Brazil's Best Counsel 2023: Chapter Opening: Shipping

Posted jeudi, mai 11 2023
Brazil's Best Counsel 2023: Chapter Opening: Shipping

Challenges and law developments to enhance maritime operations

The Brazilian Maritime law, in general, is regulated by the Brazilian Commercial Code in force since 1850, albeit partially revoked by the Civil Code of 2002, few conventions that were already ratified by the country and some sparse laws. The sources of procedural law currently in force in Brazil, for instance, relating to arrest of vessels and maritime liens, are basically the Brazilian Commercial Code of 1850, the Brussels Convention for the Unification of Certain Rules Relating to Maritime Liens and Mortgages of 1926 (Decree 351/1935), and the Brazilian Code of Civil Procedure.

However, over the last ten years, it has been under discussion in the Brazilian National Congress the Bill No. 1,572, of 2011, for the enactment of a new Commercial Code which seeks to update the provisions related to, inter alia, maritime issues related to the carriage of goods, limitations of liability, charter agreements, and other shipping matters.

It is believed that the enactment of a new Commercial Code would be a good opportunity to establish in the Brazilian legal system provisions that were instituted by some important international conventions that were not yet ratified by Brazil. A recent study conducted by the Maritime Law Committee of the Brazilian Bar Association revealed that there are approximately 165 international conventions related to Maritime Law in force, but Brazil has not ratified the majority of such treaties, being outdated with relevant international maritime law. Such lack of adhesion to the global legal framework brings uncertainty to international players and investors runs and becomes a barrier to the country enhancing its potential through maritime operations. Only more recently Brazil has incorporated the MLC 2006, the Maritime Labor Convention, through the Decree n. 10.671/2021, being seen as an effective instrument to protect the rights of the seafarers, resolve conflicts and ensure legal certainty related to contracts of employment.

Notwithstanding the less progress seen in terms of maritime law, this is not the case in the shipping industry. Undeniable that Brazil has been over the years focused on a highly intense program for port concessions and also in developing the offshore support navigation, but, recently, the cabotage navigation, which is the transport of cargo between Brazilian ports, received attention from the Federal Government and the Parliament, particularly, in an attempt to decrease the logistic Brazilian system's dependence on road transportation.

After over two years of extensive discussion in both houses of Congress, the Law No. 14,301, known as "BR do Mar", was enacted in January of 2022. By this law, the Program to Stimulate Cabotage Transport has been created bringing significant changes to the regulation of cabotage navigation in Brazil.

Among the main changes implemented by BR do Mar, the flexibility of chartering foreign vessels for time to be used in the transport of cargo in cabotage is worth highlighting. In this regard, time-chartering vessels owned by foreign wholly-owned subsidiaries of a Brazilian Shipping Company (“BSC”) is now allowed under the conditions and assumptions specified in the new law, especially, for expansion of the effectively operating fleet, replacement of a vessel under construction in Brazil or abroad, to be used in long-term contracts and for the exclusive service of “special cabotage operations”, which are the ones which will develop regular operations for the transport of cargo in a type, route or market that does not yet exist or has not yet been consolidated.

The Law 14,301/2022 also promoted changes in the main legislation of commercial navigation in Brazil, the Law 9,432/1997. Prior to the new law, foreign vessels were only entitled to be registered under the REB, the Brazilian Special Registry, after accomplishing two requirements: the suspension of the vessel's original flag and that the BSC must have the required tonnage set in the law, which will vary accordingly to the BSC’s fleet. Now, with the enaction of Law 14,301/2022, there is the possibility to bareboat charter a foreign vessel under a flag suspension, regardless to have a Brazilian fleet owned by the BSC. The chartering limit on vessels will gradually be increased each year after the law’s effective date until the entire reserve is released in 2026.

If the expansion of the fleet was a goal beaten, on the other hand, little progress was made regarding to measures aimed to reduce the severe tax burden for national shipowners – including interstate taxation (similar to VAT) on ship fuel. This burden prevents the Brazilian maritime system from achieving the efficiency seen in nations such as England and the Netherlands, which adopted tonnage tax and other sophisticated structures long ago.

Moving from cabotage to offshore support navigation, it is underway in the Brazilian Congress, and with expectations to be voted next year, a new Bill to develop power generation from offshore installation sources. Despite the topic being more associated to the Energy sector, it will create new opportunities to owners and vessel’s operators within the offshore sector regarding the installation and maintenance of such offshore wind sources.

As seen, several activities with strategic importance are developed at sea, such as the exploration of oil and gas reserves, the usage of maritime routes, not even to mention fishing, tourism, and the possibility of extracting valuable metals found in Brazilian deep waters. In this sense, not more assertive the term developed by the Brazilian Navy to call the Brazilian maritime geographic space “Blue Amazon”, in allusion to the major rain forest in the world due to its immensity, incredible diversity, and several natural resources, and a gigantic area of 3,5 million square kilometers of sea and 7,4 thousand kilometers of coast.

Therefore, developing maritime law and measures aimed to foment the activity and the maritime business friendly environment should be a permanent agenda for Brazil. Incorporating international conventions to bring more certainty to the international players, or through measures to decrease operational costs to be capable of competing with large carrier nations, undoubtedly, will contribute to creating a new era of Brazilian maritime navigation.