Public and private port governance & regional cooperation: the cases of Rotterdam and Hong Kong

Title

Public and private port governance & regional cooperation: the cases of Rotterdam and Hong Kong

Abstract

This research project explores the impact of privatisation on regional public cooperation in the port industry, through the analysis of the public and private administration of the ports of Rotterdam and Hong Kong and the multi-level governance mechanisms of the northwest coastal Europe and South China regions. Governance models are the result of case specific political, socioeconomic contexts as well as geographical assets. In recent years, the intensification of globalisation has brought its load of challenges to the port industry: most notably liberalisation and containerisation. The rise of private actors in the industry is forcing public powers to rethink their position, in order to remain both relevant and influent. The two case studies allow to better understand the position the public sector plays in port governance and regional cooperation. As well to expand on its future role in an increasingly privatising industry and world.

Keywords: public-private governance; multi-level governance; regional cooperation; containerisation; port

region.

1. Introduction

Mid-twentieth century pioneering US port geographer Weigend held that “ports must be studied and analysed not as isolated phenomena but within the framework of relational patterns” (1958). More than half a century later, globalisation has restructured our system of exchange at an unprecedented rate and across scales. Ports are the ultimate vectors of globalisation as they allow entrance and departure to and from a territory (Hamme & Strale, 2012). To successfully operate in changing environments, ports continuously reinvent their physical infrastructure, range of services and governance structures (Wang, 2006). The main globalisation trends to have simultenously impacted the port industry are liberalisation, containerisation and privatisation.

In the last two decades, containerisation fundamentally revolutionised the business and changed the economic geography of the shipping industry and international trade overall, as new private container ports and port operators were seen entering the regional competitive game. Their bargaining power vis-à-vis public (port) authorities –that are both inherently physically grounded and politically accountable to their public- grew remarkably (Jacobs, 2007). As globalisation progresses and exacerbates free market competition, several industry actors point at regional port cooperation as a direct response to liberalisation forces. Cooperation is the process of individuals acting together for a common or mutual goal, rather than working in competition for individual benefit.

In the port sector, cooperation is seen as an effort to merge forces so as to produce benefits for all parties. Additionally, it is a way for public actors to maintain their relevance and influence in regional developments.

Multi-Level Governance is a framework that describes the dispersion of decision-making across multiple levels of governance: supranational, national and subnational (Yang, 2005). Globalisation has permitted to (re) contextualise entities as part of larger networks: ports are embedded in a network of port actors across levels, where competition prevails. Allegedly cooperation efforts use these network configurations to maximise individual competitiveness and produce a win-win outcome for the involved partners (Shinohara & Takehiko, 2018). Cooperation, to be most effective, must be overseen by a public authority because individual companies and organisations tend to pursue their own interests (Langen & Lugt, 2007). Within a port region, various levels of governments are relevant: from the port governing body to the geographical regional public authority if any.

Much research has been done on the impact of globalisation on the port industry, mostly focusing on how to increase competitiveness (Ducruet & Sung-Woo, 2006; Daamen & Vries, 2013). There is as well mounting literature on the imbalance split between public and private actors in port governance (Notteboom & Rodrigue, 2005). However, international comparative research on the relationship between specific models of governance

and port cooperation, in response to competition, is scarce. This research looks at public and private dual governance at the port level, and then focuses on cooperation between public actors at the port regional level. How does the privatisation of port governance impact cooperation between public actors at the regional level?

This paper is structured as follows: Section 2 develops the theoretical framework. Section 3 and 4 present the case studies: retracing the ports of Rotterdam and Hong Kong’s port development and governance models, then assesses the level of cooperation in the northwestern European and Pearl River Delta port regions. Section 5 contains the case comparison. Section 6 discusses the general issues the changing roles of governments and the challenges of implementing regional cooperation. Section 7 addresses the conclusions.

2. The impact of globalisation on port governance

Ports have been a prime topic in studying the materialisation of globalisation processes on the ground. As ports are not isolated ecosystems, the impacts on their economic, social, political as well environmental aspects resonate across levels: local, national, and regional. Researching the scale of the impact, and finding ways to adjust to and benefit from globalisation is crucial for port actors. The below sections unpacks pioneer and more recent literature on port governance, and identifies two main frameworks which the ensuing analysis is based on.

2.1 Between competition and cooperation: challenges to governance practices

Liberalisation refers to the relaxation of any monopolies that prevent private parties from entering markets previously exclusively controlled by the public sector (Cullinane & Song, 2002). This is true across industries, including that of ports. The role and importance of supranational organisations in shaping international regulations of the port and maritime sector has gained less attention from academic researchers. The large amount of literature focuses on globalisation and its intensification, researching the link between different types of port governance and port performance in an effort to increase competitiveness in the global landscape (Ducruet & Sung-Woo,

2006; Daamen & Vries, 2013; Ng & Pallis, 2010). Globalisation is both a process and an outcome, as it is shaped by political decisions and in return causes restructuring at the government level. Public industry actors consider the creation of competitive conditions among port operators, the cornerstone of their port policy (World Bank, 2016).

Increasingly since the turn of the twentyfirst century, the concept of the port has shifted from one whose operations are controlled by a public agency, with actions shaped by local and regional interests. To one that is made up of independent private organisations whose actions are determined by strictly commercial interests. The primary challenge of these renewed organisations is to advance the port’s competitive position as a link in the global network of supply chains (Wang, 2006). With the rise of powerful private players organised on a global scale, port authorities seem to have been placed at the rank of local spectator with limited influence on the market driven processes (Verhoeven, 2010). The term privatisation has therefore become synonymous (and confusingly so) with port reform (World Bank, 2016). An additional push moving ports away from direct public management was the advocacy for generic solutions, as typified by the World Bank in a Port Reform Toolkit (Ng & Pallis, 2010): In 2006 it presented a taxonomy of four governance models, which are distinguishable by the relative levels of private and public ownership and operation (Debrie et al., 2013). At the two extremes are the “public service port” and the “wholly private port”, the two are characterised by very little sharing of responsibility by the public or the private sector. The “landlord port” is a hybrid model in which the public authority owns the land and the infrastructure that it leases to private operators as a concession, with operations in the hands of the private sector. Across the academic literature this last model is considered most relevant and desirable (Monios, 2019). As confirmed in practice: the landlord port is the dominant port model in larger sized container ports, including the majority of European seaports and international ports like Hong Kong and Singapore (World Bank, 2016).

Containerisation, specific to the maritime industry is yet another challenge brought by globalisation: a system of standardised transport in which goods are transported in steel containers

(Wang, 2006). It allowed ports to become transshipment intermediaries between places of departure and destination, and furthered the integration of large segments of distribution systems (Notteboom & Rodrigue, 2005). In the 1990s, scholars began looking at the relationship between port operations and the set of institutions and forms of coordination that regulate the functioning of seaports. The most influencial in that respect is the work done by Baird (1995) on port privatisation.

While much of the literature to date on port governance focuses on the intra port governance level and how it addresses globalisation processes, others have chosen to zoom out of the local port level and appreciate ports in relation with neighbouring ones (Ducruet et al., 2009; Ferrari et al., 2015; Jacobs, 2007; Langen & Lugt, 2007. 2007; Stamatovica et al., 2018; Wang et al., 2012). Ports within the same region may compete or cooperate, or partially cooperate while competing. Nevertheless, there are many factors influencing the choice of ports over competition versus cooperation with ports of the same region (Wang et al., 2012). The term co-opetition was originally coined by Noorda (1993) to describe a mixture of competition and cooperation; it implies that those engaged in the same or similar markets should consider a win-win strategy. Song & Cullinane (2002) introduced the term co-opetition to the maritime industry. They explained that ports should compete through cooperation, effectively achieving win-win situations by proposing joint ventures and cross-shareholdership as the way forward. Individual companies will usually only consider their own interests. Hence regional port cooperation should be led by a public coalition (Langen & Lugt, 2007). Such argument motivates efforts to form an official intercity governmental department in charge of port cooperation at the regional level (Lam et al., 2013).

The public sector has largely redefined its role in the port industry through privatisation and corporatisation schemes. Pro active port governance implies the creation of a plateform in which port authorities are working together with multiple stakeholders, both in the private sector –carriers, shippers, transport operators- and public (Notteboom & Rodrigue, 2005). National and regional policy stakeholders are at various stages of developing more coordinated responses to logistics issues, often related to infrastructure investment

prioritisation but also policy efficiency gains, for example the creation of port clusters (at port level) to optimise operations (Woudsma, 2012). Since the 1980s, new forms of governance and decentralised decision-making mechanisms have gained increasing attention in various fields of study (Marks & Hooghe, 2004). Two models are significantly tied to the European construction: the state-centric model that puts national governments at the center of decision-making (Taylor, 1997), and the Multi-Level Governance that describes the continuous negotiation among supranational, national and local governments (Marks, 1993). One can expect for the second approach to be most beneficial to cooperation than the former centralised model.

2.1 Baird’s matrix & MLG: Two significant approaches

Prior to the World Bank Port Reform Toolkit in 2006, Baird (1995) proposed a typology of models for port administration. At the origin of the matrix is the argument that a port must maintain three essential functions, regardless of its ownership model and the extent of public and private management of operations (Cullinane & Song, 2002). The three main functions a port should

continue to provide are:

- a landowner function: Ports occupy a significant land area and the port landowner is to maintain and develop the port area and its infrastructure, through port policy and development strategies.

- an operator function: This concerns the physical transfer of goods and people between land and sea: in which the port can be a final destination or an intermediary in the case of transshipment. Depending on the governance model of the port, cargo handling is carried out by state owned/public or private companies.

- a regulator function: Port management, which may be public or private or a mix of the two, hold substantial powers of statuatory nature. This is sometimes regarded as the most important function of a port, as it includes activities such as enforcing applicable laws, overseeing port vessels traffic management, licensing port works. Another associated task is to safeguard port users’ interests and prevent a monopoly formation.

The framework identifies four kinds of port administrations, proposing different combinations

based on which of the public or private sector controls the three functions of the port. The four administrations models are (see Figure 1).

Figure 1: Port function matrix Source: Baird, 1995.

This matrix presents two models of port management that are especially relevant to this research: the PUBLIC/private port and the PRIVATE/public port. Baird describes the former as a port in which the private sector controls the operator function while the public sector remains in charge of the regulatory and the landowner functions. In practice it ressembles what the World Bank identifies as the landlord port; mostly found in Continental Europe. In the PRIVATE/public port however the private sector has the responsibility of being both a landowner and an operator, while the public sector is the regulator. A classic example of this type is the port of Hong Kong: private companies build their own terminals yet the government retains the responsibility over traffic management and the possiblity to expand and plan a new port (Baird, 1995).

Local port governance practices have a resonance in the port’s relationship with neighboring ones and how it practices cooperation. Various academics have researched regional governance developments and have produced frameworks to study such. Marks and Hooghe (2004) saw the 1992 Maastricht Treaty that laid the first stone for the construction of the EU as the expression of a new phenomenon, theorised as Multi-Level Governance. National states started dispersing their authority at higher (European Commission, European Court of Justice), inferior (regional, local) and lateral (public and private networks) levels of decision-making (Petrariu, 2019). However MLG does not undermine the important role played by national governments, rather it acknowledges it but suggests various levels are as relevant as state level ones (Petrariu, 2019). `Multi-level' refers to the “increased interdependence of governments operating at

different territorial levels, and `governance' signals the growing interdependence between governments and nongovernmental actors across levels” (Bache & Flinders, 2004). The term governance is especially relevant to this research: rather than use “governments” the authors here signify a change in the meaning of governing, a new method by which society is governed (Yang, 2005). The framework has been largely used to study European developments and the building of the EU (Marks & Hooghe, 2004). There are still too few cases beyond Europe. Though some researchers have applied the MLG to other supranational or continental regions, such as Yang (2005) to study the institutionalisation of integration and governance in China. The MLG provides an insightful framework through which research the link between regional cooperation and governance models.

2.2 Case selection and methodology

To conduct research on the relation between regional port cooperation and intra port governance, I chose to study the container ports of Hong Kong and Rotterdam, belonging to the world’s most dynamic port regions: northwest coastal Europe and the South China sea particularly the Pearl River Delta (PRD). They are leaders within their own regions yet both are dealing with increasing competitive pressures, confronted with the same market dynamics and structural developments that have been taking place in the maritime sector over the last decades. The study of these ports proves especially relevant as they cover a wide variety of institutional make-ups and histories, having adapted to changing local, national and regional environments, territorial embeddedness and regional competitive landscapes (Jacobs, 2007).

The two regions serve demanding hinterlands and markets: that of continental Europe and the Guangdong province of China, the world’s factory (Marinelli, 2010). The EU is often cited as a best practice of MLG (Shinohara & Takehiko, 2018), the Netherlands being a founding member. Hong Kong port continuously ranks in the top ten world container ports, despite a radical change of political context (World Shipping council, World Container Port Ranking 2019). The two cases are embedded in particular MLG settings, de facto relationships with neighboring port cities. Hong Kong is in a unique configuration with its Mainland

China counterpart since the 1997, Rotterdam is a significant EU asset. While this research focuses on the MLG in the South China and northwestern European coastal regions, at an even higher level the relationship between national states is of relevance. MLG in the PRD is different from that of the EU in its lack of a supra-national public authority (Yan, 2005). There are similarities in the two contexts at the port governance level: Hong Kong and Rotterdam ports are both models of public and private governance, and variants of the “landlord” type.

The research method consists of qualitative case studies of the regional port cooperation schemes in their port regions PRD and northwestern European coast, and of the port governance models of Hong Kong and Rotterdam, drawn from the Multi-Level Governance framework and Baird’s port administration matrix. The aim is to identify the port governance model of the two chosen ports and establish a MLG structure of the port regions. The analysis is based on a comprehensive review of the literature, which contributes to a better understanding of the theoretical environment overseeing port governance discourses.

The empirical research focuses on port development, governance models and cooperation in the mid-twentieth century onwards. Data is obtained from reliable secondary sources. It includes the collection and thorough reviewing of institutional reports and policy documents from regional, national and port level public authorities, demonstrating the adjustment to recent relevant trends in the port industry –liberalisation and privatisation, containerisation. Additionally, several semi-structured interviews with port industry actors in both the public and private spheres: port authority representatives, local government representatives, private company representatives and academic experts, were conducted between September 2019 and May 2020 in both locations. These provide some fact checking as well as interpretation on the current regional cooperation status.

3. The case of Rotterdam

The following study analyses the European case: firstly looking at the development of Rotterdam port, then researching public and private division in the port governance model. Finally it appreciates the port in its regional European

context. Europe and the EU are referred to as MLG and regional cooperation successes in theory. For this reason, the Rotterdam case comes first, in order to set the stage for the study of the Hong Kong case. 3.1 Contextualising the port of Rotterdam

Located in the Rhine River delta and with a hinterland consisting of Europe’s largest consumer market, the port of Rotterdam has a very favorable position for international trade, in fact it ranks highest in terms of cargo and container throughput in the European Union (Langen & Lugt, 2007). Yet, its success is not only the result of geographical advantages. On the contrary, active (spatial) economic policy and major investments in port-related infrastructures, expanding the port westwards to the open sea, have ensured Rotterdam’s growth during the twentieth century. The foundations of this were set in the latter part of the Nineteenth century. It is inherently tied to the intensification of exchanges worldwide: the Transatlantic used to be the busiest route in the world, bridging the close economic (and geopolitical ties) between the United States and Western Europe during a large part of the second half of the twentieth century, with the ports of New York-New Jersey and Rotterdam acting as regional market leaders.

The port of Rotterdam can be seen as one of the pioneers in Europe regarding containerisation; it began to devote itself to containers in the 1960s. Much like the large majority of ports, it fell for the containerisation trend and quickly developed into Europe’s busiest container hub. International private firms such as Hong Kong-based Hutchison Ports Holding, the world’s biggest terminal operator, took over Rotterdam’s Europe Container Terminals in 2001. At that time, Rotterdam was already the worlds’ busiest port in terms of total tonnage throughput. It managed to hold this position until 2005, when the ports of Singapore and Hong Kong finally surpassed Rotterdam. Rotterdam will likely never regain the position of the world’s busiest port, given the explosive growth of Asian economies and ports. The port’s leading position in Europe has come under pressure as well, especially in the container sector (Jacobs, 2007). 3.2 Rotterdam port governance: reforms & privatisation

2004 marks a turning point in the trajectory of governance for the port of Rotterdam, as it matches the corporatisation reform of the port authority (PA) when institutional constraints for investment and participation were effectively removed (Notteboom et al., 2013). The Rotterdam's Municipal Port Management (RMPM) Commercial Affairs Department and the Rotterdam Port Authority formally detached from RMPM to form a public corporation, Havenbedrijf Rotterdam NV referred to as Port of Rotterdam (PoR) (see Figure 2) (Ng & Pallis, 2010). In other words, the management (Executive board) of the PoR was no longer controlled directly by the municipality but rather by a Supervisory board (Langen & Lugt, 2007). Its main responsibilities included commercial and financial affairs (including investment in new development projects), redevelopment of old port areas and acquiring new customers. The stated responsibilities correspond to the regulator function as per Baird’s port administration matrix.

Figure 2: Rotterdam container port administration structure Source: Author.

The PA, originally a municipal body of the municipality of Rotterdam, operates the port but since 1 January 2004 is a government corporation jointly owned by the municipality of Rotterdam and the Dutch State. To date the Municipality of Rotterdam and the Dutch government share the port, respectively 70% and 30% each (PoR official website, PA). The PA acts as landlord to dozens of privately owned terminal operating companies. As developer and manager, in regards to infrastructure the PA ensures that sufficient space is available for companies in the port. The PoR's structure reflects a much more business-oriented nature. It is a shareholding company, whose management, accountability, supervision, and financial operations were implemented on the basis of conventional Dutch company law, articles of association, and

internal regulations, without port-specific laws being introduced. This approach was also found in its supervisory Non-Executive Board, on which no politicians or interest group representatives were allowed (Ng & Pallis, 2010).

A recent indicative development in the port of Rotterdam is Maasvlakte 2: a port-oriented project pushing Rotterdam's ambition to become a European, even global, hub where the impact of port development on national power was lacking. Indeed, the institutional reform that allowed for the Dutch government to be a PoR shareholder ensured the construction of the strongly desired mega project. As Maasvlakte 2's website stated: “now that [the Dutch] parliament has taken the `go' decision this week, the Maasvlakte 2 project is... no longer on the national political agenda''. Similar to the following developments at the port of Rotterdam, the role of the government was mainly supportive rather than directive. Overall reforms in Rotterdam were nested in the Dutch tradition of a decentralised, business-oriented, division of the involvement of public authorities in the broader public sector (Ng & Pallis, 2010).

3.3 European co-opetition in practice

Rotterdam port and neighbouring northwestern European ones fall under the European Union institutional framework. Competition policy in the EU is considered a pillar of cooperation between member states (Petrariu, 2019). Rotterdam’s main container port competitors are archrival Antwerp, the German ports of Bremen (and Bremer Haven) and Hamburg, and to a lesser extent Le Havre. Together, these ports have been identified as the ‘Hamburg-Le Havre range’ and are grouped together since they compete for the same hinterland. Though Rotterdam remains market leader and ranks first European port in world rankings (see Figure 3), it has been losing terrain since the late 1990s, particularly to Antwerp and Hamburg (Jacobs, 2007). Rotterdam and the Netherlands are embedded in public government coalitions in the form of the EU and European institutions, yet the region presents a considerable diversity in (port) management, organisation, financing. The EU is particularly characterised by, on the one hand, the basic internal market freedoms and on the other, the strong willingness to achieve a balanced and somewhat homogeneous

development. State (financial) support can influence regional market conditions and port competition.

The idea behind European integration was to shift authority over policymaking from nation states up to European-level institutions to achieve a community at the supranational level with coordinated goals (Yang, 2005), in other words enable regional public cooperation through policy work. The discussion for a European ports standard policy framework is nearly as old as the European integration process itself. The European Parliament was a modern supporter of a common policy, publishing a series of reports advocating for an agenda covering port organisation, financing and labour from 1961 to 1993. However, at that time the Parliament did not have the influence it has today and the European Commission, which pursued a non-interventionist approach, did not adopt its resolutions. The mid 1990s showed signs of a renewed approach: the Commission devised a transport policy aiming at developping a coherent European infrastructure network through the concept of the Trans-European Transport Networks (TEN-T) (Verhoeven, 2011). The reflection group assesses and supports infrastructure projects to increase connectivity accessibility and efficiency across Europe: these can be tunnels, high-speed railroads, etc. In 1993, the European Sea Ports Organisation (ESPO) representing PAs, and the Federation of European Private Port Operators (FEPORT) representing private stevedores and terminal operators were created (Pallis & Verhoeven, 2009).

Despite insitutional efforts to merge interests, the current heterogeneity in EU port regulation is recognised as having an impact on the competitiveness of ports (Ferrari et al., 2015). Port policy is liberal and promotes free trade, free competition and limited public intervention. There is no formal common policy adopted: EU ports are in direct competition. Additionally the European Commission rather encourages privatising public ports to avoid monopolies and is committed to a policy of liberalising cargo handling on behalf of the competitiveness of European terminals (Hamme & Strale, 2012).

4. The case of Hong Kong

Despite a seemingly strong theoretical framework for implementing cooperation at the

European level, the developments in practice confirm the difficulty at achieveing homogeneity among port actors. Below is the second case study: Hong Kong and the Pearl River Delta. A radically different context from the European scenario, that provides multiple surprising similarities.

4.1 The emergence of Hong Kong port

Over the past century, Hong Kong port has established an international influence and enviable presence in the port industry worldwide. The story of Hong Kong is undeniably tied to globalising forces, and embedded in peculiar regional governance schemes. The British upon arrival in the early nineteenth century, saw beyondthe initially small fishermen village, a strategic territory over which to assert dominance. Located at the junction of the Pearl River and the South China Sea, the island of Hong Kong faces the imposing continental China. By force and through two consecutive opium wars, British colonial power gradually took over the island and eventually the neighbouring Kowloon peninsula.

Subsequent to the opium wars, Hong Kong has been a city of commerce and the gateway to China since the late nineteenth century. After the Second World War and the establishment of the People’s Republic of China in 1949, as a British-colonised city-state with an uncertain future, Hong Kong adopted a generally laissez-faire economic policy. Labor-intensive manufacturing industries were established and largely supported by the port. International trade was carried predominantly by sea transport; the major container ports in the region have played a crucial role in contributing to Asia’s economic development. Hong Kong commenced its dramatic economic growth in the 1960s and was among the first few Asian cities in the early 1970s to containerise so as to accommodate regional traffic demands. Its counterparts in the Chinese mainland did not keep pace with this development and as a consequence there was no serious competition for the port of Hong Kong from mainland ports in the twenty years preceding the mid-to-late 1990s (Cullinane & Song, 2006).

Since the Open-door Policy and Economic Reforms started in 1978 in the Mainland, particularly when the establishment of the Shenzhen Special Economic Zone in 1980 bordering Hong Kong, the Hong Kong manufacturing sector began

to move northwards across the border. As the only gateway port in the South China region at the time, the Hong Kong container port at Kwai Chung experienced its most rapid growth period when export-processing industries mushroomed in Shenzhen and in nearby areas in the PRD (Wang & Cheng, 2010). In China in the late 1970s, the port sector was vertically integrated and centrally controlled. As the representative of the Chinese central government, the Ministry of Communications was the owner of the ports and exerted total control over all port activities and decision-making, including the formulation of strategy and supporting policies. The advantage of this system was that the Chinese government could develop a national strategic plan across the country’s port network and, given the limited available capital at the time, could concentrate on building several large ports (Cullinane & Song, 2006).

Figure 3: Top 50 world container port, 2018 Source: World Shipping Council.

Since China’s economy moved into double-digit growth in the early 1990s, the port of Hong Kong has increasingly faced a substantive challenge from ports in the Chinese mainland, particularly those located in South China (see Figure 4). Nevertheless, Hong Kong handled 19.6 million TEUs –twenty-foot equivalent unit is the inexact unit of cargo, 1 TEU roughly equals one container box- in 2018, making it one of the world’s busiest container ports (HKSARG The Port Facts, 2019). The success of the port of Hong Kong is based on a number of factors, among which the port’s location relative to major markets, its natural harbour, and more than anything else, its business-friendly environment. The World Bank concludes that the general reliance on the private sector to provide the necessary port services and infrastructure with the government limited to the minimal oversight to protect public interest, has worked well for Hong Kong port. The combination has contributed to Hong Kong’s leading position as an international shipping center (World Bank Port Reform Toolkit Module 2, 2016).

4.2 Public & private divide in the port of Hong Kong

The port of Hong Kong operates on the basis of what its government advertises as a unique public and private sector model (Cullinane & Song, 2006). According to Baird’s matrix, the PRIVATE/public port, the public sector is responsible for the regulator function while landowner and operator functions are in the hands of the private sector. Baird identifies Hong Kong port as an example of such. In the case of Hong Kong, virtually all port activities are performed by the private sector (World Bank Port Reform Toolkit Module 2, 2016). The government allocates areas of water for new terminal construction to privately owned dockers and shipping lines; in other words, the port and transshipment facilities are in private ownership. This means that the port as a whole offers an extensive range of separate privately operated berths and terminals (Baird, 1995). Three private firms operate the eight container terminals in Kwai Chung container port. HIT, the largest of these companies, controls four of the terminals and handles 60 percent of the containers passing through Kwai Chung. The remaining traffic is

shared among Modern Container Terminals and SeaLand Orient Terminals.

HK Container Terminal Operators Association was created in 1999: it represents the interests of the private actors of Hong Kong Kwai Tsing port and overall aims at increasing the port’s competitiveness. The association works closely with Hong Kong government (HKCTOA Press release, April 2015). Contrary to Baird’s 1995 analysis, both public and private HK port actors state that the government owns the land on which the port was built and continues to expand. The government’s operational function in the port is limited to collecting refuse, preventing and cleaning up oil discharge, providing vessel traffic services, managing a ferry terminal, maintaining 61 harbor moorings, and coordinating search and rescue in the South China Sea (World Bank Port Reform Toolkit Module 2, 2016). The responsibility of the harbour does not rest with a port authority; the Marine Department of the HK government maintains control over shipping traffic and other regulatory matters (see Figure 4) (Marinelli, 2010).

Figure 4: Hong Kong Kwai Tsing port administration structure Source: Author.

A Maritime and Port Board, under the authority of the Transport and Housing Bureau, was established in 2016 to set overall policy for the maritime sector in Hong Kong, but the board does not generally become involved in oversight of commercial operations in the port. The official website lists its main responsibilities: “conduct and coordinate research and market studies to identify development opportunities for the maritime and port industries” and “provide a platform for different sectors of the maritime and port industries to make concerted efforts on matters relating to the development of these industries in Hong Kong”.

When asked during an interview, the representatives of the TH Bureau stated that the government acted as a facilitator while the port efficiency was left to the market. Expansion and improvement of facilities in the port is entirely funded through the private sector. While the government develops longterm strategic land use plans for the port, it relies on the private sector to finance, build, own, and operate new facilities in response to market demand. For example, since 1972 the private sector has built eight modern container terminals in the port and a ninth is now under construction. In awarding such terminal contracts, the government earmarks an area of water to be put out for tender, defines the responsibilities of the developer, and selects the bidder who offers the highest price for the development site. Once awarded, the contractor is responsible for making the entire investment in infrastructure and superstructure on the site. The government’s role is limited to providing the agreed water depth in the approach channel to the terminal (World Bank Port Reform Toolkit Module 2, 2016). In recent years, Hong Kong’s space scarcity has become of prime importance for the port. Private actors via the HKCTOA have put mounting pressure on the local government to allocate more land and water (reclamation) to port development.

4.3 One Country Two Systems

The rapid rise of the Chinese economy at the turn of the twenty-first century brought its load of challenges to the more than ever uncertain future of Hong Kong. In 2004, the SAR’s Economic Development and Labour Bureau commissioned a “Hong Kong Port: Master Plan 2020” report to formulate a competitive strategy and master plan for port development over the next two decades (Cullinane & Song, 2006). The context in which the report was ordered is seen as a turning point: southern Mainland ports were built and consolidated at an unprecedented speed causing a dramatic expansion of capacity in the area and South China cargo was beginning to be diverted to Shenzhen ports (see Figure 5). At the center of the study is the critical priority for Hong Kong port to retain a leading position in the provision of services in the South China Sea (HK Port Master Plan 2020, 2004).

Figure 5: Pearl River Delta administration structure Source: Author.

In 1997, the British crown and the PRC signed a handover agreement, which provided a fifty-year deadline for Hong Kong to fully return to Mainland China. As a result, a “One Country Two Systems” (OCTS) was created, allowing for Hong Kong to remain administratively independent from Beijing as a Special Administrative Region (SAR) (See Figure 6). Under this principle, the SAR is not regarded as a Chinese port. According to the Maritime Code of China, only vessels registered in China or hoisting Chinese flags are allowed to conduct coastal cargo shipping. Foreign ships or ones hoisting non-Chinese flags are not allowed to load a container in a Mainland port and unloading it in another Mainland one. This rule is called ‘cabotage’; it is commonly enacted for protectionism, national security or public safety reasons. As a result Hong Kong, conveniently geographically located, acts as a port of transit for foreign ships in their journey loading and unloading cargo in Mainland ports (Wong et al., 2018). Hong Kong government officials in a recent interview (October 2019) indicated there is increasing pressure on Beijing from larger Chinese shipping lines to lift the restriction. It therefore comes as no surprise the cabotage rule has kept Hong Kong port above water.

While Hong Kong does not dictate regional policy –Beijing central government does-, it certainly has a strong influence in shaping regional developments (Marinelli, 2010). In the past, local governments on both sides of the border were not actively involved in regional interactions. Because of the island’s status as a British colony, official communications regarding regional issues were conducted through diplomatic relations between the two sovereign countries. Intergovernmental communication between the HKSAR and Mainland governments at either central or Guangdong

Provincial level did not become realistic until HK’s reunion with the Mainland in 1997, which fundamentally changed the type of interaction from the market-led interaction without active government involvement that had prevailed before the handover Central government has played a backstage coordinator role in both the integration and regional governance developments, because of the lack of an effective regional authority and the unique political framework of OCTS (Yang, 2005). Figure 6: The Hong Kong port and the Pearl River Delta Source: Song, 2002.

In a 2012 policy statement, the Guangdong provincial government clearly indicated its intention to support port cluster development in South China, and it encouraged Shenzhen, Guangzhou and Zhuhai ports to better cooperate with HK port (Guangdong Provincial Department of Transport, PRC, 2012). So far, Guangdong province is the first to have created a direct channel of communication with the SAR. Hong Kong is expected to integrate within the PRD port region so as to help in establishing a port system within the PRD, with its port functions complementary to each other (Lam et al., 2013). As the ports become part of the same national entity and under the same administration, the creation of a megaport, as suggested by the Transport and Housing Bureau representatives during an interview, could become a reality, with public governments of both localities enjoying direct communication.

Figure 7: Actors & functions in Rotterdam & Hong Kong ports Source: Author.

Both in Rotterdam and Hong Kong ports, private parties hold the operator function. In the case of Hong Kong, HKCTOA offers a platform to private container operators to coordinate goals and actions, and present a united front to other industry actors whether it is Hong Kong public government or mainland one. There is no intra-port equivalent in Rotterdam: private interests are safeguarded by FEPORT at the EU level. The landowner function is in the hands of public actors in both ports. In the Rotterdam scenario, despite it remaining in public hands, the authority over the port has been split into two halves with one allocated to a higher level of government –from municipal to national. This important step falls within the context of loss of sovereignty by local public actors. The regulator function as well is in public hands: in Hong Kong the Maritime and Port Board as of 2016 oversees maritime policy in the SAR, similarly to the Port of Rotterdam in the European context (see Figure 7).

Baird argues a port where the public sector controls the regulator and landowner function while the private sector is responsible for the operator one, is a PUBLIC/private port model. This research identifies the two studied ports as such examples. Extensive literature portrays European states and particularly the EU as the leading example of MLG and public supranational cooperation. When starting this research, I anticipated Hong Kong and Rotterdam and their respective port regions to be different in their organisation of cooperation and competition. The PRD lacks a regional association of public actors, which the EU has in the form of ESPO. Additionally, competition policy in the EU is monitored and implemented by the European Commission (Petrariu, 2019). However, the two cases are similar in that their ports follow free market competition rules.

The emergence of the MLG attests there was an understanding of the change from public to private governance practices. Central to MLG is the

fragmentation of authority from government to governance, demonstrating a shift from ‘direct government economic intervention and management’ to ‘public semi-autonomous bodies’ operating as market regulators (Roe, 2018). In theory and in academia, the decline of the public sector in the port industry has been evident and thus heavily studied for about two decades. Yet in practice, market-driven forces encouraged an appreciation of the significance of stakeholders in maritime sector policy-making and the need to incorporate them more in the process of governance (Pettit, 2018).

6. Reflections on privatising governance practices

After a thorough case-by-case analysis and a case comparison, the below section provides more general findings derived from the context-specific studies, on public and private partnerships and contemporary challenges to public governance. 6.1 Public governance & privatisation: the paradox

The main contradiction lies in the fact that supranational organisations advocate for port governance models that largely limit the influence of public actors. The World Bank is an example of international cooperation between public governments. Yet its Port Reform Toolkit (2006) became the reference for technocratic work on port governance, describing port authorities’ tasks according to the public/private division, in which it strongly encourages the landlord type of port governance; undermining the authority of these public governments in fact renders them inactive facing globalising forces. It portrays the port of Hong Kong as having successfully ridden the wave of globalisation at the turn of the century, including that of privatisation. In the very same report, the World Bank highlights the importance of cooperation between port authorities, but does not dictate a model for cooperation between commercial private players, as it does not have authority over such parties (Module 2, 2016). By explicitly favouring landlord types of governance that separate the provision of commercial services from the management of infrastructure, EU policy goes against potential formal harmonisation of the industry (Pallis & Verhoeven, 2009). On the contrary, Hong Kong is increasingly harmonising

with Mainland China, through public governance mechanisms.

Although harmonisation per se might not be the end goal, governance model diversity limits public regional cooperation. Experts interviewed point at heterogeneous governance practices as the major obstacle preventing a larger scope of cooperation. In the case of western European ports, despite a common EU membership, the ports follow different national policies. ESPO indicates ports across EU states function as hybrid entities that co exist. The assemblage of distinct nation-states in an attempted regulatory coherence and integration has given way to a differentiated landscape of customised local regulation designed to make places compete for global capital (Hall & Hesse, 2013). One could have anticipated for the European market to unify over time, today the conditions across its member states remain unequal: the issues of differences unfold in the cost of labour, of running the ports, of nautical services in the ports (Stamatovića et al., 2018). In the South China context, the Guangdong Provincial government in theory controls the PRD. Yet because of the various local governments and their individual development strategies maintained by the OCTS, regional coordination is harder than expected. A regional independent authority, a supra national one perhaps is urgently needed to tackle ongoing issues related to the cross-boundary interaction, in order to enhance regional competitiveness (Yang, 2005).

There exists a subsequent contradictory phenomena: local governments of the PRD have established close contacts with entrepreneurs from Hong Kong, while there is no official relationship with the HKSAR Government (Yang, 2005). The contrary is as well true: Transport and Housing Bureau representatives stated there are closed-doors meetings between Beijing Vice President of Marine Bureau and Hong Kong container operators, in other words private actors. In a recent meeting (November 2019), the latter brought forward concerns regarding anti-market competition from Mainland ports. Private parties deal directly with governments rather than go through their sovereign public authority to reach these foreign public parties. This paradox highlights the urgent need for a regional authority to organise coordination between public and private actors on the two sides of the harbour. Economic competitiveness is at the

heart of port industry governance. ESPO identifies itself as an “independent lobby”, a term usually connoted and associated in the realm of economic development and competition. One can argue public private partnerships are a “softer” way to go about the rise of privatisation, however the end result seem to be the loss of responsibilities and involvement from public parties.

6.2 The role and future of public authorities in times of globalisation

The inadequate relationship between states and ports has been recognised for some time, deemed anachronistic by observers in the light of globalisation. Maritime legislation strictly derived from the nation-state framework clashes with the globalised characteristics of shipping and port industry, causing policy failures and in turn allowing the highly mobile port industry to take commercial advantage of the structural failure within the sector. A clear example exists in the ability of international industry actors to play off nation-states and other jurisdictions in their port selection, as port developments often are heavily subsidised by governments desperate for investment in a fluid and globalised marketplace (Roe, 2018).

Cooperation across levels is in theory already a difficult goal to achieve. In practice, external forces such as globalisation are additional obstacles. In the event of privatisation, the port authorities have little influence over calling patterns or shipping lines. The involvement of private firms in the decision-making is without a doubt necessary in efforts to initiate cooperation at the commercial level. Yet these private actors have little incentive to develop non-commercial cooperation: they consistently put forward their individual interest and pursued gain.

To ensure transparency and constant communication, ESPO considers there needs to remain an overarching public authority. Because of the weight in the national economy, the port sector cannot be privatised, at least larger elements and container ports. A higher public authority will always be of relevance. In an interview, Mrs Ryckbost, Secretary General of ESPO, stated port authorities are like autonomous enterprises they follow private structure rules but have public stakeholders. Despite their largely commercial core goals they hold a public mission that they cannot

dismiss. As seen during the coronavirus global pandemic, in times of restrictions and confinment, ports were allowed and encouraged to stay open and continue to deliver their services because they are considered essential to the national economy and public good. In fact, Mrs Ryckbost does not believe European ports will ever be fully private. Nation-states make up international authorities but the relationship between these same states and globalised international ports makes regulation that much more effective. When it comes to competition, she believes it is more leaning on the pure competition side than on the cooperation one. PA will cooperate on environmental policies essentially. ESPO and FEPORT were in fact created to harmonise the European maritime sector offer and created a “European point of view”. In the case of ESPO, aside from lobbying the European Commission and influencing EU public policy, the main goal is to federate the port authorities’ interest across the member states and offer a common unified response or suggestion concerning the sector’s developments, either based off of a majority or a larger compromise.

In the Chinese and Hong Kong context, while the situation is different because of the expected reunion and integration of one within the other, the conclusion is comparable to that of the EU. Earlier literature on governance of Hong Kong port identified the port as more leaning towards private ownership (Baird, 1995; Cullinane et al., 2003). However, despite the evident privatisation trend, the public sector consolidated its authority over two main port functions. Mainland China operates as a centralised state: ports are no strangers to this rule. The port of Hong Kong will eventually be handed from the SARG to a mainland local authority. Additionally, the history of Hong Kong and more recently the PRC’s development is inherently linked to waterfront development and sea trade at a global scale. HKSARG Maritime Port Board representatives ensure the large and strategic port of Hong Kong is to remain in the hands of a public authority.

7. Concluding remarks

This paper investigates the impact of the globalisation-derived trend, privatisation on regional public cooperation in the port industry, through the analysis of the ports of Rotterdam and

Hong Kong, and their respective port regions northwestern Europe and the Pearl River Delta.

The difficulty comparing ports lies in the necessity to include in the analysis the decisional dimensions that tend to go beyond the responsibility and the territory of the local port itself (Ducruet et al., 2009). Globalisation consists of a constant renewal of global networks and systems of exchange across industries and geographical places. The continuous restructuring both convinces actors to cooperate and present a united front to the challenges brought by globalisation, and motivates them to pursue their invidual goals in hopes to get the better piece of the pie. The situation is that much more ironic as the port industry has benefited as more than any other from globalisation itself (Pettit, 2018).

The article expands on the little literature on the role of supra national organisations in shaping industry regulations. In this study, political manoeuvres are more associated with public entities, despite the involvement of private actors in governance models. In both cases, public port actors occupy the regulator function and pursue policy work; private actors, via HKCTOA and FEPORT, result to lobbying to national and regional public entities. Cooperation work can only be effective if grounded on commercial imperatives. The role of regional public authorities as well rests in the need for enabling certain primary conditions in favor of cooperation (Stamatovića et al., 2018). Both academic literature and supra national organisations (World Bank) recognise the need to modernise ports through containerisation and liberalisation and that such transitions necessitate the involvement of private parties. However, they judge imperative that the public sector retains authority over specific port functions. Similar to intra-port governance, where private actors handle day-to-day operations while public ones act as land lessor and rather distant or indirect supporters.

More generally, this article looks into the relationship between port governance and regional cooperation, and the significance of the political context. Cooperation is rather challenging to achieve, because of political reasons more than economical ones. The case studies were carefully chosen for their seeming divergences in regional governance practices: the EU was expected to present a more coordinated policy work, Hong

Kong and China to operate under strict competition rules. The research reports that the level of cooperation is rather similar in the two contexts. The MLG of the two regions and additional involvement of private interests in decision-making restricts cooperation overall. Port policy is facing a major turning point in that pushing for fair competition between industry actors is not enough. Instead there needs to be additional communal work on creating cooperation frameworks that involve both public and private sectors, and not just groups public and private actors in distinct associations and have them lobby independently. Global patterns point at a continuing rise rather than decline of the private sector in governance, with the support of public organisations such as the World Bank. The public sector as an overseeing authority must create incentives for the private one to communicate with public bodies across levels, not just in port operations-related matters. In other words, it is key that public authorities find the right balance to provock co-opetition in the port industry.

More in depth research is needed to understand the link between public and private governance and cooperation mechanisms. Perhaps rather than compare two significantly different regions, focus on one region and its public authority, pick two ports that display a hybrid governance models, and analyse how the two ports cooperate under the regional authority umbrella. Such research will provide more insight regarding the role of public authorities in regional contexts, and conceivably formulate new ways for them to produce regional cooperation.

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