China: China update - New Regulations on the Prevention and Control of Marine Pollution from Ships in China

Last Updated: 14 April 2010
Article by Wenhao HAN

On 1 March 2010, the Regulations on the Prevention and Control of Marine Pollution from Ships ("the Regulations') (promulgated by the People's Republic of China (PRC) State Council on 9 September 2009) will come into effect. The Regulations set up a comprehensive system of rules on oil pollution prevention, response, clean up and compensation. The new Regulations are significant both for PRC national ships and foreign flagged ships moving within PRC waters.

For PRC flagged ships in excess of 1,000 gross tons which carry oil cargoes, the Regulations introduce the requirement of compulsory liability insurance to cover claims arising from oil pollution damage in the PRC. Under the Regulations, the level of compulsory insurance coverage shall be no less than the limitation amount specified in the PRC Maritime Code or other applicable international conventions ratified by the PRC. In this regard, PRC is a signatory to the International Convention on Civil Liability for Oil Pollution Damage 1992 and the International Convention on Civil Liability for Bunker Oil Pollution Damage 2001.

The Regulations also require the establishment of a domestic Ship Oil Pollution Compensation Fund to be contributed to by owners (or their agents) of persistent oil cargoes transported on PRC waters. In this regard, the PRC is not a party to the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1992. A Committee (composed of the PRC government agencies and major oil companies) will be set up to manage the Compensation Fund and detailed implementing measures on how the fund is to be collected will be released separately once it has been approved by the legislature.

For foreign flagged ships, it is of note that the Regulations require that operators of any vessel carrying polluting and hazardous cargoes in bulk and any other vessel above 10,000 gross tons must conclude a pollution clean up contract with a pollution response company approved by the PRC Maritime Safety Administration (MSA) before entering a PRC port. The Regulations also provide that the MSA can intervene by taking clean-up, salvage, wreck removal or other necessary measures to prevent or reduce pollution damage. The vessel responsible for the pollution must reimburse the MSA the associated costs incurred or provide a financial guarantee before commencing its next voyage.

It will obviously take some time before we see how the new Regulations are implemented in practice. In the meantime, caution is recommended. Ocean carriers, especially oil tankers, may need to consult their P&I Clubs to obtain the latest local updates to ensure that they have complied with the Regulations when operating in PRC waters.

China reluctant to sign the Rotterdam Rules

The United Nations Convention on Contracts for the International Carriage of Goods by Sea (known as The Rotterdam Rules) has been signed by 21 states since an opening ceremony in September 2009. As a major shipping state and key player in international trade, the PRC was involved in the drafting of the Rules from the beginning of the process. Nevertheless, it remains undecided as to whether or not to sign. Undoubtedly, the PRC's decision in this regard will be of significant importance to the final implementation of the Rules bearing in mind the large volume of PRC related international trade and its ever stronger position in the world economy.

Recently, during the 7th International Maritime Conference in Shanghai, representatives from the maritime industry warned that, if implemented, the Rotterdam Rules would significantly increase exposure to cargo liability for maritime carriers. There are, therefore, concerns from both the government and industry as to whether the Rules will in fact benefit the Chinese maritime trade. It is also believed that some of the provisions in the Rules are of more academic than practical or commercial benefit. On the other hand, leading Chinese academic writers have suggested that the PRC should sign and ratify the Convention instrument covering this area will appear in the foreseeable future.

In principle, there are few obstacles preventing the PRC from signing the Convention. The current PRC law of carriage of goods by sea is codified in the PRC Maritime Code 1993 which followed the Hague and Hague-Visby Rules. The most significant difference between the Code and the Rotterdam Rules concerns the basis of liability and the negligent navigation defence for carriers which has been abolished in the Rotterdam Rules. Nevertheless, other provisions of the Rotterdam Rules may be found in the Code. For example, the provisions contained in the Code relating to liability and the burden of proof are in many respects similar to the provisions of Article 17 of the Rotterdam Rules.

It is difficult to predict when (if at all) the PRC might sign up to the Convention. Officials at the PRC Ministry of Commerce have expressed the view that the PRC government needs time to conduct more consultation exercises with the relevant interest groups in the maritime and international trade industry before making a final decision. We will monitor developments closely and provide further updates as appropriate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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