Brexit: an unseaworthy situation

The United Kingdom has been an important member of the European Union (EU) for over forty years and in good times and bad the country has grown and prospered. On June 23 2016 the UK held a referendum where a majority voted to swiftly and unceremoniously leave the EU. When tallied, the referendum revealed some interesting voting patterns in the age of voters and where they lived. 

Older voters singing the praises of Rule Britannia in the northeast were firmly convinced that the UK would be better off without the rules and regulations of the EU, while the younger millennials in the south and other parts of the country believed that a Brexit was foolish. Foolish because only a few miles across the channel the UK enjoyed a common duty-free customs union and passport free movement to the continent with over 500 million customers.

Northern Ireland and Scotland agreed and 93 per cent of Gibraltar voted to remain. I would not endeavor, nor would it be appropriate, to open Pandora’s Box and debate the pros and cons of the good or the bad of Brexit as it has and will continue to have a troubling impact on the UK’s commercial and maritime interests. A number of commercial operators have, or are in the process of, removing their ships from the Red Ensign registry to ensure free movement of their vessels within the remaining EU-27 countries.

At 00:00 hours on 29 March 2019 the European Union will recognise the United Kingdom as having ‘third country’ status. To avoid the impending hassle that will soon emerge many owners of small recreational yachts or those coded commercially under the MCA Code of Practice located in Spain or other countries in the Mediterranean, are moving from the Red Ensign and re-flagging in places like Holland and Malta. After 29 March 2019 when entering a port within the EU, UK flagged yachts should be ready to hoist the ‘Q’ flag.

In addition to this SuperyachtNews reported that UK commercial licenses and UK mariner’s certificates will no longer be recognized by the EU-27. According to the European Commission, it follows that, as of the withdrawal date of the UK from the EU, certificates issued by the UK can no longer be presented for an ‘endorsement attesting recognition’ by EU nations. The Commission also points out that “preparing for a withdrawal is not just a matter for Union and national authorities, but also for private parties.” The commission further warns of “certain legal repercussions” for the mutual recognition of seafarer’s certificates arising from the UK’s withdrawal from the EU and its consequent move to ‘third country’ status.

“When we received the statement, we read it as a real shot across the bow of the UK,” comments Andrew Limington, director of campaigns and communications at Nautilus International. “It was really quite alarming. The statement explicitly outlined that, following Brexit, UK seafarers will no longer be automatically recognised by the EU’s 27 remaining member states and that existing UK certificates will only be accepted until their expiry date – for some this may be five years – but the automatic endorsement will not be transferable between flag states.” 

With these developments many industry leaders are questioning what effect Brexit will have on the UK’s long and impressive maritime history particularly with the shipyards that have and continue to create impressive yachts both super and small. In view of what some have described as the UK’s ridiculous and inconclusive negotiations with Mr. Michel Barnier on behalf of the EU-27, this is a question that can’t be answered.

When questioned early on, the eminent John Leonida, partner at international law firm Clyde & Co. said, “Firstly we need to know when Britain will leave the EU and how, it will be challenging for the negotiators. I have no expectations that there will be a specific superyacht negotiation team, but perhaps there should be, given the major presence the UK and British nationals have in the European superyacht sales and services space.” 

In the hey-days of joy and delight following the success of the leave campaign, or sadness depending on one’s persuasion, the Hon. David Davis announced to Parliament that his Brexit Committee was conducting studies of over 50 industries and services sectors to determine the economic impact that the UK’s departure would have. Amongst others, the economic studies included insurance, financial services and the maritime industries. In 2017 Mr. Davis was called to testify before a House Select Committee and present the findings of his impact studies. When questioned by an MP and committee member about the specific findings related to the financial services industry Mr. Davis said no economic study had been carried out on the financial sector or of the shipping industry. 

Further questioning by the Select Committee found that no economic studies had been carried out on any UK industry or service sector. The UK is a great trading nation with an enviable reputation and prominence in the engineering field. Its ship building industry is blessed with an abundance of multifaceted highly skilled and enthusiastic technicians at all levels of the workforce. However, a government that argues within, can’t agree on anything, appears to lack negotiating skills, and repeatedly contradicts itself is not a good omen. On the other hand, UK yacht and ship builders who promote their willingness to accept payment by means of Bitcoin or one of the other cryptocurrencies/utility tokens and who embrace the underlying Distributed Ledger Technology (DLT) more commonly known as Blockchain may find they have a significant sales and marketing advantage over their European competitors.

Payment by means of cryptocurrencies is gaining in popularity particularly with commercial shipping companies and with ultra-high-net-worth individuals (UHNWIs) - worldwide. Shipyards that recognise the opportunities and adapt will have a better chance of survival, those who don’t will surely ‘miss the boat.’ In a recent article published by Lloyds Register, Distributed Ledger Technology expert Gary Pogson said: “Maritime Blockchain Labs and its projects will drive intelligent, informed blockchain adoption in the maritime sector through demonstrator projects that will deliver first-hand, real-world insight into how these technologies can be applied, and how the industry can realise maximum benefit from their capabilities.”

UK classification society Lloyds Register will provide the funding to come up with three projects demonstrating how blockchain can provide solutions for risk and safety problems in the maritime industry. Albeit necessary that the industry adapt their products and services to today’s demands and market climate, but faced with numerous uncertainties and until the multitude of issues and unanswered questions are resolved, the UK’s maritime sector will continue to endure the chaos and confusion of indecision.  

To the distain of the fisheries industry it appears that the transition period will continue until December 2020, while the extended 21-month transition period was welcomed by others. Whether UK shipyards and builders will continue to grow and prosper or die a slow death is only a matter of speculation. In not being part of the customs union, the question arises if, or when, the EU will introduce some sort of import controls or tax levies on British built yachts and ships that will increase costs to the consumer.

The Inflated costs of post-Brexit UK built vessels would unquestionably come to the attention of customers and the attractiveness of the lower costs of European built vessels. Of course, any trade deals or tariffs will be closely monitored by European yacht manufacturers who enjoy the support of their respective governments and are looking to maintain their high production levels of all craft to allow them to remain profitable in a market that has seen a dramatic decline since the 2008 financial meltdown.

The question of VAT status and cabotage arises but remains unclear. Another uncertainty is after the UK’s departure will a yacht that has paid VAT in the UK be recognised as EU-VAT paid or will the UK-VAT be considered null and void and the vessels cabotage rights denied. With a hard border between the UK and the EU-27 it’s unknown what delays and difficulties will be encountered in receiving and sending parts and/or finished vessels to customers in the EU-27. The Bottom Line, until Whitehall resolves the increasing number of uncertainties, is that there’s no way to determine the impact that Britain’s departure from the EU will have on the UK’s builders of boats, yachts and ships, and the purveyors of other marine services.

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