-to-understand code in attempting to implement ISMC. Norwegian University of Science and Technology scholar concludes, “The objective of the ISM Code – to ensure maritime safety – is beaten by its documentation and verification demands: Companies focus on making auditable systems rather than practical.” Despite these bureaucratic hassles, worldwide vessel losses remain virtually unchanged before-and-after implementation, and overall marine incidents seem to show little relation to ISMC implementation.

In addition to their safety codes, the IMO has maintained its focus on pollution abatement by trying to lower the sulfuric content of marine fuels. In 2016, the IMO agreed to lower the limit on sulfur from the current maximum of 3.5 percent to 0.5 percent. The organization’s mandate, slated for implementation in 2020, was affirmed in July as members agreed on critical sulfur testing and verification issues. But refineries’ inability to lead a dramatic shift toward low-sulfur blends will likely cause significant complications, leading to higher fuel prices and higher shipping prices.

These regulations, hoisted upon member states, result in steadily increasing shipping costs year after year. And the pain doesn’t stop there, as individual members create additional regulations that make international shipping more difficult. Starting this year, the European Union mandated that ships docking in its ports log and submit thorough reports on emissions generated during maritime journeys.

But this regulatory whirlpool can be tamed, if trade negotiators from impacted nations agree to stop the madness. Reigning in stealth tariffs can’t solve underlying issues stemming from high actual tariffs, but agreeing to reduce transcontinental costs can provide a critical starting point for further negotiations. The IMO should continue its crucial work, but downsizing regulations would allow for a right-sized mission that saves consumers on all sides of the sea billions of dollars.

Ross Marchand is the director of policy for the Taxpayers Protection Alliance.

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