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Many&nbsp;Mainbrace&nbsp;readers are likely aware that the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009 (the “HKC”), is set to enter into force on June 26, 2025, following its ratification by Liberia and Bangladesh last June. Since then, Pakistan, a major ship recycler, and the Marshall Islands, a major flag state, have also ratified the HKC, thereby amplifying its importance to the shipping industry.

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However, not all of our readers may be aware of what the HKC requires or who it may impact within the shipping industry. Accordingly, this article summarizes some of the key provisions of the HKC and discusses certain potential impacts and considerations for various entities within the industry. (National laws applicable to ship recycling that are not based on the HKC are beyond the scope of this article.)

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The purpose of the HKC is to improve the safety and standard of ship recycling practices to ensure that vessels, when recycled at the end of their operational lives, do not pose any unnecessary risks to human health and safety or to the environment. The HKC embraces a cradle-to-grave approach to vessels by controlling certain aspects of the design, construction, survey, certification, operation, and recycling of vessels, including standards for ship recycling facilities.

With respect to vessels, a party to the HKC must:

prohibit and/or restrict the installation or use of certain hazardous materials, including asbestos, ozone-depleting substances, polychlorinated biphenyls (“PCBs”), and anti-fouling compounds and systems, on vessels entitled to fly its flag or operating under its authority; and

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prohibit and/or restrict the installation or use of such hazardous materials on vessels while in its ports, shipyards, ship repair yards, or offshore terminals; and

take effective measures to ensure that such vessels comply with those requirements.

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All vessels covered by the HKC will be required to develop, maintain, and carry an Inventory of Hazardous Materials (“IHM”), which is to be updated throughout a vessel’s life to reflect any changes in hazardous materials on the vessel.

As part of the HKC’s compliance regime concerning hazardous materials, covered vessels must undergo:

an initial survey before the vessel is put into service (which presumably generally applies to “new ships”), or before the International Certificate on Inventory of Hazardous Materials is issued confirming compliance with the IHM requirements (which presumably generally applies to “existing ships”);

renewal surveys at intervals to be specified by the relevant flag-state party to the HKC, but at least every five years;

if applicable, an additional survey at the request of the owner following a change, replacement, or significant repair to the structure, equipment, systems, fittings, arrangements, or materials on the ship; and

a final survey before the vessel is taken out of service and the vessel can be recycled.

Upon successful completion of each required survey, an International Certificate on Inventory of Hazardous Materials or an International Ready for Recycling Certificate, as the case may be, will be issued for the vessel.

Further, a covered vessel may only be recycled at a ship recycling facility authorized in accordance with the requirements of the HKC discussed below and that is authorized to undertake the type of ship recycling contemplated in the vessel’s ship-specific Ship Recycling Plan (“SRP”).

Ship Recycling Facilities

With respect to ship recycling facilities, all ship recycling facilities subject to the HKC must be authorized by a competent authority of the relevant party to the HKC and may only accept vessels (i) that comply with the HKC or meet the requirements of the HKC for recycling (which includes having an IHM), and (ii) that they are authorized to recycle. Qualified ship recycling facilities will be issued a Document of Authorization by the competent authority to conduct ship recycling under the HKC and the related Guidelines for the Authorization of Ship Recycling Facilities (MEPC.211(63)).

In addition, the HKC includes several requirements for ship recycling facilities to enact policies and procedures to protect workers, human health, and the environment, and to ensure the safe and environmentally sound removal of hazardous materials on ships, including, for example, to have in place a Ship Recycling Facility Plan (“SRFP”) for the facility and to develop a ship-specific Ship Recycling Plan for each vessel that is to be recycled.

There are currently 24 parties to the HKC, which include Bangladesh, Belgium, Republic of the Congo, Croatia, Denmark, Estonia, France, Germany, Ghana, India, Japan, Liberia, Luxembourg, Malta, the Marshall Islands, Netherlands, Norway, Pakistan, Panama, Portugal, São Tomé and Príncipe, Serbia, Spain, and Turkey. (The United States is not a signatory to the HKC.) These countries represent some of the largest flag states in the world (e.g., Liberia, Malta, the Marshall Islands, and Panama) and the major ship recycling states (e.g., Bangladesh, India, Pakistan, and Turkey).

Subject to certain exceptions, the HKC applies to (1) all vessels entitled to fly the flag of a party to the HKC or operating under its authority, and (2) ship recycling facilities operating under the jurisdiction of a party to the HKC. The HKC provides exceptions for (i) vessels of less than 500 gross tons, (ii) warships, naval auxiliary, or other vessels owned or operated by a party to the HKC and used for only governmental non-commercial services, and (iii) vessels operating throughout their life only in waters subject to the sovereignty or jurisdiction of the state whose flag the vessels are entitled to fly. Notwithstanding these exceptions, the HKC requires parties to adopt measures to ensure that such vessels “act in a manner consistent with the [HKC], so far as is reasonable and practicable.”

The HKC applies to “new ships” and “existing ships.” “Ship” is broadly defined under the HKC as “a vessel of any type whatsoever operating or having operated in the marine environment and includes submersibles, floating craft, floating platforms, self-elevating platforms, Floating Storage Units (“FSUs”), and Floating Production Storage and Offloading Units (“FPSOs”), including a vessel being stripped of equipment or being towed.”

A “new ship” is a vessel (1) for which the construction contract is placed on or after the HKC’s entry into force, (2) in the absence of a construction contract, the keel of which is laid or at a similar stage of construction on or after six months after its entry into force, or (3) the delivery of which is on or after 30 months after its entry into force. A new ship is required to have an IHM on board before it is put into service.

An “existing ship” is a vessel that is not a “new ship.” An existing ship shall comply “as far as practicable” with the requirements of the HKC, “taking into account the guidelines developed by the [International Maritime Organization (the “IMO”)] and [its] Harmonized System of Survey and Certification,” no later than five years after the HKC’s entry into force or, if earlier, before being recycled.

Implementation and Enforcement of the HKC

Each party to the HKC is required to implement the requirements of the HKC into its national laws such that any violation of the HKC is prohibited. With respect to vessels, each party is required to establish sanctions for violations of the HKC, wherever such violations may occur, and for ship recycling facilities, each party must establish sanctions for violations by a ship recycling facility within its jurisdiction. While the HKC does not specify what the sanctions must be, under Regulation 10 of the HKC, the sanctions must be adequate in severity to discourage violations whenever they occur.

The parties to the HKC must cooperate in detecting violations and enforcing the HKC. In that regard, the HKC has provisions for parties to report, investigate, or request investigations into alleged violations and provide the results of any investigation to the relevant parties and the IMO. Vessels covered by the HKC may be subject to inspection in any port or offshore terminal of another party to the HKC for purposes of determining compliance with the HKC. If a vessel is determined to be in violation, the party carrying out the inspection may take steps to warn, detain, dismiss, or exclude the vessel from its ports and is required under the HKC to immediately inform the vessel’s flag state and the IMO.

Because the HKC has not yet entered into force, it remains to be seen exactly how the various parties will implement and enforce these requirements under their respective national laws. However, to the extent the implementation and enforcement by EU countries of the EU Ship Recycling Regulation (the “EU SRR”) (which is discussed below) serves as a guide, one can expect a variety of different approaches with sanctions ranging from minor monetary fines to potential jail time.

Other Related International Ship Recycling Efforts

While not the main focus of this article, we briefly touch on two other related international efforts with respect to ship recycling—the EU Ship Recycling Regulation (EU No. 1257/2013) and the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal, 1989 (the “Basel Convention”). These two regimes are relevant because of their overlap in coverage with the HKC.

The EU SRR was passed in 2013 and implements the requirements of the HKC for the safe and environmentally sound recycling of ships into EU law. However, the EU SRR goes further than the HKC in some respects by imposing additional safety and environmental requirements on vessels registered under the flag of EU member states and ship recycling facilities and is hence often considered stricter than the HKC.

The Basel Convention was designed to control the movement of hazardous waste generally between countries and, in particular, from more developed countries to less developed countries. The Basel Convention has been widely adopted, including by most EU countries and parties to the HKC. (The United States is a signatory to the Basel Convention, but it has not ratified it). While vessels are not considered hazardous waste per se by the Basel Convention, vessels being transported for recycling are deemed waste thereunder, which led to the adoption of specific guidelines for the environmentally sound dismantling of ships. In 1995 certain parties to the Basel Convention agreed to what is known as the “Ban Amendment,” which in effect prohibits transboundary movements of hazardous waste (including vessels being recycled) from Organization for Economic Cooperation and Development (“OECD”) countries to non-OECD countries (which include Bangladesh, India, and Pakistan) absent certain agreements.

Regulation 3 of the HKC requires parties to take measures to implement the HKC, taking into account relevant and applicable standards, recommendations, and guidance developed by the International Labour Organization and under the Basel Convention, but it is not entirely clear how this will work in practice. As others in the shipping industry have already noted, while the HKC, the EU SRR, and the Basel Convention address hazardous materials in ship recycling, they do so in different ways and have different requirements and standards, which raises questions regarding compliance where the three regimes intersect. The HKC’s impending entry into force will bring into focus the various disconnects between these different regimes and begs the question of whether any amendments will be made to the HKC, the EU SRR, and/or the Basel Convention to try to harmonize them prior to the HKC’s entry into force, in particular with respect to the status of ship recycling facilities in Bangladesh, India, and Pakistan.

While many in the shipping industry have welcomed and praised the HKC’s upcoming entry into force, various industry groups have criticized the HKC for certain claimed shortcomings. These criticisms include the HKC/EU SRR/Basel Convention compliance issue noted above as well as the following:

shipowners may simply elect to reflag a vessel to a “flag of convenience” state that is not a party to the HKC shortly before recycling the vessel to avoid the HKC’s requirement to recycle the vessel in an HKC-compliant ship recycling facility;

the HKC does not prohibit the ship recycling practice of beaching, and certain ship recycling yards that engage in beaching and are located within the jurisdiction of HKC parties (such as Bangladesh and India) claim that they are already compliant with the HKC;

the HKC does not provide adequate worker safety protections for those workers involved in ship recycling;

the HKC does not include downstream waste management restrictions; and

sanctions are adopted and enforced at the national level under the HKC so there are questions as to whether certain parties will adopt sufficiently strict sanctions for violations and how effective certain parties will be in enforcing compliance on vessels and ship recycling facilities under their jurisdiction.

These claimed shortcomings may create impairments for compliance by shipowners and ship recycling facilities with the HKC in certain situations or may lead to negative publicity for shipowners who believe that compliance with the letter of the HKC should be sufficient. Nevertheless, shipowners and ship recycling facilities should not expect them to lead to significant delays in the implementation and enforcement of the HKC.

Vessels and Ship Recycling Facilities Subject to the HKC

Of course, all owners and operators of vessels flying the flag of a party to the HKC and all ship recycling facilities in countries party to the HKC will need to comply with the HKC when it enters into force. The HKC’s compliance requirements will have limited impacts on vessels registered under the flags of EU members (or registered under other flags but call on EU ports) and ship recycling facilities in the EU given that the requirements of the EU SRR are generally stricter. In addition, shipowners of vessels registered under the flags of EU members may not be able to recycle their vessels in HKC-compliant ship recycling facilities in Bangladesh, India, and Pakistan until the regime conflict discussed above is sorted. With respect to vessels and ship recycling facilities subject to the jurisdiction of non-EU parties, the HKC’s impact will likely depend on the respective national laws those parties adopt to implement and enforce the HKC.

Vessels and Ship Recycling Facilities Not Subject to the HKC

Although vessels and ship recycling facilities under the jurisdiction of non-party countries, such as the United States, are not required to comply with the HKC, its entry into force will significantly change the options of owners and operators of such vessels for recycling and put pressure on ship recycling facilities to satisfy the requirements to be an approved facility under the HKC.

For owners and operators of vessels flagged in non-party countries, the fact that Bangladesh, India, Pakistan, and Turkey are parties to the HKC and, according to the Baltic and International Maritime Council, collectively recycle approximately 95 percent of the world’s recycled vessels each year, means that it will become increasingly harder to avoid compliance with the HKC when they want to recycle vessels. Similarly, the claimed “flag of convenience” loophole mentioned above will become increasingly smaller as more flag states become party to the HKC. To adjust to this new reality, owners and operators should begin implementing the periodic survey requirements of the HKC now so that an Inventory of Hazardous Materials can be issued in conjunction with the special (i.e., five-year) class surveys of their vessels.

Following this practice will be beneficial to shipowners in a number of ways:

First, it will enable a shipowner to select from a wide range of ship recycling facilities at any time without having to go through the time and expense of bringing its vessel into compliance for facilities in countries that are party to the HKC.

Second, it will be valuable in case the shipowner wants to sell the vessel during its operational life because having an up-to-date IHM will presumably make a used vessel more valuable to a potential buyer because it will not have to incur that initial expense and can maintain the IHM until it is time to recycle the vessel. Similarly, if the shipowner decides to reflag its vessel, having an up-to-date IHM will facilitate reflagging the vessel to a party to the HKC, such as Liberia or the Marshall Islands.

Third, it may facilitate the financing of the vessel whether it is a newbuild or an existing vessel. Many&nbsp;Mainbrace&nbsp;readers will be familiar with the Poseidon Principles, which provide banks with a framework for integrating climate considerations into their lending decisions to promote the decarbonization of the shipping industry. The chair of the Poseidon Principles has noted that it would be a logical step to expand them to include ship recycling once the HKC is in force. Separate from that possibility is the very real likelihood of lenders requiring that a vessel being used as collateral for a loan possess and maintain an up-to-date IHM so that the vessel can be more easily sold in the event of a foreclosure (with the added benefit of the lenders being green).

For ship recyclers in countries that are not party to the HKC, the fact that Bangladesh, India, Pakistan, and Turkey are parties to the HKC means that there should be lots of options for shipowners who are looking to recycle their vessels in an environmentally responsible manner. Hence, ship recycling facilities that are not approved under the HKC (or the EU SRR) may miss out on lucrative recycling jobs, particularly considering the possible increase in vessels being recycled because they are not compliant with emerging emissions standards and are not candidates for a retrofit. In that regard, it is noteworthy that a recycling facility in Canada, which is not a party to the HKC, was recently issued a Statement of Compliance under the HKC by Lloyd’s Register, thereby allowing it to compete for recycling projects requiring HKC compliance. Accordingly, ship recycling facilities that are not in countries that are party to the HKC should consider following that path.

Many questions remain regarding exactly how the HKC will work in connection with other related regimes such as the EU SRR and the Basel Convention and whether owners and operators will be able to exploit loopholes in the HKC to avoid compliance. However, for the reasons discussed above, there are numerous motives for owners and operators of vessels and ship recycling facilities to start complying with the applicable requirements of the HKC before its entry into force, even if their vessel is registered under the flag of a non-party or their ship recycling facility is located in a country that is not a party to the HKC.

This article is one in a series of articles written for Blank Rome’s <a href="/news-and-events/mainbrace-march-2024/" type="post" id="26404">MAINBRACE: March 2024</a> edition.

Summary of Impact of the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships

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Summary of Impact of the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships

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