Flag of convenience
Encyclopedia
The term flag of convenience describes the business practice of registering
a merchant ship in a sovereign state
different from that of the ship's owners, and flying that state's civil ensign
on the ship. Ships are registered under flags of convenience to reduce operating costs or avoid the regulations of the owner's country. The closely related term open registry is used to describe an organization that will register ships owned by foreign entities.
The term "flag of convenience" has been in use since the 1950s and refers to the civil ensign a ship flies to indicate its country of registration or flag state
. A ship operates under the laws of its flag state, and these laws are used if the ship is involved in an admiralty case
.
The modern practice of flagging ships in foreign countries began in the 1920s in the United States
, when shipowners frustrated by increased regulations and rising labor costs began to register their ships to Panama
. The use of flags of convenience steadily increased, and in 1968, Liberia
grew to surpass the United Kingdom
as the world's largest shipping register. , more than half of the world’s merchant ships are registered under flags of convenience, and the Panamanian, Liberian, and Marshallese flags of convenience account for almost 40% of the entire world fleet, in terms of deadweight tonnage
.
Flag-of-convenience registries are often criticized. , thirteen flag states have been found by international shipping organizations to have substandard regulations. A basis for many criticisms is that the flag-of-convenience system allows shipowners to be legally anonymous and difficult to prosecute in civil and criminal actions. Ships with flags of convenience have been found engaging in crime and terrorism
, frequently offer substandard working conditions, and negatively impact the environment, primarily through illegal, unreported and unregulated fishing
. , ships of thirteen flags of convenience are targeted for special enforcement by countries that they visit. Supporters of the practice, however, point to economic and regulatory advantages, and increased freedom in choosing employees from an international labor pool.
, and the flag state gives the ship the right to fly its civil ensign. A ship's flag state exercises regulatory control over the vessel and is required to inspect it regularly, certify the ship's equipment and crew, and issue safety and pollution prevention documents. A ship operates under the laws of its flag state, and these laws are used if the ship is involved in an admiralty case. The organization which actually registers the ship is known as its registry. Registries may be governmental or private agencies. In some cases, such as the United States' Alternative Compliance Program, the registry can assign a third party to administer inspections.
The reasons for choosing an open register are varied and include tax avoidance
, the ability to avoid national labor and environmental regulations, and the ability to hire crews from lower-wage countries. National or closed registries typically require a ship be owned and constructed by national interests, and at least partially crewed by its citizens. Conversely, open registries frequently offer on-line registration with few questions asked. The use of flags of convenience lowers registration and maintenance costs, which in turn reduces overall transportation costs. The accumulated advantages can be significant, for example in 1999, 28 of Sea-Land's fleet of 63 ships were foreign flagged, saving the company up to 3.5 million dollars per ship every year.
The environmental disaster caused by the 1978 sinking of the , which flew the Liberian flag of convenience, spurred the creation of a new type of maritime enforcement. Resulting from "strong political and public outcry" over the Cadiz sinking, fourteen European nations signed the 1982 "Paris Memorandum of Understanding on Port State Control" or Paris MOU. Under port state control
, ships in international trade became subject to inspection by the states they visit. In addition to shipboard living and working conditions, these inspections cover items concerning the safety of life at sea and the prevention of pollution by ships. In cases when a port state inspection uncovers problems with a ship, the port state may take actions including detaining the ship. In 2008, member states of the Paris MOU conducted 14,322 inspections with deficiencies, which resulted in vessels being detained 1,220 times that year. Member states of the Tokyo Memorandum of Understanding conducted 13,298 ship inspections in 2009, recording 86,820 deficiencies which resulted in 1,336 detentions.
The principle that there be a "genuine link" between a ship's owners and its flag state dates back to 1958, when Article 5(1) of the Geneva Convention on the High Seas also required that "the state must effectively exercise its jurisdiction and control in administrative, technical and social matters over ships flying its flag." The principle was repeated in Article 91 of the 1982 treaty called the United Nations Convention on the Law of the Sea
and often referred to as UNCLOS. In 1986, the United Nations Conference on Trade and Development
attempted to solidify the genuine link concept in the United Nations Convention for Registration of Ships. The Convention for Registration of Ships would require that a flag state be linked to its ships either by having an economic stake in the ownership of its ships or by providing mariners to crew the ships. To come into force, the 1986 treaty requires 40 signatories whose combined tonnage exceeds 25% of the world total. , only 14 countries have signed the treaty.
s as a tactic to evade enemy warships since antiquity, and examples can be found from as early as the Roman era through the Middle Ages
. More recently, this technique was used by the British during the Napoleonic Wars
and the United States during the War of 1812
. During the mid-19th century, slave ship
s flew various flags to avoid being searched by British anti-slavery fleets. However, the modern practice of registering ships in foreign countries to gain economic advantage originated in the United States in the era of World War I
, and the term flag of convenience came into use in the 1950s.
Between 1915 and 1922, several laws were passed in the United States to strengthen the United States Merchant Marine
and provide safeguards for its mariners. During this period, U.S.-flagged ships became subject to regular inspections undertaken by the American Bureau of Shipping
. This was also the time of Robert LaFollette
's Seamen's Act of 1915, which has been described as the "Magna Carta
of sailors' rights." The Seamen's Act regulated mariners' working hours, their payment, and established baseline requirements for shipboard food. It also reduced penalties for disobedience and abolished the practice of imprisoning sailors for the offense of desertion. Another aspect of the Seamen's Act was enforcement of safety standards, with requirements on lifeboats, the number of qualified able seamen on board, and that officers and seamen be able to speak the same language.
These laws put U.S.-flagged vessels at an economic disadvantage against countries lacking such safeguards. By moving their ships to the Panamanian flag, owners could avoid providing these protections. The Belen Quezada, the first foreign ship flagged in the Panamanian registry, was employed in running illegal alcohol between Canada and the United States during Prohibition
. In addition to sidestepping the Seamen's Act, Panamanian-flagged ships in this early period paid sailors on the Japanese wage scale, which was much lower than that of western merchant powers.
The Liberian open registry was the brainchild of Edward Stettinius, who had been Franklin D. Roosevelt
's Secretary of State
during World War II. Stettinius created a corporate structure that included The Liberia Corporation, a joint-venture with the government of Liberia. The corporation was structured so that one-fourth of its revenue would go to the Liberian government, another 10% went to fund social programs in Liberia, and the remainder returned to Stettinius' corporation. The Liberian registry was created at a time when Panama's registry was becoming less attractive for several reasons including its unpopularity with the U.S. labor movement and European shipping concerns, political unrest in Panama, and increases in its fees and regulations.
On 11 March 1949, Greek shipping magnate Stavros Niarchos
registered the first ship under the Liberian flag of convenience, the World Peace. When Stettinius died in 1949, ownership of the registry passed to the International Bank of Washington, led by General George Olmsted. Within 18 years, Liberia grew to surpass the United Kingdom as the world's largest register.
Due to Liberia's 1989 and 1999 civil wars, its registry eventually fell second to Panama's flag of convenience, but maritime funds continued to supply 70% of its total government revenue. After the civil war of 1990, Liberia joined with the Republic of the Marshall Islands to develop a new maritime and corporate program. The resulting company, International Registries
, was formed as a parent company, and in 1993 was bought out by its management. After taking over the Liberian government, Americo-Liberian
warlord Charles Taylor signed a new registry contract with the Liberian International Ship and Corporate Registry, commonly known as LISCR. LISCR was one of the few legal sources of income for Taylor's regime. Taylor is now on trial at the International Criminal Court
in The Hague
on 11 counts of war crimes, crimes against humanity, and other serious violations of international humanitarian law.
, the Panamanian, Liberian, and Marshallese flags of convenience account for almost 40% of the entire world fleet, in terms of deadweight tonnage
That same year, the top ten flags of convenience registered 55% of the world's deadweight tonnage, including 61% of bulk carrier
s and 56% of oil tanker
s.
(ITF) maintains a list of 32 registries it considers to be FOC registries. In developing the list, the ITF considers "ability and willingness of the flag state to enforce international minimum social standards on its vessels," the "degree of ratification and enforcement of ILO Conventions and Recommendations," and "safety and environmental record." the list includes Antigua and Barbuda, the Bahamas, Barbados, Belize, Bermuda, Bolivia, Burma, Cambodia, the Cayman Island, Comoros, Cyprus, Equatorial Guinea, Georgia, Gibraltar, Honduras, Jamaica, Lebanon, Liberia, Malta, the Marshall Islands, Mauritius, Mongolia, Netherlands Antilles, North Korea, Panama, Sao Tome and Príncipe, St Vincent, Sri Lanka, Tonga, Vanuatu, and the French and German International Ship Registers.
, Panama, Liberia and the Marshall Islands are the world’s three largest registries in terms of deadweight tonnage (DWT). These three organizations registered 11,636 ships of and above, for a total of : more than 39% of the world's shipbourne carrying capacity. Panama dominates the scene with over 8,065 ships accounting for almost 23% of the world's DWT. Of the three, the Marshall Islands (with 1,265 registered ships) had the greatest rate of DWT increase in 2009, increasing its tonnage by almost 15%.
The Bahamian flag ranks sixth worldwide, behind the Hong Kong and Greek registries, but is similar in size to the Marshallese flag of convenience, with about 200 more ships but a carrying capacity about lower. Malta, at the ninth position worldwide, had about 100 more ships than the Bahamas, with a capacity of , representing 4% of the world fleet with 12% growth that year.
At the eleventh position, Cyprus registered 1,016 ships in 2009, 2.6% of world tonnage. The remaining top 11 flags of convenience are Antigua and Barbuda (#20), Bermuda (#22), Saint Vincent and the Grenadines (#26), and the French International Ship Register (FIS) at number #27. Bermuda and the FIS have fewer than 200 ships apiece, but they are large: the average Bermudan ship is and the average FIS ship is at . (By way of reference, the average capacity of ships in the U.S. and U.K. registers is and respectively.) The registries of Antigua and Barbuda and Saint Vincent and the Grenadines both have over 1,000 ships with average capacity of and respectively.
The 21 other flags of convenience listed by the ITF each account for less than 1% of the world's DWT. , more than half of the world’s merchant ships (measured by tonnage) are registered under flags of convenience.
David Cockroft, general secretary of the ITF
says:
or ultimate owner are often used. Webster's defines a beneficial owner as "one who enjoys the benefit of a property of which another is the legal owner." A ship's beneficial owner is legally and financially responsible for the ship and its activities.
The 2004 Report of the UN Secretary General’s Consultative Group on Flag State Implementation reported that "It is very easy, and comparatively inexpensive, to establish a complex web of corporate entities to provide very effective cover to the identities of beneficial owners who do not want to be known." According to a 2003 report by the Organisation for Economic Co-operation and Development
report entitled "Ownership and Control of Ships", these corporate structures are often multi-layered, spread across numerous jurisdictions, and make the beneficial owner "almost impenetrable" to law enforcement officials and taxation. The report concludes that "regardless of the reasons why the cloak of anonymity is made available, if it is provided it will also assist those who may wish to remain hidden because they engage in illegal or criminal activities, including terrorists."
The OECD report concludes that the use of bearer shares is "perhaps the single most important (and perhaps the most widely used) mechanism" to protect the anonymity of a ship's beneficial owner. Physically possessing a bearer share accords ownership of the corporation. There is no requirement for reporting the transfer of bearer shares, and not every jurisdiction requires that their serial numbers even be recorded.
Two similar techniques to provide anonymity for a ship's beneficial owner are "nominee shareholders" and "nominee directors." In some jurisdictions that require shareholder identities to be reported, a loophole is created where the beneficial owner may appoint a nominee to be the shareholder, and that nominee cannot legally be compelled to reveal the identity of the beneficial owner. All corporations are required to have at least one director, however many jurisdictions allow this to be a nominee director. A nominee director's name would appear on all corporate paperwork in place of the beneficial owners, and like nominee shareholders, few jurisdictions can compel a nominee director to divulge the identity of beneficial owners. To further complicate matters, some jurisdictions allow a corporation to fulfill the duties of a nominee director.
Ships registered by the Cambodia Shipping Corporation (CSC) were found smuggling drugs and cigarettes in Europe, breaking the Iraq oil embargo, and engaging in human trafficking and prostitution in Europe and Asia. In response to these activities, in 2000, Ahamd Yahya of the Cambodian Ministry of Public Works and Transport told industry publication Fairplay "We don't know or care who owns the ships or whether they're doing 'white' or 'black' business ... it is not our concern." Less than two years later, French forces seized the Cambodian-flagged, Greek-owned MV Winner for cocaine smuggling. Shortly after the seizure, Cambodian Prime Minister Hun Sen
closed the registry to foreign ships, and Cambodia canceled its contract with CSC shortly thereafter.
The North Korean flag of convenience has also garnered significant scrutiny. In 2003, the North Korean freighter Pong-su reflagged to Tuvalu in the middle of a voyage shortly before being seized by Australian authorities for smuggling heroin into that country. That year thirteen nations began monitoring vessels under the North Korean flag for "illicit cargos, like drugs, missiles or nuclear weapon fuel." In 2006, ships owned by Egyptian and Syrian interests, flagged by North Korea, and based in the United States were discovered to be engaged in smuggling migrants in Europe.
set to explode near a city." Also, ships could be used as a weapon in their own right, for example an oil tanker or liquefied natural gas carrier rigged as a floating bomb. Finally, the OECD discussed the possibility of criminal and terrorist organizations using ships engaging in legal or illegal trade as a source of revenue to fund criminal activities.
In 2002 in the United States, Democratic senator
John Breaux
of Louisiana
proposed a bill to prevent U.S. shipowners from using foreign flags as a counter-terrorism measure.
The International Transport Workers' Federation goes further, stating that flags of convenience "provide a means of avoiding labor regulation in the country of ownership, and become a vehicle for paying low wages and forcing long hours of work and unsafe working conditions. Since FOC ships have no real nationality, they are beyond the reach of any single national seafarers' trade union." They also say that these ships have low safety standards and no construction requirements, that they "do not enforce safety standards, minimum social standards or trade union rights for seafarers", that they frequently fail to pay their crews, have poor safety records, and engage in practices such as abandoning crewmen in distant ports.
According to the Maritime Trades Department of the AFL-CIO,
, and the Liberian-flagged and ) the most common environmental criticism they face regards illegal fishing. These critics of the flag of convenience system argue that many of the FOC flag states lack the resources or the will to properly monitor and control those vessels. The Environmental Justice Foundation
(EJF) contends that illegal, unreported and unregulated fishing
(IUU) vessels use flags of convenience to avoid fisheries regulations and controls. Flags of convenience help reduce the operating costs associated with illegal fishing methods, and help illegal operators avoid prosecution and hide beneficial ownership. As a result, flags of convenience perpetuate IUU fishing which has extensive environmental, social and economic impacts, particularly in developing countries. The EJF is campaigning to end the granting of flags of convenience to fishing vessels as an effective measure to combat IUU fishing.
According to Franz Fischler
, European Union Fisheries Commissioner,
International regulations for the maritime industry are promulgated by agencies of the United Nations
, particularly the International Maritime Organization
and International Labour Organization
. Flag states adopt these regulations for their ships by ratifying individual treaties. One common criticism against flag of convenience countries is that they allow shipowners to avoid these regulations by not ratifying important treaties or by failing to enforce them.
Maritime International Secretariat Services (MARISEC) issues a yearly report entitled the Flag State Performance Table in association with industry groups the Baltic and International Maritime Council
, the International Association of Dry Cargo Shipowners
, the International Chamber of Shipping
, the International Shipping Federation, and the International Association of Independent Tanker Owners
. The 2009 report identified the six "core" conventions representing a minimum level of maritime regulation, from the viewpoint of shipowners, as SOLAS, MARPOL, LL 66, STCW, ILO 147, and CLC/FUND92. Five of these six core conventions are not ratified by several flag of convenience countries.
The SOLAS and LL 66 conventions focus on shipboard safety issues. SOLAS
is an acronym for Safety of Life at Sea, or formally "International Convention for the Safety of Life at Sea, 1974 as amended, including the 1988 Protocol, the International Safety Management Code
(ISM) and the International Ship and Port Facility Security Code
(ISPS)". Originally ratified in response to the sinking of the RMS Titanic, SOLAS sets regulations on lifeboat
s, emergency equipment and safety procedures, including continuous radio watches. It has been updated to include regulations on ship construction, fire protection systems, life-saving appliances, radio communications, safety of navigation, management for the safe operation of ships, and other safety and security concerns. , the Bolivian, Honduran, Lebanese, and Sri Lankan flags of convenience have not ratified the SOLAS treaty. LL 66 is an industry designation for the "International Convention on Load Lines, 1966, including the 1988 Protocol". This convention sets standards for minimum buoyancy, hull stress, and ship's fittings, as well as establishing navigational zones where extra precautions must be taken. , the Bahamian, Bolivian, Georgian, Honduran, and Sri Lankan flags of convenience have not ratified the LL 66 treaty.
ILO147
is shorthand for the "International Labour Organization Merchant Shipping (Minimum Standards) Convention 1976, including the 1996 Protocol". This convention sets safety and competency standards, regulates work hours, manning, conditions of employment as well as shipboard living arrangements. , the Antigua/Barbudan, Bolivian, Cambodian, North Korean, Georgian, Honduran, Jamaican, Mongolian, Vincentian, and Sri Lankan flags of convenience have not ratified the ILO147 treaty.
MARPOL, CLC, and FUND are treaties related to pollution. MARPOL refers to the "International Convention for the Prevention of Pollution from Ships,1973 as modified by the Protocol of 1978, including Annexes I – VI". This treaty regulates pollution by ships, including oil and air pollution, shipboard sewage and garbage. , the Bahamian, Bolivian, Cambodian, North Korean, Georgian, Honduran, Lebanese, Maltese, and Sri Lankan flags of convenience have not ratified the MARPOL treaty. CLC
and FUND92 refer to the "International Convention on Civil Liability for Oil Pollution Damage, 1992" and the "International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1992". These two related conventions provide mechanisms to ensure remuneration for victims of oil spills. , the Bolivian, North Korean, Honduran, Lebanese, and, Mongolian flags of convenience have not ratified the CLC and FUND treaties.
In 1978, a number of European countries agreed in The Hague
to audit labour conditions on board vessels vis-a-vis the rules of the International Labour Organization
. To this end, in 1982 the "Paris Memorandum of Understanding on Port State Control" (Paris MOU) was established, setting port state control standards for what is now twenty-six European countries and Canada.
Several other regional Memoranda Of Understanding have been established based on the Paris model, including the "Memorandum of Understanding on Port State Control in the Asia-Pacific Region", typically referred to as the "Tokyo MOU", and organizations for the Black Sea, the Caribbean, the Indian Ocean, the Mediterranean, and Latin America. The Tokyo and Paris organizations generate, based on deficiencies and detentions, black-, white-, and grey-lists of flag states. The US Coast Guard
, which handles port state control inspections in the US, maintains a similar target list for underperforming flag states. , fourteen of the thirty-one flags of convenience listed by the ITF are targeted for special enforcement by the countries of the Paris and Tokyo MOUs or U.S. Coast Guard: Antigua and Barbuda, the Bahamas, Belize, Bolivia, Cambodia, the Cayman Islands, North Korea, Georgia, Honduras, Lebanon, Malta, Mongolia, Panama, and Saint Vincent and the Grenadines.
, in its 2009 Report on Maritime Trade, states that shipowners often register their ships under a foreign flag in order to employ "seafarers from developing countries with lower wages." The Philippines and the People's Republic of China supply a large percentage of maritime labor in general, and major flags of convenience in particular. In 2009, the flag-states employing the highest number of expatriate-Filipino seafarers were Panama, the Bahamas, Liberia and the Marshall Islands. That year, more than 150,000 Filipino sailors were employed by these four flags of convenience. In a 2006 study by the United States Maritime Administration (MARAD), sailors from the People's Republic of China comprised over 40% of the crews on surveyed ships flying the Panamanian flag, and around 10% of those flying the Liberian flag. The MARAD report referred to both China and the Philippines as "low cost" crewing sources.
The seafaring industry is often divided into two employment groups: licensed mariners including deck officers and marine engineers, and mariners that are not required to have licenses, such as able seamen and cooks
. The latter group is collectively known as unlicensed mariners or ratings. Differences in wages can be seen in both groups, between "high cost" crewing sources such as the United States, and "low cost" sources such as China and The Philippines.
For unlicensed mariners, 2009 statistics from the American Bureau of Labor Statistics
give median earnings for able
and ordinary seamen as US$35,810, varying from $21,640 (at the 10th percentile) to $55,360 (at the 90th percentile). This can be compared with 2006 statistics from the International Labour Organization, giving average yearly earnings for Filipino and Chinese able seamen around $2,000 to $3,000 per year (PHP
9,900 per month and CNY
3,071 per year). Among licensed mariners, American chief engineer
s earned a median $63,630, varying from $35,030 to $109,310 while their Filipino counterparts averaged $5,500 per year (PHP21,342 per month).
Ship registration
Ship registration is the process by which a ship is documented and authorised by some country; it is usual to say that the ship sails under the flag of the country of registration . International law requires that every merchant ship be registered in a country, called its flag state...
a merchant ship in a sovereign state
Sovereign state
A sovereign state, or simply, state, is a state with a defined territory on which it exercises internal and external sovereignty, a permanent population, a government, and the capacity to enter into relations with other sovereign states. It is also normally understood to be a state which is neither...
different from that of the ship's owners, and flying that state's civil ensign
Civil ensign
The civil ensign is the national flag flown by civil ships to denote nationality...
on the ship. Ships are registered under flags of convenience to reduce operating costs or avoid the regulations of the owner's country. The closely related term open registry is used to describe an organization that will register ships owned by foreign entities.
The term "flag of convenience" has been in use since the 1950s and refers to the civil ensign a ship flies to indicate its country of registration or flag state
Flag State
The flag state of a commercial vessel is the state under whose laws the vessel is registered or licensed.The flag state has the authority and responsibility to enforce regulations over vessels registered under its flag, including those relating to inspection, certification, and issuance of safety...
. A ship operates under the laws of its flag state, and these laws are used if the ship is involved in an admiralty case
Admiralty law
Admiralty law is a distinct body of law which governs maritime questions and offenses. It is a body of both domestic law governing maritime activities, and private international law governing the relationships between private entities which operate vessels on the oceans...
.
The modern practice of flagging ships in foreign countries began in the 1920s in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, when shipowners frustrated by increased regulations and rising labor costs began to register their ships to Panama
Panama
Panama , officially the Republic of Panama , is the southernmost country of Central America. Situated on the isthmus connecting North and South America, it is bordered by Costa Rica to the northwest, Colombia to the southeast, the Caribbean Sea to the north and the Pacific Ocean to the south. The...
. The use of flags of convenience steadily increased, and in 1968, Liberia
Liberia
Liberia , officially the Republic of Liberia, is a country in West Africa. It is bordered by Sierra Leone on the west, Guinea on the north and Côte d'Ivoire on the east. Liberia's coastline is composed of mostly mangrove forests while the more sparsely populated inland consists of forests that open...
grew to surpass the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
as the world's largest shipping register. , more than half of the world’s merchant ships are registered under flags of convenience, and the Panamanian, Liberian, and Marshallese flags of convenience account for almost 40% of the entire world fleet, in terms of deadweight tonnage
Deadweight tonnage
Deadweight tonnage is a measure of how much weight a ship is carrying or can safely carry. It is the sum of the weights of cargo, fuel, fresh water, ballast water, provisions, passengers, and crew...
.
Flag-of-convenience registries are often criticized. , thirteen flag states have been found by international shipping organizations to have substandard regulations. A basis for many criticisms is that the flag-of-convenience system allows shipowners to be legally anonymous and difficult to prosecute in civil and criminal actions. Ships with flags of convenience have been found engaging in crime and terrorism
Terrorism
Terrorism is the systematic use of terror, especially as a means of coercion. In the international community, however, terrorism has no universally agreed, legally binding, criminal law definition...
, frequently offer substandard working conditions, and negatively impact the environment, primarily through illegal, unreported and unregulated fishing
Illegal, unreported and unregulated fishing
Illegal fishing takes place where vessels operate in violation of the laws of a fishery. This can apply to fisheries that are under the jurisdiction of a coastal state or to high seas fisheries regulated by regional organisations....
. , ships of thirteen flags of convenience are targeted for special enforcement by countries that they visit. Supporters of the practice, however, point to economic and regulatory advantages, and increased freedom in choosing employees from an international labor pool.
Background
International law requires that every merchant ship be registered in a country. This country in which a ship is registered is called its flag stateFlag State
The flag state of a commercial vessel is the state under whose laws the vessel is registered or licensed.The flag state has the authority and responsibility to enforce regulations over vessels registered under its flag, including those relating to inspection, certification, and issuance of safety...
, and the flag state gives the ship the right to fly its civil ensign. A ship's flag state exercises regulatory control over the vessel and is required to inspect it regularly, certify the ship's equipment and crew, and issue safety and pollution prevention documents. A ship operates under the laws of its flag state, and these laws are used if the ship is involved in an admiralty case. The organization which actually registers the ship is known as its registry. Registries may be governmental or private agencies. In some cases, such as the United States' Alternative Compliance Program, the registry can assign a third party to administer inspections.
The reasons for choosing an open register are varied and include tax avoidance
Tax avoidance
Tax avoidance is the legal utilization of the tax regime to one's own advantage, to reduce the amount of tax that is payable by means that are within the law. The term tax mitigation is a synonym for tax avoidance. Its original use was by tax advisors as an alternative to the pejorative term tax...
, the ability to avoid national labor and environmental regulations, and the ability to hire crews from lower-wage countries. National or closed registries typically require a ship be owned and constructed by national interests, and at least partially crewed by its citizens. Conversely, open registries frequently offer on-line registration with few questions asked. The use of flags of convenience lowers registration and maintenance costs, which in turn reduces overall transportation costs. The accumulated advantages can be significant, for example in 1999, 28 of Sea-Land's fleet of 63 ships were foreign flagged, saving the company up to 3.5 million dollars per ship every year.
The environmental disaster caused by the 1978 sinking of the , which flew the Liberian flag of convenience, spurred the creation of a new type of maritime enforcement. Resulting from "strong political and public outcry" over the Cadiz sinking, fourteen European nations signed the 1982 "Paris Memorandum of Understanding on Port State Control" or Paris MOU. Under port state control
Port State Control
Port State Control is the inspection of foreign ships in other national ports by PSC officers for the purpose of verifying that the competency of the master and officers on board, the condition of a ship and its equipment comply with the requirements of international conventions Port State...
, ships in international trade became subject to inspection by the states they visit. In addition to shipboard living and working conditions, these inspections cover items concerning the safety of life at sea and the prevention of pollution by ships. In cases when a port state inspection uncovers problems with a ship, the port state may take actions including detaining the ship. In 2008, member states of the Paris MOU conducted 14,322 inspections with deficiencies, which resulted in vessels being detained 1,220 times that year. Member states of the Tokyo Memorandum of Understanding conducted 13,298 ship inspections in 2009, recording 86,820 deficiencies which resulted in 1,336 detentions.
The principle that there be a "genuine link" between a ship's owners and its flag state dates back to 1958, when Article 5(1) of the Geneva Convention on the High Seas also required that "the state must effectively exercise its jurisdiction and control in administrative, technical and social matters over ships flying its flag." The principle was repeated in Article 91 of the 1982 treaty called the United Nations Convention on the Law of the Sea
United Nations Convention on the Law of the Sea
The United Nations Convention on the Law of the Sea , also called the Law of the Sea Convention or the Law of the Sea treaty, is the international agreement that resulted from the third United Nations Conference on the Law of the Sea , which took place from 1973 through 1982...
and often referred to as UNCLOS. In 1986, the United Nations Conference on Trade and Development
United Nations Conference on Trade and Development
The United Nations Conference on Trade and Development was established in 1964 as a permanent intergovernmental body. It is the principal organ of the United Nations General Assembly dealing with trade, investment, and development issues....
attempted to solidify the genuine link concept in the United Nations Convention for Registration of Ships. The Convention for Registration of Ships would require that a flag state be linked to its ships either by having an economic stake in the ownership of its ships or by providing mariners to crew the ships. To come into force, the 1986 treaty requires 40 signatories whose combined tonnage exceeds 25% of the world total. , only 14 countries have signed the treaty.
History
Merchant ships have used false flagFalse flag
False flag operations are covert operations designed to deceive the public in such a way that the operations appear as though they are being carried out by other entities. The name is derived from the military concept of flying false colors; that is flying the flag of a country other than one's own...
s as a tactic to evade enemy warships since antiquity, and examples can be found from as early as the Roman era through the Middle Ages
Middle Ages
The Middle Ages is a periodization of European history from the 5th century to the 15th century. The Middle Ages follows the fall of the Western Roman Empire in 476 and precedes the Early Modern Era. It is the middle period of a three-period division of Western history: Classic, Medieval and Modern...
. More recently, this technique was used by the British during the Napoleonic Wars
Napoleonic Wars
The Napoleonic Wars were a series of wars declared against Napoleon's French Empire by opposing coalitions that ran from 1803 to 1815. As a continuation of the wars sparked by the French Revolution of 1789, they revolutionised European armies and played out on an unprecedented scale, mainly due to...
and the United States during the War of 1812
War of 1812
The War of 1812 was a military conflict fought between the forces of the United States of America and those of the British Empire. The Americans declared war in 1812 for several reasons, including trade restrictions because of Britain's ongoing war with France, impressment of American merchant...
. During the mid-19th century, slave ship
Slave ship
Slave ships were large cargo ships specially converted for the purpose of transporting slaves, especially newly purchased African slaves to Americas....
s flew various flags to avoid being searched by British anti-slavery fleets. However, the modern practice of registering ships in foreign countries to gain economic advantage originated in the United States in the era of World War I
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
, and the term flag of convenience came into use in the 1950s.
United States Merchant Marine
The United States Merchant Marine refers to the fleet of U.S. civilian-owned merchant vessels, operated by either the government or the private sector, that engage in commerce or transportation of goods and services in and out of the navigable waters of the United States. The Merchant Marine is...
and provide safeguards for its mariners. During this period, U.S.-flagged ships became subject to regular inspections undertaken by the American Bureau of Shipping
American Bureau of Shipping
The American Bureau of Shipping is a classification society, with a mission to promote the security of life, property and the natural environment, primarily through the development and verification of standards for the design, construction and operational maintenance of marine-related facilities...
. This was also the time of Robert LaFollette
Robert M. La Follette, Sr.
Robert Marion "Fighting Bob" La Follette, Sr. , was an American Republican politician. He served as a member of the U.S. House of Representatives, was the Governor of Wisconsin, and was also a U.S. Senator from Wisconsin...
's Seamen's Act of 1915, which has been described as the "Magna Carta
Magna Carta
Magna Carta is an English charter, originally issued in the year 1215 and reissued later in the 13th century in modified versions, which included the most direct challenges to the monarch's authority to date. The charter first passed into law in 1225...
of sailors' rights." The Seamen's Act regulated mariners' working hours, their payment, and established baseline requirements for shipboard food. It also reduced penalties for disobedience and abolished the practice of imprisoning sailors for the offense of desertion. Another aspect of the Seamen's Act was enforcement of safety standards, with requirements on lifeboats, the number of qualified able seamen on board, and that officers and seamen be able to speak the same language.
These laws put U.S.-flagged vessels at an economic disadvantage against countries lacking such safeguards. By moving their ships to the Panamanian flag, owners could avoid providing these protections. The Belen Quezada, the first foreign ship flagged in the Panamanian registry, was employed in running illegal alcohol between Canada and the United States during Prohibition
Prohibition in the United States
Prohibition in the United States was a national ban on the sale, manufacture, and transportation of alcohol, in place from 1920 to 1933. The ban was mandated by the Eighteenth Amendment to the Constitution, and the Volstead Act set down the rules for enforcing the ban, as well as defining which...
. In addition to sidestepping the Seamen's Act, Panamanian-flagged ships in this early period paid sailors on the Japanese wage scale, which was much lower than that of western merchant powers.
The Liberian open registry was the brainchild of Edward Stettinius, who had been Franklin D. Roosevelt
Franklin D. Roosevelt
Franklin Delano Roosevelt , also known by his initials, FDR, was the 32nd President of the United States and a central figure in world events during the mid-20th century, leading the United States during a time of worldwide economic crisis and world war...
's Secretary of State
Secretary of State
Secretary of State or State Secretary is a commonly used title for a senior or mid-level post in governments around the world. The role varies between countries, and in some cases there are multiple Secretaries of State in the Government....
during World War II. Stettinius created a corporate structure that included The Liberia Corporation, a joint-venture with the government of Liberia. The corporation was structured so that one-fourth of its revenue would go to the Liberian government, another 10% went to fund social programs in Liberia, and the remainder returned to Stettinius' corporation. The Liberian registry was created at a time when Panama's registry was becoming less attractive for several reasons including its unpopularity with the U.S. labor movement and European shipping concerns, political unrest in Panama, and increases in its fees and regulations.
On 11 March 1949, Greek shipping magnate Stavros Niarchos
Stavros Niarchos
Stavros Spyros Niarchos was a Greek shipping tycoon, sometimes known as "The Golden Greek." In 1952, Stavros Niarchos built the first supertankers capable of transporting large quantities of oil, and subsequently earned millions of dollars as global demand for his ships increased.- Early life :He...
registered the first ship under the Liberian flag of convenience, the World Peace. When Stettinius died in 1949, ownership of the registry passed to the International Bank of Washington, led by General George Olmsted. Within 18 years, Liberia grew to surpass the United Kingdom as the world's largest register.
Due to Liberia's 1989 and 1999 civil wars, its registry eventually fell second to Panama's flag of convenience, but maritime funds continued to supply 70% of its total government revenue. After the civil war of 1990, Liberia joined with the Republic of the Marshall Islands to develop a new maritime and corporate program. The resulting company, International Registries
International Registries
International Registries, Inc. is a company based in Reston, Virginia, United States, which operates the flag of convenience ship registry and corporate registry of the Marshall Islands on behalf of the Republic of the Marshall Islands ....
, was formed as a parent company, and in 1993 was bought out by its management. After taking over the Liberian government, Americo-Liberian
Americo-Liberian
Americo-Liberians are a Liberian ethnicity of African American descent. The sister ethnic group of Americo Liberians are the Sierra Leone Creole people who are of African American, West Indian, and liberated African descent...
warlord Charles Taylor signed a new registry contract with the Liberian International Ship and Corporate Registry, commonly known as LISCR. LISCR was one of the few legal sources of income for Taylor's regime. Taylor is now on trial at the International Criminal Court
International Criminal Court
The International Criminal Court is a permanent tribunal to prosecute individuals for genocide, crimes against humanity, war crimes, and the crime of aggression .It came into being on 1 July 2002—the date its founding treaty, the Rome Statute of the...
in The Hague
The Hague
The Hague is the capital city of the province of South Holland in the Netherlands. With a population of 500,000 inhabitants , it is the third largest city of the Netherlands, after Amsterdam and Rotterdam...
on 11 counts of war crimes, crimes against humanity, and other serious violations of international humanitarian law.
, the Panamanian, Liberian, and Marshallese flags of convenience account for almost 40% of the entire world fleet, in terms of deadweight tonnage
Deadweight tonnage
Deadweight tonnage is a measure of how much weight a ship is carrying or can safely carry. It is the sum of the weights of cargo, fuel, fresh water, ballast water, provisions, passengers, and crew...
That same year, the top ten flags of convenience registered 55% of the world's deadweight tonnage, including 61% of bulk carrier
Bulk carrier
A bulk carrier, bulk freighter, or bulker is a merchant ship specially designed to transport unpackaged bulk cargo, such as grains, coal, ore, and cement in its cargo holds. Since the first specialized bulk carrier was built in 1852, economic forces have fueled the development of these ships,...
s and 56% of oil tanker
Oil tanker
An oil tanker, also known as a petroleum tanker, is a merchant ship designed for the bulk transport of oil. There are two basic types of oil tankers: the crude tanker and the product tanker. Crude tankers move large quantities of unrefined crude oil from its point of extraction to refineries...
s.
Extent of use
The International Transport Workers' FederationInternational Transport Workers' Federation
The International Transport Workers' Federation is a global union federation of transport workers' trade unions, founded in 1896. In 2009 the ITF had 654 member organizations in 148 countries, representing a combined membership of 4.5 million workers....
(ITF) maintains a list of 32 registries it considers to be FOC registries. In developing the list, the ITF considers "ability and willingness of the flag state to enforce international minimum social standards on its vessels," the "degree of ratification and enforcement of ILO Conventions and Recommendations," and "safety and environmental record." the list includes Antigua and Barbuda, the Bahamas, Barbados, Belize, Bermuda, Bolivia, Burma, Cambodia, the Cayman Island, Comoros, Cyprus, Equatorial Guinea, Georgia, Gibraltar, Honduras, Jamaica, Lebanon, Liberia, Malta, the Marshall Islands, Mauritius, Mongolia, Netherlands Antilles, North Korea, Panama, Sao Tome and Príncipe, St Vincent, Sri Lanka, Tonga, Vanuatu, and the French and German International Ship Registers.
, Panama, Liberia and the Marshall Islands are the world’s three largest registries in terms of deadweight tonnage (DWT). These three organizations registered 11,636 ships of and above, for a total of : more than 39% of the world's shipbourne carrying capacity. Panama dominates the scene with over 8,065 ships accounting for almost 23% of the world's DWT. Of the three, the Marshall Islands (with 1,265 registered ships) had the greatest rate of DWT increase in 2009, increasing its tonnage by almost 15%.
The Bahamian flag ranks sixth worldwide, behind the Hong Kong and Greek registries, but is similar in size to the Marshallese flag of convenience, with about 200 more ships but a carrying capacity about lower. Malta, at the ninth position worldwide, had about 100 more ships than the Bahamas, with a capacity of , representing 4% of the world fleet with 12% growth that year.
At the eleventh position, Cyprus registered 1,016 ships in 2009, 2.6% of world tonnage. The remaining top 11 flags of convenience are Antigua and Barbuda (#20), Bermuda (#22), Saint Vincent and the Grenadines (#26), and the French International Ship Register (FIS) at number #27. Bermuda and the FIS have fewer than 200 ships apiece, but they are large: the average Bermudan ship is and the average FIS ship is at . (By way of reference, the average capacity of ships in the U.S. and U.K. registers is and respectively.) The registries of Antigua and Barbuda and Saint Vincent and the Grenadines both have over 1,000 ships with average capacity of and respectively.
The 21 other flags of convenience listed by the ITF each account for less than 1% of the world's DWT. , more than half of the world’s merchant ships (measured by tonnage) are registered under flags of convenience.
Criticism
There are a number of common threads found in criticisms of the flag of convenience system. One is that these flag states have insufficient regulations and that those regulations they do have are poorly enforced. Another is that, in many cases, the flag state cannot identify a shipowner, much less hold the owner civilly or criminally responsible for a ship's actions. As a result of this lack of flag state control, flags of convenience are criticized on grounds of providing an environment for conducting criminal activities, supporting terrorism, providing poor working conditions for seafarers, and having an adverse effect on the environment.David Cockroft, general secretary of the ITF
International Transport Workers' Federation
The International Transport Workers' Federation is a global union federation of transport workers' trade unions, founded in 1896. In 2009 the ITF had 654 member organizations in 148 countries, representing a combined membership of 4.5 million workers....
says:
Concealed ownership
Shipowners often establish shell corporations to be the legal owners of their ships. To distinguish between the actual shipowner and the shell corporations, the terms beneficial ownerBeneficial ownership
Beneficial ownership is enjoyed by anyone who has the benefits of ownership of a Security or property, and yet does not nominally own the asset itself....
or ultimate owner are often used. Webster's defines a beneficial owner as "one who enjoys the benefit of a property of which another is the legal owner." A ship's beneficial owner is legally and financially responsible for the ship and its activities.
The 2004 Report of the UN Secretary General’s Consultative Group on Flag State Implementation reported that "It is very easy, and comparatively inexpensive, to establish a complex web of corporate entities to provide very effective cover to the identities of beneficial owners who do not want to be known." According to a 2003 report by the Organisation for Economic Co-operation and Development
Organisation for Economic Co-operation and Development
The Organisation for Economic Co-operation and Development is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade...
report entitled "Ownership and Control of Ships", these corporate structures are often multi-layered, spread across numerous jurisdictions, and make the beneficial owner "almost impenetrable" to law enforcement officials and taxation. The report concludes that "regardless of the reasons why the cloak of anonymity is made available, if it is provided it will also assist those who may wish to remain hidden because they engage in illegal or criminal activities, including terrorists."
The OECD report concludes that the use of bearer shares is "perhaps the single most important (and perhaps the most widely used) mechanism" to protect the anonymity of a ship's beneficial owner. Physically possessing a bearer share accords ownership of the corporation. There is no requirement for reporting the transfer of bearer shares, and not every jurisdiction requires that their serial numbers even be recorded.
Two similar techniques to provide anonymity for a ship's beneficial owner are "nominee shareholders" and "nominee directors." In some jurisdictions that require shareholder identities to be reported, a loophole is created where the beneficial owner may appoint a nominee to be the shareholder, and that nominee cannot legally be compelled to reveal the identity of the beneficial owner. All corporations are required to have at least one director, however many jurisdictions allow this to be a nominee director. A nominee director's name would appear on all corporate paperwork in place of the beneficial owners, and like nominee shareholders, few jurisdictions can compel a nominee director to divulge the identity of beneficial owners. To further complicate matters, some jurisdictions allow a corporation to fulfill the duties of a nominee director.
Crime
Flag of convenience ships have long been linked to crime on the high seas. For example, in 1982, Honduras shut down its open registry operations because it had enabled "illegal traffic of all kinds and had given Honduras a bad name."Ships registered by the Cambodia Shipping Corporation (CSC) were found smuggling drugs and cigarettes in Europe, breaking the Iraq oil embargo, and engaging in human trafficking and prostitution in Europe and Asia. In response to these activities, in 2000, Ahamd Yahya of the Cambodian Ministry of Public Works and Transport told industry publication Fairplay "We don't know or care who owns the ships or whether they're doing 'white' or 'black' business ... it is not our concern." Less than two years later, French forces seized the Cambodian-flagged, Greek-owned MV Winner for cocaine smuggling. Shortly after the seizure, Cambodian Prime Minister Hun Sen
Hun Sen
Hun Sen is the current Prime Minister of Cambodia.He has been the sole leader of the Cambodian People's Party , which has governed Cambodia since the Vietnamese-backed overthrow of the Khmer Rouge in 1979...
closed the registry to foreign ships, and Cambodia canceled its contract with CSC shortly thereafter.
The North Korean flag of convenience has also garnered significant scrutiny. In 2003, the North Korean freighter Pong-su reflagged to Tuvalu in the middle of a voyage shortly before being seized by Australian authorities for smuggling heroin into that country. That year thirteen nations began monitoring vessels under the North Korean flag for "illicit cargos, like drugs, missiles or nuclear weapon fuel." In 2006, ships owned by Egyptian and Syrian interests, flagged by North Korea, and based in the United States were discovered to be engaged in smuggling migrants in Europe.
Terrorism
The OECD report states that the possibility of terrorists using ships is "obvious" and "potentially devastating" and goes on to list ways in which ships could be used. One clear use would be to move personnel, equipment, and weapons around the world. Another would be to transport bombs, such as a "containerIntermodal container
An intermodal container is a standardized reusable steel box used for the safe, efficient and secure storage and movement of materials and products within a global containerized intermodal freight transport system...
set to explode near a city." Also, ships could be used as a weapon in their own right, for example an oil tanker or liquefied natural gas carrier rigged as a floating bomb. Finally, the OECD discussed the possibility of criminal and terrorist organizations using ships engaging in legal or illegal trade as a source of revenue to fund criminal activities.
In 2002 in the United States, Democratic senator
United States Senate
The United States Senate is the upper house of the bicameral legislature of the United States, and together with the United States House of Representatives comprises the United States Congress. The composition and powers of the Senate are established in Article One of the U.S. Constitution. Each...
John Breaux
John Breaux
John Berlinger Breaux is a former United States senator from Louisiana who served from 1987 until 2005. He was also a member of the United States House of Representatives from 1972 to 1987. He was considered one of the more conservative national legislators from the Democratic Party...
of Louisiana
Louisiana
Louisiana is a state located in the southern region of the United States of America. Its capital is Baton Rouge and largest city is New Orleans. Louisiana is the only state in the U.S. with political subdivisions termed parishes, which are local governments equivalent to counties...
proposed a bill to prevent U.S. shipowners from using foreign flags as a counter-terrorism measure.
Working conditions
In the accompanying material of the ILO's Maritime Labour Convention of 2006, the International Labour Organization estimated that at that time there were approximately 1,200,000 working seafarers across the world. This document goes on to say that when working aboard ships flagged to states that do not "exercise effective jurisdiction and control" over their ships that "seafarers often have to work under unacceptable conditions, to the detriment of their well-being, health and safety and the safety of the ships on which they work."The International Transport Workers' Federation goes further, stating that flags of convenience "provide a means of avoiding labor regulation in the country of ownership, and become a vehicle for paying low wages and forcing long hours of work and unsafe working conditions. Since FOC ships have no real nationality, they are beyond the reach of any single national seafarers' trade union." They also say that these ships have low safety standards and no construction requirements, that they "do not enforce safety standards, minimum social standards or trade union rights for seafarers", that they frequently fail to pay their crews, have poor safety records, and engage in practices such as abandoning crewmen in distant ports.
According to the Maritime Trades Department of the AFL-CIO,
Environmental effects
While flag of convenience ships have been involved with some of the highest-profile oil spills in history (such as the Maltese-flagged , the Bahamian-flagged , the Marshallese-flagged Deepwater HorizonDeepwater Horizon
Deepwater Horizon was an ultra-deepwater, dynamically positioned, semi-submersible offshore oil drilling rig owned by Transocean. Built in 2001 in South Korea by Hyundai Heavy Industries, the rig was commissioned by R&B Falcon, which later became part of Transocean, registered in Majuro, Marshall...
, and the Liberian-flagged and ) the most common environmental criticism they face regards illegal fishing. These critics of the flag of convenience system argue that many of the FOC flag states lack the resources or the will to properly monitor and control those vessels. The Environmental Justice Foundation
Environmental Justice Foundation
The Environmental Justice Foundation is a [non-governmental organisation]] founded in 2001 by Steve Trent and Juliette Williams that promotes the non-violent resolution of human rights abuses and related environmental issues in the Global South...
(EJF) contends that illegal, unreported and unregulated fishing
Illegal, unreported and unregulated fishing
Illegal fishing takes place where vessels operate in violation of the laws of a fishery. This can apply to fisheries that are under the jurisdiction of a coastal state or to high seas fisheries regulated by regional organisations....
(IUU) vessels use flags of convenience to avoid fisheries regulations and controls. Flags of convenience help reduce the operating costs associated with illegal fishing methods, and help illegal operators avoid prosecution and hide beneficial ownership. As a result, flags of convenience perpetuate IUU fishing which has extensive environmental, social and economic impacts, particularly in developing countries. The EJF is campaigning to end the granting of flags of convenience to fishing vessels as an effective measure to combat IUU fishing.
According to Franz Fischler
Franz Fischler
Franz Fischler is an Austrian politician. He was the European Union's Commissioner for Agriculture, Rural Development and Fisheries ....
, European Union Fisheries Commissioner,
Ratification of maritime conventions
| Flag | SOLAS International Convention for the Safety of Life at Sea The International Convention for the Safety of Life at Sea is an international maritime safety treaty. The SOLAS Convention in its successive forms is generally regarded as the most important of all international treaties concerning the safety of merchant ships.- History :The first version of the... |
MARPOL | LL66 | ILO147 Merchant Shipping (Minimum Standards) Convention, 1976 Merchant Shipping Convention, 1976 is an International Labour Organization Convention.It was established in 1976, with the preamble stating:... |
CLC International Convention on Civil Liability for Oil Pollution Damage The International Convention on Civil Liability for Oil Pollution Damage, 1992, often referred to as CLC, is a maritime treaty. The convention was adopted "to ensure that adequate compensation is available to persons who suffer oil pollution damage resulting from maritime casualties involving... /FUND92 |
| X | |||||
 The Bahamas |
X | ||||
 Bolivia |
X | X | X | X | X |
 Cambodia |
X | X | |||
 North Korea |
X | X | X | ||
 Georgia (country) |
X | X | X | ||
 Honduras |
X | X | X | X | X |
 Jamaica |
X | ||||
 Lebanon |
X | X | X | ||
 Malta |
X | ||||
 Mongolia |
X | X | |||
| X | |||||
 Sri Lanka |
X | X | X | X |
International regulations for the maritime industry are promulgated by agencies of the United Nations
United Nations
The United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and achievement of world peace...
, particularly the International Maritime Organization
International Maritime Organization
The International Maritime Organization , formerly known as the Inter-Governmental Maritime Consultative Organization , was established in Geneva in 1948, and came into force ten years later, meeting for the first time in 1959...
and International Labour Organization
International Labour Organization
The International Labour Organization is a specialized agency of the United Nations that deals with labour issues pertaining to international labour standards. Its headquarters are in Geneva, Switzerland. Its secretariat — the people who are employed by it throughout the world — is known as the...
. Flag states adopt these regulations for their ships by ratifying individual treaties. One common criticism against flag of convenience countries is that they allow shipowners to avoid these regulations by not ratifying important treaties or by failing to enforce them.
Maritime International Secretariat Services (MARISEC) issues a yearly report entitled the Flag State Performance Table in association with industry groups the Baltic and International Maritime Council
Baltic and International Maritime Council
The Baltic and International Maritime Council is an independent international shipping trade association. It claims a worldwide membership of 2720, including ship-owners, managers, brokers, agents and others involved in the shipping industry....
, the International Association of Dry Cargo Shipowners
International Association of Dry Cargo Shipowners
The International Association of Dry Cargo Shipowners, is the association to aim for the interests of owners, operators and managers on dry cargo shipping industry since 1980...
, the International Chamber of Shipping
International Chamber of Shipping
The International Chamber of Shipping is the world's principal shipping organisation, representing around 75% of the world’s merchant tonnage; through membership of national shipowners' associations, concerned with all regulatory, operational and legal issues....
, the International Shipping Federation, and the International Association of Independent Tanker Owners
International Association of Independent Tanker Owners
International Association of Independent Tanker Owners is the association of the owner of the independent tankers in the world. It started in 1970 to speak out for the independent tankers' owners, non-oil companies and non-state controlled tanker owners, for the safe shipping of oil and...
. The 2009 report identified the six "core" conventions representing a minimum level of maritime regulation, from the viewpoint of shipowners, as SOLAS, MARPOL, LL 66, STCW, ILO 147, and CLC/FUND92. Five of these six core conventions are not ratified by several flag of convenience countries.
The SOLAS and LL 66 conventions focus on shipboard safety issues. SOLAS
International Convention for the Safety of Life at Sea
The International Convention for the Safety of Life at Sea is an international maritime safety treaty. The SOLAS Convention in its successive forms is generally regarded as the most important of all international treaties concerning the safety of merchant ships.- History :The first version of the...
is an acronym for Safety of Life at Sea, or formally "International Convention for the Safety of Life at Sea, 1974 as amended, including the 1988 Protocol, the International Safety Management Code
International Safety Management Code
The ISM Code provides an International standard for the safe management and operation of ships and for pollution prevention. The purpose of ISM Code is:* To ensure Safety at Sea* To prevent human injury or loss of life...
(ISM) and the International Ship and Port Facility Security Code
International Ship and Port Facility Security Code
The International Ship and Port Facility Security Code is an amendment to the Safety of Life at Sea Convention on minimum security arrangements for ships, ports and government agencies...
(ISPS)". Originally ratified in response to the sinking of the RMS Titanic, SOLAS sets regulations on lifeboat
Lifeboat (shipboard)
A lifeboat is a small, rigid or inflatable watercraft carried for emergency evacuation in the event of a disaster aboard ship. In the military, a lifeboat may be referred to as a whaleboat, dinghy, or gig. The ship's tenders of cruise ships often double as lifeboats. Recreational sailors sometimes...
s, emergency equipment and safety procedures, including continuous radio watches. It has been updated to include regulations on ship construction, fire protection systems, life-saving appliances, radio communications, safety of navigation, management for the safe operation of ships, and other safety and security concerns. , the Bolivian, Honduran, Lebanese, and Sri Lankan flags of convenience have not ratified the SOLAS treaty. LL 66 is an industry designation for the "International Convention on Load Lines, 1966, including the 1988 Protocol". This convention sets standards for minimum buoyancy, hull stress, and ship's fittings, as well as establishing navigational zones where extra precautions must be taken. , the Bahamian, Bolivian, Georgian, Honduran, and Sri Lankan flags of convenience have not ratified the LL 66 treaty.
ILO147
Merchant Shipping (Minimum Standards) Convention, 1976
Merchant Shipping Convention, 1976 is an International Labour Organization Convention.It was established in 1976, with the preamble stating:...
is shorthand for the "International Labour Organization Merchant Shipping (Minimum Standards) Convention 1976, including the 1996 Protocol". This convention sets safety and competency standards, regulates work hours, manning, conditions of employment as well as shipboard living arrangements. , the Antigua/Barbudan, Bolivian, Cambodian, North Korean, Georgian, Honduran, Jamaican, Mongolian, Vincentian, and Sri Lankan flags of convenience have not ratified the ILO147 treaty.
MARPOL, CLC, and FUND are treaties related to pollution. MARPOL refers to the "International Convention for the Prevention of Pollution from Ships,1973 as modified by the Protocol of 1978, including Annexes I – VI". This treaty regulates pollution by ships, including oil and air pollution, shipboard sewage and garbage. , the Bahamian, Bolivian, Cambodian, North Korean, Georgian, Honduran, Lebanese, Maltese, and Sri Lankan flags of convenience have not ratified the MARPOL treaty. CLC
International Convention on Civil Liability for Oil Pollution Damage
The International Convention on Civil Liability for Oil Pollution Damage, 1992, often referred to as CLC, is a maritime treaty. The convention was adopted "to ensure that adequate compensation is available to persons who suffer oil pollution damage resulting from maritime casualties involving...
and FUND92 refer to the "International Convention on Civil Liability for Oil Pollution Damage, 1992" and the "International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1992". These two related conventions provide mechanisms to ensure remuneration for victims of oil spills. , the Bolivian, North Korean, Honduran, Lebanese, and, Mongolian flags of convenience have not ratified the CLC and FUND treaties.
Port state targeting
| Flag | Paris Blacklist |
Tokyo Blacklist |
US Target List |
|---|---|---|---|
| X | |||
| The Bahamas |
X | ||
 Belize |
X | X | |
| Bolivia |
X | ||
| Cambodia |
X | X | X |
 Cayman Islands |
X | ||
| North Korea |
X | X | |
| Georgia (country) |
X | X | |
| Honduras |
X | X | |
| Lebanon |
X | ||
| Malta |
X | ||
| Mongolia |
X | X | |
 Panama |
X | X | |
| X |
The Hague
The Hague is the capital city of the province of South Holland in the Netherlands. With a population of 500,000 inhabitants , it is the third largest city of the Netherlands, after Amsterdam and Rotterdam...
to audit labour conditions on board vessels vis-a-vis the rules of the International Labour Organization
International Labour Organization
The International Labour Organization is a specialized agency of the United Nations that deals with labour issues pertaining to international labour standards. Its headquarters are in Geneva, Switzerland. Its secretariat — the people who are employed by it throughout the world — is known as the...
. To this end, in 1982 the "Paris Memorandum of Understanding on Port State Control" (Paris MOU) was established, setting port state control standards for what is now twenty-six European countries and Canada.
Several other regional Memoranda Of Understanding have been established based on the Paris model, including the "Memorandum of Understanding on Port State Control in the Asia-Pacific Region", typically referred to as the "Tokyo MOU", and organizations for the Black Sea, the Caribbean, the Indian Ocean, the Mediterranean, and Latin America. The Tokyo and Paris organizations generate, based on deficiencies and detentions, black-, white-, and grey-lists of flag states. The US Coast Guard
United States Coast Guard
The United States Coast Guard is a branch of the United States Armed Forces and one of the seven U.S. uniformed services. The Coast Guard is a maritime, military, multi-mission service unique among the military branches for having a maritime law enforcement mission and a federal regulatory agency...
, which handles port state control inspections in the US, maintains a similar target list for underperforming flag states. , fourteen of the thirty-one flags of convenience listed by the ITF are targeted for special enforcement by the countries of the Paris and Tokyo MOUs or U.S. Coast Guard: Antigua and Barbuda, the Bahamas, Belize, Bolivia, Cambodia, the Cayman Islands, North Korea, Georgia, Honduras, Lebanon, Malta, Mongolia, Panama, and Saint Vincent and the Grenadines.
Wages
The United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and Development
The United Nations Conference on Trade and Development was established in 1964 as a permanent intergovernmental body. It is the principal organ of the United Nations General Assembly dealing with trade, investment, and development issues....
, in its 2009 Report on Maritime Trade, states that shipowners often register their ships under a foreign flag in order to employ "seafarers from developing countries with lower wages." The Philippines and the People's Republic of China supply a large percentage of maritime labor in general, and major flags of convenience in particular. In 2009, the flag-states employing the highest number of expatriate-Filipino seafarers were Panama, the Bahamas, Liberia and the Marshall Islands. That year, more than 150,000 Filipino sailors were employed by these four flags of convenience. In a 2006 study by the United States Maritime Administration (MARAD), sailors from the People's Republic of China comprised over 40% of the crews on surveyed ships flying the Panamanian flag, and around 10% of those flying the Liberian flag. The MARAD report referred to both China and the Philippines as "low cost" crewing sources.
The seafaring industry is often divided into two employment groups: licensed mariners including deck officers and marine engineers, and mariners that are not required to have licenses, such as able seamen and cooks
Chief Cook
A chief cook is a senior unlicensed crewmember working in the steward's department of a merchant ship.The chief cook directs and participates in the preparation and serving of meals; determines timing and sequence of operations required to meet serving times; inspects galley and equipment for...
. The latter group is collectively known as unlicensed mariners or ratings. Differences in wages can be seen in both groups, between "high cost" crewing sources such as the United States, and "low cost" sources such as China and The Philippines.
For unlicensed mariners, 2009 statistics from the American Bureau of Labor Statistics
Bureau of Labor Statistics
The Bureau of Labor Statistics is a unit of the United States Department of Labor. It is the principal fact-finding agency for the U.S. government in the broad field of labor economics and statistics. The BLS is a governmental statistical agency that collects, processes, analyzes, and...
give median earnings for able
Able seaman
An able seaman is an unlicensed member of the deck department of a merchant ship. An AB may work as a watchstander, a day worker, or a combination of these roles.-Watchstander:...
and ordinary seamen as US$35,810, varying from $21,640 (at the 10th percentile) to $55,360 (at the 90th percentile). This can be compared with 2006 statistics from the International Labour Organization, giving average yearly earnings for Filipino and Chinese able seamen around $2,000 to $3,000 per year (PHP
Philippine peso
The peso is the currency of the Philippines. It is subdivided into 100 centavos . Before 1967, the language used on the banknotes and coins was English and so "peso" was the name used...
9,900 per month and CNY
Chinese yuan
The yuan is the base unit of a number of modern Chinese currencies. The yuan is the primary unit of account of the Renminbi.A yuán is also known colloquially as a kuài . One yuán is divided into 10 jiǎo or colloquially máo...
3,071 per year). Among licensed mariners, American chief engineer
Chief Engineer
In marine transportation, the chief engineer is a licensed mariner in charge of the engineering department on a merchant vessel. "Chief engineer" is the official title of someone qualified to oversee the entire engine department; the qualification is colloquially called a "chief's...
s earned a median $63,630, varying from $35,030 to $109,310 while their Filipino counterparts averaged $5,500 per year (PHP21,342 per month).
Further reading
- Carlisle, Rodney. (1981). Sovereignty for Sale: The Origin and Evolution of the Panamanian and Liberian Flags of Convenience. Annapolis, MD: Naval Institute Press. ISBN 0-87021-668-6
- Carlisle, Rodney. (2009). Second Registers: Maritime Nations Respond to Flags of Convenience, 1984–1998. The Northern Mariner/Le marin du nord, 19:3, 319–340.