155. Competition exists between major ports in the UK and between UK and continental ports engaged in similar trade. The key concern within the industry is an ability to compete on level terms both domestically and internationally. The fundamental differences between port systems in the UK and Continental Europe can distort competition. It might be hoped that common membership of the European Union would act to create a transparent market between United Kingdom ports and their EU competitors; instead it appears that European attempts to regulate the sector fail to address the significant differences between United Kingdom and other European ports.

156. Four basic models of port administration can be identified, ranging from a pure public sector to a pure private sector model. These models are illustrated in Table 6.Table 6: Four basic models of Port Administration

		Port Functions
Models		Land Ownership	Regulation	Cargo Handling
1	Pure Private	Private	Private	Private
2	Private/Public	Private	Public	Private
3	Public/Private	Public	Public	Private
4	Pure Public	Public	Public	Public

Source: Baird 1995 [136]

157. The Continental European ports fit broadly into the Models 2 and 3 where regulation and or land ownership is in State hands. The UK is characterised by the privatised Model 4 in which market forces are allowed to determine the operations.

158. The UK industry also has concerns about the level of State Aid received by competitors, and lack of transparency in this area heightens these suspicions.

EU Market Access to Port Services Directive

159. The Market Access to Port Services Directive has been under consideration since the first phase of this inquiry. It is intended to promote competition between various providers offering services at ports. The original proposals were strongly resisted by the UK Government and port industry, since they failed to recognise the difference between structure of the UK industry, where the port itself is a private entity, and that of the other European countries, where private sector influence is far more limited.[137] Since the draft directive was concerned with competition within ports, rather than between ports, it was far more suited to the industry in continental Europe than in the United Kingdom. On the other hand, port users considered that this directive could have advantages, particularly in relation to ports in mainland Europe.[138]

160. Last June the Minister for Transport reported to the European Scrutiny Committee that major concessions had been won. In his letter of 7 June 2002, Mr John Spellar reported that the Government had been successful in securing significant changes to the text that meet many of the concerns raised by UK ports and trades unions. These changes included:

• a package of amendments that should avoid the need for ports to 'unbundle' vertically integrated services, and recognise the diversity of ports;
• exclusion of dedicated terminals not open to general commercial traffic;
• exclusion of ports with a strong seasonal character and port services already tendered in accord with Community legislation, recognising the special circumstances of peripheral areas;
• removal of the requirement for at least two independent service providers for each category of cargo;
• longer maximum periods for contracts and for transitional arrangements, increased from a maximum 25 years to 36 years (with a ten-year extension option for contracts where significant reinvestment occurs within the final ten years);
• similar provisions for rights derived from acquisition of a port, and for new ports and terminals;
• expensive moveable assets such as gantry cranes to be treated as a significant investment alongside port infrastructure; and
• self­handlers to be bound by the same rules on authorisation, employment and social matters as port based cargo and passenger handlers, and limited to regular personnel (thereby excluding use of casual labour).[139]

161. One of the chief concerns is the proposed change to duration of contracts and transitional arrangements. The industry favours a maximum period of some 45 years for contracts for certain expensive immovable and movable assets and fears that a shorter period will ultimately force UK ports into a continental model of landlordship. The Department responded that "It might have some impact in that direction but because of the durations we succeeded in securing, we are talking about change over a couple of generations."[140] It seems that the Government have accepted that, over time, the structure of British ports will have to change to meet the requirements of the directive; if this is the case, then the Government must ensure that those changes will benefit British port users and British port providers.

162. The European Parliament has now proposed thirty-nine amendments to the Directive, and the conciliation process is well advanced. The final position is expected to come before the European Parliament in November. Although the Government has secured real improvements to the draft Directive since it was first proposed, in our view the document still fails to recognise that the United Kingdom ports industry differs fundamentally from that of the continent, and does not go far enough in addressing United Kingdom ports' concerns.

163. The UK ports industry has already experienced considerable upheaval in its shift to a privatised model. This is not the case for the majority of Continental ports. The Government should ensure that any Directive is implemented in ways which recognise the vast differences between the UK and Continental ports, and which will ensure that the UK industry can continue to operate efficiently.

164. The outcome of the Directive will depend on the conciliation process, and on the decision of the European Parliament. The Department should ensure that United Kingdom interests are protected in future negotiations.

State Aid

165. Subsidy distorts competition. The UK Major Ports Group told us: "We would have no complaint if traffic were lost to European ports because of their greater efficiency or for reasons of geography, but it is a matter of great concern if traffic is lost as a result of subsidised competition."[141] The different ownership structures across European ports make it difficult to see how and where state funding is distributed. The Commission is now looking at this matter to ensure that there is fair competition between ports within the European Union, but there is some scepticism on the part the industry as to how far reaching this will be.

166. The Market Access to Port Services Directive did not originally deal with State aid. Mr Wolfgang Elsner, Head of Short Sea Shipping and Ports at the European Commission, told a predecessor committee that State aid was already dealt with through the Transparency Directive.[142] However, an amendment has now been inserted: "Financial relations between ports or port systems and providers of port services on the one hand and public authorities on the other, including State funding for ports, must also be made transparent", and the Commission, at least, is content with this, although related amendments were resisted.[143] It remains to be seen whether this new legislation will serve to reduce the level of unfair competition.

167. The Market Access to Port Services Directive may impose significant changes on the UK ports industry. The Government should continue to press for increased transparency about State aid to other countries' ports to ensure that the competitive position of UK ports is not threatened.

137   See, for example, POR 1, POR 8, POR 14, HC (2000-01) 244 i-iv, p. 366 Back

138   See, for example, Qq 192-199, 3 July 2002, and POR 2 Back

139   European Scrutiny Committee, Thirty Second Report of Session 2001-02, HC 152 xxxii Back

140   Q 580, 18 June 2003 Back

141   HC (2000-01) 244 i-iv, p. 179 Back

142   Q 8, 24 April 2002 Back

143   Amendment 2, Recital 5, Market Access to Port Services Directive; and CE(COM) 2003)0208.  Back