Japan’s development of the offshore wind industry and maritime cabotage rules23 September 2024

However, the rapid development of Japan’s offshore wind sector may be impacted by maritime cabotage rules. This regulatory and administrative framework, designed to protect domestic shipping interests, has implications for foreign investment and the offshore wind industry’s growth and development. Known for its robust maritime industry, Japan now faces important decisions regarding its cabotage rules and burgeoning offshore wind sector.

We have previously examined a range of maritime issues concerning the developing international offshore wind industry in multiple jurisdictions, including:

• the interplay between shipbuilding contracts and charters for fleets used in the offshore wind industry;
• the financing and bankability of offshore wind vessels;
• the expansion of Japan’s public auction regime to include the exclusive economic zone for further development of floating wind farms;
• WFW’s involvement in the leading floating wind projects across Europe in England, Scotland, France and Italy, including TEPCO’s investment into UK’s floating wind market;
• the supply chain for floating offshore wind power projects in Italy; and
• developments in the interpretation of the “Jones Act” by US Customs and Border Protection that will affect US offshore wind installations.

The articles above form important background and context for this article, which explores the specific implications of Japanese maritime cabotage rules on the offshore wind industry, examining regulatory frameworks, challenges and opportunities for stakeholders.

International perspective of Japan’s maritime cabotage rules

As in other jurisdictions, Japan’s maritime cabotage rules are rooted in protecting domestic shipping interests by limiting foreign vessels’ access to domestic waters and operations to maintain a competitive advantage for Japanese maritime operators and ensure national security through a controlled maritime environment. Understanding the scope and limitations of these rules is crucial to domestic and international market participants for assessing their impact on the offshore wind sector.

Maritime cabotage in Japan refers to the transport of goods and passengers between domestic ports by vessels registered in Japan. The Japanese government regards this as an important tool in its maritime strategy and consistent with international standards. While it has also entered into agreements with neighbouring countries and international organisations, influencing cabotage rights and exceptions, Japan’s cabotage rules are governed by several key domestic laws. The Ships Act is the primary legislation governing maritime cabotage and part of the wider framework addressing navigation, safety, security, environmental protection and more. The Mariners Act and Act on Ship’s Officers and Boats’ Operators apply to the staffing of Japan-flagged vessels and require mariners, with exceptions, to have Japanese nationality. These laws are, in turn, further extended through regulation, ministerial ordinances, guidance and notices. The Ministry of Land, Infrastructure, Transport and Tourism (“MLIT”) is responsible for their administration and the Japanese Coast Guard for their enforcement, ensuring compliance with national standards, including cabotage, and international obligations through the Japan Coast Guard regulations.

Comparing Japan’s maritime cabotage rules with those of other countries provides insights into global maritime regulatory practices and their implications for offshore wind. A study commissioned by the European Commission (the “EC Report”) to support the implementation of the EU-Japan Economic Partnership Agreement provides a useful analysis of the provisions of maritime cabotage services in Japan and recommendations for regulatory liberalisation necessary to support the growth of the offshore wind industry. The EC Report identifies that, by comparison, the European Union has substantially liberalised cabotage rules and transparent processes that facilitate the development of the offshore wind industry, as is the case in the United Kingdom, with the result being that the rate of deployment of the offshore wind industry in EU member states and the United Kingdom has not been significantly impacted by cabotage restrictions.

Specialist vessels equipped with advanced capabilities (e.g., heavy-lift cranes, dynamic positioning systems) are essential for efficient and safe installation of offshore wind turbines and infrastructure. The EC Report reviews the vessels required to complete the construction and, although it recognizes Japan’s substantial maritime capacity, it notes that part of the fleet required to service the construction demands of the offshore wind industry (such as offshore wind turbine installation vessels and cable-laying vessels) may need to be supplied by international operators. It warns that, in the absence of reforms to reduce the restrictions on foreign vessels’ access to work on offshore wind energy projects, Japan may struggle to increase the proportion of renewables in its energy mix necessary to achieve climate neutrality by 2050.

Market access for international operators

The ability of the offshore industry in Japan to meet the production targets established by the government will depend on sufficient specialist vessels being able to enter the Japanese market on schedule and the crewing of the offshore wind fleet in Japan with skilled mariners with the training and experience necessary to achieve ambitious installation schedules. If the Japanese market is not able to meet that demand domestically, as the EC Report identifies, international participation will become increasingly important.

One key issue is that offshore wind power facilities are designated as “closed ports” by virtue of operating in Japan’s territorial waters and, therefore, Japan’s marine cabotage laws apply to any vessel working on them. So, to be permitted to operate in Japan, foreign-flagged vessels must either obtain a Special Exemption allowing temporary, limited access or re-flag to be registered in Japan.

International operators of construction and support vessels have already started making arrangements to operate in Japan through joint ventures with domestic operators and other means of compliance, but some operators may choose not to establish a business entity in Japan or otherwise not be able to commit their vessels to the Japanese market for extended terms.

International vessels seeking to conduct offshore wind activities must navigate the permitting processes under Japanese cabotage rules – which can be complex and require significant coordination with regulatory authorities and compliance with safety and environmental standards. Under the Ships Act, only vessels registered as Japanese owned are permitted to engage in domestic maritime transport of goods and passengers, with limited exceptions under international agreements. Foreign-flagged vessels seeking to engage in domestic transport within Japan’s domestic waters must obtain a special exemption permit (“Special Exemption”) from the MLIT.

Special Exemptions and re-flagging in Japan

The process of obtaining a Special Exemption is set out in ministerial ordinances supplemental to the Ships Act and regarded as a consultation intensive process requiring a range of disclosures that can vary according to factors such as vessel type, nationality, business use and ownership. The MLIT is primarily concerned with whether a Japan-flagged vessel can be used for the specified purpose and whether giving such exemption will result in adverse consequences for the Japanese maritime market. However, as important criteria described in the regulation are not formally prescribed, the process confers significant discretion on the officials overseeing each request to determine the outcome on a case-by-case basis. It can require many months’ consultation with authorities before a foreign-flagged vessel can lawfully operate in Japan’s domestic waters. The current process would benefit from improved predictability and certainty. Further, the EC Report notes that as the MLIT will evaluate its decision to grant an exception on the basis of the situation that will exist at the date of commencement of the cabotage services and, due to the significant lead-time required to obtain an exemption permit, it is unlikely a foreign-flagged vessel could gain timely access to the construction site when a sudden, practical need arises, posing a further impediment to the construction process.

The alternative of reflagging also includes significant challenges for offshore wind developers. It not only requires the transfer of the vessel into Japanese ownership but also significant cost and time to complete due to the expensive inspection processes. As outlined in the procedural guideline published by the Inspection and Measurement Division of the MLIT for re-flagging vessels under Japanese law, reflagging requires satisfying two main elements: the registration and measurement of the foreign vessel in accordance with the Ships Act and carrying out various inspections of the vessel to ensure compliance with standards set forth in MLIT guidelines and the relevant provisions including the Ship Safety Law and the Law Relating to the Prevention of Marine Pollution and Maritime Disaster.

In addition, significantly, the vessel must be crewed by Japanese-licensed mariners. The high degree of skill required to install and maintain offshore wind facilities and the relatively limited training facilities available pose considerable concern for project completion timelines and post-COD operations. Current requirements allow for certain exceptions for foreign nationals to form part of the crew of a Japanese flagged vessel, but in such cases the vessel will require special chartering arrangements and have to call at a foreign port at least once every 60 days, a timeframe that may not always be practical.