I.The International Oil Pollution Compensation Regime
The international regime for oil pollution compensation includes, primarily, a set of conventions developed by the International Maritime Organization (“IMO”) to address the compensation conundrum associated with extensive oil pollution damage. The first of such legal instruments are the 1969 International Convention on Civil Liability for Oil Pollution Damage (“1969 CLC”)，the 1971 International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage (“1971 Fund Convention”). The 1969 CLC and 1971 Fund Convention were subsequently amended, leading to the adoption of the 1992 International Convention on Civil Liability for Oil Pollution Damage (“1992 CLC”)，the 1992 International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage (“1992 Fund Convention”), and the Protocol of 2003 to the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1992(“2003 Supplementary Fund Protocol”). An international regime for oil pollution compensation has been established based on the legal instruments above. Under this regime, compulsory insurance on the part of the tank-owner and contributions from oil cargo receivers are provided to ensure availability of compensation.
The International Oil Pollution Compensation Funds are two intergovernmental organizations: the 1992 Fund and the Supplementary Fund, which were set up in accordance with the 1992 Fund Convention and the 2003 Supplementary Fund Protocol respectively. By acceding to the 1992 Fund Convention and/or 2003 Supplementary Fund Protocol, a State automatically becomes a Member of the 1992 Fund and/or the Supplementary Fund. As of 21 February 2019, there are 115 States Parties to the 1992 Fund Convention and 32 States Parties to the 2003 Supplementary Fund Protocol. IOPC Funds have a Secretariat based in London, UK, which is tasked with collecting and managing contributions paid by eligible oil cargo receivers of the member States, as well as assessing and settling claims for compensation made by victims of oil pollution. IOPC Funds are financed by contributions paid by oil importers. Pursuant to relevant provisions, entities or individuals who, in any calendar year, have received total quantities of “contributing oil” exceeding 150, 000 tonnes, which has been carried by sea to the territory of a State Party shall be obligated to contribute to the funds. These contributions are calculated based on the quantity of oil received in the relevant calendar year, expected claims, and the costs of administering the IOPC Funds. Since their establishment, the IOPC Funds have been involved in 150 incidents of varying sizes all over the world. In the majority of cases, all claims have been settled out of court.
The 1992 CLC, 1992 Fund Convention and the 2003 Supplementary Fund Protocol constitute a tiered system of compensation (Fig.1): the owner of the tanker from which the oil is spilled is legally liable for the payment of compensation under the first level; oil receivers in 1992 Fund Member States contribute to the second level once the tanker owner’s applicable limit of liability has been exceeded; and the 2003 Supplementary Fund Protocol provides for a third tier of compensation in cases where the protection afforded under the 1992 CLC and the 1992 Fund Convention is inadequate. A significant benefit of accession to the conventions above is that, States Parties to a relevant convention are better placed to deal with the consequences of a tanker oil spill. In other words, a State Party to these international conventions, in the event of major oil pollution incidents, may benefit from the compulsory insurance maintained by the shipowners and the contributions from oil importers of other States Parties. According to the principle of fairness in the international compensation regime, all claimants should be treated equally. It means that all victims of oil pollution damage from tankers in the respective Contracting States shall be similarly compensated for their losses, if the Contracting States have acceded to the same international convention.
Despite the benefits available under these conventions, not all States are willing or planning to join them. There are still some States that have not ratified or acceded to any of the above-mentioned conventions; some States only acceded to the 1969 CLC; some have acceded to the 1992 CLC but not to the 1992 Fund Convention; some have acceded to both the 1992 CLC and the 1992 Fund Convention; and some have acceded to three instruments including the 1992 CLC, the 1992 Fund Convention, and the 2003 Supplementary Fund Protocol. It should be noted that in some Non-Contracting States to the conventions above, substantial compensation may be available under applicable national law, as for instance in the case of the United States Oil Pollution Act of 1990. These States will not be elaborated in this paper due to the limited space. Some other Non-Contracting States could only invoke general laws in the aftermath of an oil spill. In this case, the liabilities of the major parties involved in a spill, such as the tanker owner, Protection and Indemnity Clubs, and the cargo owner, are not clear enough to ensure the taking of quick and effective measures to address the pollution damage or to compensate the victims adequately. Given the great benefits of adherence to such conventions, why are there still some States reluctant to ratify or accede to them?
Fig.1 Three Levels of Compensation Established by the International Conventions
States may have different considerations, when choosing to or not to join the conventions listed above. According to the Liability and Compensation for Ship- Source Oil Pollution, a report released by the United Nations Conference on Trade and Development (UNCTAD) in 2012, the considerations that may be relevant to national policymakers in the context of assessing the relevant merits of acceding to these instruments include:(a) the benefits and substantive merit of acceding to the relevant international conventions;(b) the risk of exposure to tanker oil pollution; and (c) the financial burden associated with accession to relevant international instruments. In addition to those mentioned by the UNCTAD, the author asserts that the level of economic development is another factor relevant to national policymaking.
China applied to accede to the 1992 CLC in 1999, which became effective for China on 5th January 2000. China also considered the accession to the 1992 Fund Convention. However, given China’s national conditions at that time,  the 1992 Fund Convention became only applicable to the Hong Kong Special Administrative Region, but not to other parts of China. The 2003 Supplementary Fund Protocol provides for a third level of compensation in cases where the compensation under the 1992 CLC and the 1992 Fund Convention is inadequate. According to relevant provisions, only Contracting States to the 1992 CLC and 1992 Fund Convention may ratify or accede to the 2003 Supplementary Fund Protocol. As a result, China should first consider the accession to the 1992 Fund Convention.
This paper will take China as a case to analyze the factors affecting a State’s decision regarding the ratification of the 1992 Fund Convention. Based on that, it further discusses the prospects of China’s accession to the convention. By doing so, the paper endeavors to provide some observations that may be of assistance to national policymakers of China and other States who are considering acceding to the convention.
II.Merits and Drawbacks of Acceding to the 1992 Fund Convention: Considerations for Policymakers of China
Some States decide not to ratify the 1992 Fund Convention since they consider the risk of a major tanker spill to be low or there are other priorities that demand the time of administrators and politicians. The level of oil spill risk is a key consideration for national policymaking in this regard, and China is no exception. The fact that the 1992 Fund Convention imposes a financial burden on oil receivers may also be a factor in some States, especially those with national oil companies or where imported oil is merely in transit to elsewhere. Apart from these, national economic development is also an important consideration for Chinese policymakers, since it directly decides the oil imports of China and its financial burden.
A.Risk of Exposure to Oil Pollution
The risk of exposure to oil pollution varies widely between different locations, but all coastal States involved in the import or export of oil by sea, or located along the maritime routes that handle global oil traffic are vulnerable to the effects of oil pollution from tankers. Oil spills would bring about huge damages. Even small oil spills can cause serious damage to the marine environment, as well as huge economic losses and high clean-up costs. The consequence of any oil spill may be devastating for any affected local economies. Joining a convention on international oil pollution compensation resembles maintaining a type of insurance. It may seem unnecessary if no major incidents happen. However, when an oil spill does take place, a State who is not a party to any the conventions listed above, may find it challenging or impossible to adopt any emergency measures for lack of financial support, which would lead to even overwhelming losses. In a similar vein, such a State may also be financially inadequate to take any measures to recover the environment, which would cause serious consequences to the government and the people of the affected State.
According to IMO Manual on Oil Spill Risk Evaluation and Assessment of Response Preparedness, Risk = Likelihood × Consequence,  where (a) Likelihood is the probability or possibility of occurrence of an oil spill, and (b) Consequence is the social, economic or environmental costs or damages if an event occurs. The likelihood of oil spill is affected by many factors, such as ship traffic density, weather, and sea conditions, navigational hazards, visibility, water depth, and nature of the sea bed. And the Consequence is subject to a number of factors including the volume and type of cargo carried by a vessel at the time of an incident, effectiveness of incident response, proximity to environmentally and economically sensitive zones. In this connection, if a State is close to environmentally and economically sensitive zones, where the volumes of maritime cargo are large, and the relevant authorities are slow in responding to incidents, that State would potentially suffer catastrophic losses in the event of a major oil spill. As compared to the 1969 CLC, the 1992 CLC and the 1992 Fund Convention defined stricter rules on economic compensation, offering significantly greater protection to oil pollution victims. With respect to member States to the IOPC Funds, the risk of a major oil pollution incident and the resulting financial losses could be spread out over a large number of oil importers that have paid their contributions to the Funds. In that case, States facing a high risk of oil spills may have greater incentives to join the IOPC Funds.
The International Tanker Owners Pollution Federation (ITOPF) is a professional non-profit organization established in 1968. Its primary role is to provide impartial technical advice on oil spill clean-up measures, damage assessment, as well as compensation schemes. During the last half-century, ITOPF has attended over 800 oil spill incidents in 100 States. Based on the probability and frequency of oil pollution incidents, the risk of oil spill could be categorized into three levels (Table l).
Table 1 Probability and Level of Risk
│Rating of level │Risk rating │Frequency │
│Level 1 │Low │1 event per 10 to 100 years │
│Level 2 │Moderate │1 event per 1 to 10 years │
│Level 3 │High │More than 1 event per year │
To further evaluate the risk of oil spills, a group of ITOPF researchers, based on the Regional Seas and Partner Seas Programme initiated by the United Nations Environment Programme (UNEP), extracted and analyzed the data on historical tanker spills of over 100 tonnes in the period spanning from 1974 to 2002. The relative risk of spills in different sea areas was deduced by comparing the historical occurrence of oil spills with the amount of oil transported. Their main findings are listed as follows:
Table 2 Assessments of Risk for 19 Regional Sea Areas
│Regional Sea │Risk Category │
│North-east Pacific │Low │
│South-east Pacific │Low │
│Upper South-west Atlantic │Moderate │
│Wider Caribbean │Moderate │
│West &Central Africa │Moderate │
│Eastern Africa │Moderate │
│Red Sea & Gulf of Aden │Moderate │
│Gulf Area │Moderate │
│Mediterranean │High │
│Black Sea │High │
│Caspian │Moderate │
│Baltic │Moderate │
│North-east Atlantic │High │
│South Asian Seas │Moderate │
│East Asian Seas │High │
│South Pacific │Low │
│North-west Pacific │High │
│Arctic │Low │
│Antarctic │Low │
Table 2 shows clearly that East Asian Seas are facing a high risk of oil pollution damage. China, being a part of East Asia, is no exception. Along with the development of the shipping industry and the economy, China has become the world’s largest net importer of crude oil and the second largest oil consumer. According to customs data, China’s oil import demand has been on the rise: in the first five months of 2018, crude oil imports totaled 190 million tonnes, an 8.0% increase on the year-over-year (YOY) basis; in the first four months, seaborne imports amounted to 135 million tonnes, accounting for 89% of the total, a 4.5% increase on the YOY basis. In other words, almost 90% of crude oil import is transported by sea, mainly by way of the Persian Gulf and West African waters, followed by South American and Russian waters.
According to ITOPF, major oil spills are usually associated with serious casualties such as collisions, groundings, and structural failures. Considering China’s great dependence on shipping for crude oil import, and the huge volumes of oil cargo carried and fuel oil consumed by a large number of ships sailing in China’s waters, China is highly vulnerable to oil pollution.
Worldwide accidental oil spills from tankers, combined carriers and barges are displayed on the following map prepared by ITOPF, using its Geographic Information System (GIS).
Fig.2 Incidents Attended by ITOPF
The figure above shows that the waters bordering China are facing a high risk of oil pollution. As per the statistics released by the State Oceanic Administration of China, an oil spill occurred in every four days, on average, in China’s coastal areas. It is known that the technical conditions, manning, and communication systems of Chinese tankers are far below international standards, and there are still some single-hull ships and inadequate tankers sailing along the coastline of China. Under this circumstance, a growing number of oil pollution incidents will, inevitably, occur in China’s coastal waters.
China ranks first in the world in terms of both cargo and container throughput -19% of the world’s goods are transported by sea to China. With the development of containers, oil spills caused by collisions between large container ships and oil tankers have also occurred. The following are some examples of oil spills. On 5 January 2019, an oil leak was spotted from the tanker Carlung after it moored alongside the container ship Maersk Gateshead. In the early morning of 23 November 2002, the Tasman Sea, a Maltese tanker carrying 80, 000 tonnes of crude oil, collided with a Chinese ship, Shunkai No.1, in the Bohai Bay. This accident led to a large amount of crude oil leakage into the sea, causing serious pollution. In 2005, Arteaga, a Portugal-registered tanker carrying about 120, 000 tonnes of crude oil, struck a rock and became stranded off when preparing to dock and unload in the Dalian New Port. The bottom of tanker was damaged, resulting in large crude oil leakage and severe marine pollution. On 12 May 2007, the Saint Vincent-flagged freighter Jinsheng collided with the South Korea-flagged vessel Golden Rose in the waters near Chinese city Yantai, also causing oil spills in the area. Other examples include the oil spill in the Bohai Sea in 2006, the pipeline explosion in Dalian New Port on 16 July 2010, the oil spill in the 19-3 oilfield of Penglai in 2011, and the collision between the Panama-registered oil tanker Sanchi and the Hong Kong- registered bulk freighter CF Crystal in 2018. All these examples indicate that China is facing a high risk of oil pollution in its waters.
B.The Relative Benefits and Financial Burden Associated with Adherence to the 1992 Fund Convention
According to the 1992 Fund Convention, annual contributions to the fund shall be made by companies or other entities who, in a calendar year, have received more than 150, 000 tonnes of crude oil and/or heavy fuel oil (“contributing oil”)through sea transport. Therefore, Contracting States with “contributing oil” receipts of less than 150, 000 tonnes annually benefit from the substantive compensation available from the 1992 Fund Convention without any financial burden arising for oil importers based in that State. For these States, accession to the 1992 CLC and the 1992 Fund Convention represents a “win-win” situation.
For those Contracting States whose annual receipts of oil are more than 150, 000 tonnes, the relative benefits and financial burden associated with the adherence to the 1992 Fund Convention vary from year to year. As mentioned previously, companies and other entities bear the cost of the 1992 Fund, rather than governments. It is important to emphasize that there is no regular levy on such entities. Instead, the Assembly of the 1992 Fund decides the total amount that should be levied each year according to the number and size of claims expected. The Secretariat then calculates the required levy per tonne of contributing oil by reference to the total quantity of contributing oil received in all Member States. The quantity of oil received by each contributor is multiplied by this amount per tonne to give the total amount which has to be paid by that contributor. The level of contributions payable by the companies fluctuates from year to year, which mirrors the variations in the compensation payments made by the 1992 Fund (Table 3).
Table 3 Contributions Levied by the 1992 Fund during the Period 2015-2017
│Year │Total contributing oil│Total contribution (￡│Contribution per t│
│ │ (tonne) │) │onne (￡) │
│2015 │1, 549, 969, 362 │9, 700, 000 │0.0062582 │
│2016 │1, 541, 015, 583 │1, 500, 000 │0.0009734 │
│2017 │1, 586, 303, 134 │5, 900, 000 │0.0037193 │
The contribution payable by an oil importer who received 150, 000 tonnes of contributing oil in 2017, as illustrated in Table 3, would amount to ￡558; and the contribution payable by an importer with receipt of 1 million tonnes would amount to ￡3719. These examples provide only a snapshot of potential financial burdens arising in a given year. However, they show the magnitude of contributions to the 1992 Fund Convention. Even for Contracting States with large quantities of contributing oil receipts, the relevant annual contributions levied appear modest, when juxtaposed with the potential compensation available to the victims of any oil spill incident. As a result, the world’s largest oil importing States, with the exception of China and the United States, have all joined the 1992 Fund Convention. For example, in 2017, the five largest contributors to the 1992 Fund were, in order, India, Japan, South Korea, Singapore, and Italy. Noticeably, in the same year, 42 Member States, including Bahrain, Cabo Verde, Cambodia, and Congo were not required to pay any contribution, since the annual receipts of contributing oil in these States did not exceed 150, 000 tonnes.
Currently, China’s annual oil imports have far exceeded 150, 000 tonnes. It is reported that China’s daily import of crude oil increased to 420 million tonnes (8.43 million barrels per day) in 2017, which roughly doubles the amount of contributing oil received by India, the largest contributor to the 1992 Fund in the same year. This means that if China joins the 1992 Fund Convention, it would become the Contracting State with heaviest contribution burden. However, will China’s financial burden outweigh the benefits available to it? This question should be answered by taking a look at the relative benefits of China’s adherence to the convention above.
First, in general, States that are Contracting Parties to the relevant conventions are better placed to deal with the consequences of a tanker oil spill than those who are not. However, it should be noted that there are also some States who have already established sound compensation regimes through national laws, as for instance in the case of the United States Oil Pollution Act of 1990. However, the drawback of a purely national regime is that the State in question bears the entire financial burden of a major marine pollution incident, which may not be a good option for States that are particularly facing high risks of pollution, such as China.
Second, the practical enforceability of claims made by pollution victims is guaranteed by a statutory mechanism. The mechanism requires the maintenance of compulsory insurance for ships operating in the territory of Contracting Parties, and the establishment of a right of direct action against the insurer for claimants. Since its establishment, the IOPC Funds have attended 150 incidents. As of 31 December 2018, ￡684 million of compensation had been paid to the victims from the funds. If China accedes to the 1992 Fund Convention, potential compensation for victims to a major oil spill which happens in its territory would be more available.
Third, the costs of any preventive measures or reasonable measures to restore the environment are also recoverable from the 1992 Fund