Flag of Convenience Essay ⋆ Business Essay Examples ⋆ EssayEmpire

A ship flies a flag of convenience if it is registered in a country other than its country of ownership. A more formal definition is as follows:

The flag of a country with easy or lax maritime regulations and low fees and taxes, flown by ships that register their vessels in such countries, even though their ownership and main cruising areas are elsewhere.

Maritime tradition follows “the rule of the flag”—in other words, the specific flag flown by a ship determines the country’s law to be applied, regardless of which court has personal jurisdiction over the parties involved, be they owners, operators, or crew.

At the present time it appears that approximately half the world’s tonnage of merchant ships is registered under flags of convenience, and while (as suggested by the above-provided definition) reduced cost is a prime motivator, be this either operating costs because of low wages or the avoidance of taxes, the circumvention of “inconvenient” environmental regulations is now emerging as a significant consideration, with fishing boats, for example, ignoring conservation agreements entered into by their home countries. This situation has caused Franz Fishler, former European Union commissioner for fisheries, to describe flags of convenience as the scourge of today’s maritime world. The possibility of abuse of the system to benefit arms smugglers or human traffickers is another rampant concern.

Ships registered in the United States have to be manned by American crews. Elsewhere, problems are perceived to stem from such aspects as language differences that make communication between seafarers difficult. Poor crew conditions, inadequate training, questionable safety records, and the abandoning of crew members in distant ports—all such activities have called into question the operating of a scheme that many commentators have found reprehensible. One safeguard is the international Ship and Port Facility Security Code, which requires minimum standards for vessels entering the waters of its signatory nations. Thus the United States Coast Guard can inspect vessels entering American territorial waters and refuse entry to any exhibiting significant defects.

Panama was the first nation to become a flag of convenience country and remains, to this day, the most significant flag of convenience country as measured either by gross tonnage or number of vessels (and by a very considerable margin; the CIA World Factbook is a useful source of comparative data). But Panama does at least have a reputation for having adopted a “responsible” attitude toward an activity that is elsewhere considered reprehensible, since it is claimed to have given rise to the adoption of lax labor laws and low safety standards, thereby leading to a reduction in revenue for countries that apply stricter standards. Thus in the Panamanian case its own consulates deal with the necessary paperwork and collect the registration fees. Compare this with the situation of “Liberian” registration (run by a company based in Virginia), or “Cambodian” registration (operated from Singapore). In other words, registration does not even have to occur in the country where the vessel is supposedly based. Interestingly, to offer a flag of convenience facility it is not even necessary to possess a seaboard. Thus, ships may even be registered in La Paz (Bolivia is landlocked) or Mongolia (the largest landlocked country in the world).

The sinking of the oil tanker Prestige off the Spanish coast in 2002 heightened concern over who should pay for the damage in such a circumstance, and there is much opposition to the flag of convenience system and the abuses to which it is seen to give rise (in fact, of the absolute tonnage lost to maritime accidents in 2001, 63 percent of the total was accounted for by just 13 flag of convenience registers). Various international bodies have come down heavily on the practice, including the World Wildlife Fund, which is attempting to develop a review of the system and ensure that flag states (the country in which a vessel is registered) meet their responsibilities in applying and enforcing international shipping standards, and that the guilty party is held responsible for the consequences of poor shipping standards and practices. Additionally, the International Transport Workers’ Federation, in association with the International Maritime Employers’ Committee, now collectively negotiates pay scales for seafarers on flag of convenience ships.

There are, inevitably, supporters of, as well as detractors from, the flag of convenience system. The principal argument mounted here is likely to be that of arguing that the owners of a vessel engaged in international trade should be unencumbered in their choice of jurisdiction (the concept of laissez-faire taken to its logical conclusion, perhaps). Other advantages may exist in terms of a sophisticated maritime court structure and/or vessel financing possibilities. But the overriding consideration has to be that of keeping operating costs lower than would be imposed through registration with a (largely) non–flag of convenience nation such as the United States or United Kingdom.

Bibliography:

Matthew Gianni and Walt Simpson, The Changing Nature of High Seas Fishing: How Flags of Convenience Provide Cover for Illegal, Unreported and Unregulated Fishing (Australian Government, Department of Agriculture, 2005);
William Langewiesche, The Outlaw Sea: A World of Freedom, Chaos, and Crime (North Point Press, 2004).

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