Impact of FOCs on Maritime Policy - Essay Example

Running Header: Impact of FOCs on Maritime Policy Your Introduction The concept of ship registration is now virtually a vibrant industry by itself as states actively vie for the prospect of registering foreign shipping vessels with even landlocked nations like Mongolia, Bolivia and small nation-states like Malta, Liberia and Panama becoming big players in the field (Shepherd, 2007); (O’Keefe, 2002). The registered ship then adorns the national flag of that particular state, which henceforth act as the legal entity in terms of maritime matters. This registries have however been termed as ‘flags of convenience’ (FOC) which are only used to circumvent stringent domestic rules and standards. According to the International Transport Workers Federation (ITF), flags of convenience can be defined as: ‘where beneficial ownership and control of a vessel is found to lay elsewhere than in the country of the flag the vessel is flying’ (ITF, 2007, Pg.1). Closed and Open Registers There are two main modes of registering shipping vessels: closed and open registers. Closed registers are the conventional form whereby the ship owners and the majority of crew emanate from the registering country. Open registers or ‘flags of convenience’ are however those registrations, which are open to any nationality subject to the registering country’s regulations that are often very relaxed to attract as many ship-owners as possible. Open registers are further subdivided into two more categories: Open National Registers and Open International Registers. Under Open National Registers, the ships are obliged to follow the trading regulations of the flag-state encompassing employment and tax guidelines. In Open International Registers, the ships are less stringently regulated enjoying tax exemptions on their profits, easy employment terms for their international crews, lax company regulations and relaxed safety standard enforcement (O’Keefe, 2002, p. 4). UNICPOLOS and LOSC Although flag states are required to ensure that ships registered in their domain follow the requisite international laws in addition to administrative control, technical and social issues, however most of those licensing the flag of convenience (FOC) rarely bother to monitor the operations of the vessels. The United Nations has blamed these states for exacerbating marine accidents and compromising maritime security and safety (Gianni, 2008). According to the United Nations Open-ended Informal Consultative Process on Oceans and the Law of the Sea (UNICPOLOS) in Gianni (2008), ‘many shipping accidents and resulting loss of life and marine pollution are not the result of inadequate regulation at the global level, but are due to ineffective flag State implementation and enforcement’(Para. 179). Similarly, the 1982 United Nations Convention on the Law of the Sea (LOSC) gives every nation the right to control its own flag-fleets while prohibiting other states from interfering with its registered vessels, shield the FOCs flag states fleets from international regulations. Comparative Advantage Hekimoglu (2001, Pg.2) has attributed the explosive growth of the FOCs to globalization as traders seek comparative advantage resultant from avoiding domestic legislation and standards. He alludes to the difficulties in regulating such entities in view of the diverse interests from the ship owner, cargo owner, crew nationalities, the insurance underwriter, financing bank and the flag state whereby under international law the latter is the responsible party in ensuring regulatory standards are kept but may have the least pecuniary interest in the vessel or fleet. However not all shipping merchants take on FOCs to avoid regulatory and fiscal control but others may be motivated into adorning and registering with foreign nations to take advantage of their diverse network of diplomatic or faster service. Nonetheless, under the conventions of international law, the flag state statues are the only applicable rules in case of a maritime court jurisdiction determination (Hamzah, 2004). Yannopoulos (1988, Pg. 197) categorises the two distinct groupings of open and closed registries as being more of economic convenience for the former and conventional model for the latter. Those operating under the FOCs banner enjoy lower expenditure in terms of crew or labour and management costs in addition to less tax liabilities’; but conversely have lower efficiency levels when compared to the closed registered vessels. The International Transport Workers’ Federation (ITF) has characterised flags of convenience (FOCs) as ‘where beneficial ownership and control of a vessel is found to lie elsewhere than in the country of the flag the vessel is flying, the vessel is considered as sailing under a flag of convenience’ (Gianni and Simpson, 2005, Pg. 4). A UNCTAD Report (1981) identified ten reasons why the FOCs operated fleets are able to perpetuate apparent safety and security regulations violations as opposed to the aptly standardised supervision by those in closed registry flag fleets (UNCTAD, 2006). These reasons include: The actual owners of the vessels are easily ascertainable; These owners are able to change their identities at will through obscure corporate registrations; The owner and ship officials being of disparate nationality with the flag state can avoid legal censure by abstaining from visiting the flag state carrier nation; Similarly any summons to them from the registered flag state are ignored hence avoid trial; Being of different nationalities, the owner and the flag state, the former can often circumvent control and monitoring from the flag state authorities; The lack of adequate industrial employee relations representations or unions enables the owners the crewmembers are at the mercy of the fleet owners and officials; Owners exert undue pressure on the fleet captains to unrealistic targets that compel them to overlook regulatory standards to reach their set objectives; Inadequate port control by authorities is hampered by the required to only report or regulate from the registered flag state; Any dissent by crew members may compel the owners and captains to cruelly eject them at far-off ports and hire fresh crews Enforcement of international standards is based on earnings motivation Perpetual Violations of International Standards Reviews by several international organisations including the International Maritime Organization) (IMO) and the International Labour Organization (ILO) consistently reveal that FOCs are serial abusers of standards in addition to reports from national ports control blacklists. These violations include fishing and transportation irregularities whereby several large-scale fishing vessels engage in illegal, unreported and unfettered (IUU) fishing. According to regional fisheries management organizations (RFMOs), shipping vessels registered in Cambodia, Georgia, Mongolia, North Korea, Sierra Leone and Togo who have been blacklisted continue to illegally fish in the high seas MRAG (2005). According to the UN Food and Agriculture Organization (FAO) State of World Fisheries and Aquaculture Report (2006, Pg.3), global fishing has surged from the 20 million tonnes in 1950 to over 80 million tonnes annually currently, which is untenable in the end. The report concludes that, ‘that ‘evidence seems to suggest that the state of straddling stocks and of other high seas fishery resources is even more problematic… with nearly two-thirds of the stocks for which the state of exploitation can be determined being classified as overexploited or depleted. Most of these exploitative unfettered overfishing has been traced to the FOCs flying fishing vessels who engage in illegal, unreported and unregulated (IUU) fishing. Estimates indicate that this global trade is worth US$1.2 billion annually but costing developed countries $2 - $15 billion dollars in terms of lost revenue, lower market prices and administration costs among others according to UK based Environmental Justice Foundation (EJF, 2005). According to study report from Lloyd’s Register of Ships, most of the large-scale fishing ships are registered under FOCs with average age of over 25 years though a substantial number lacking IMO numbers may not be listed under the Lloyd’s Register of Ships [see Table: 1]. Table:1 Top 10 Flags Based on Numbers of Merchant Vessels on Registry > 1,000 GT Country Rank Number of Merchant Vessels > 1,000 GT 1 Panama 5,764 2 Liberia 1,948 3 China 1,775 4 Malta 1,281 5 Bahamas 1,213 6 Singapore 1,131 7 Russia 1,130 8 Antigua & Barbuda 1,059 9 Hong Kong 1,009 10 Indonesia 965 Source: CIA- World Factbook (2007) Effectiveness of the International Safety System An EU initiative formed a committee the High Seas Task Force (HSTF) aimed at curbing the activities of the IUU by establishing enhanced ‘transparency to the ownership and control of high seas fishing vessels’ (HSTF, 2005, Pg. 1). Some the advantages enjoined in registering shipping vessels include cheaper registration and annual fees are than in other countries. Similarly lax environmental regulations enable the owners have lower expenditure costs in contrast to the stringent regulations in their domestic countries in addition to having minimal labour requirements protecting the crews engaged in these ships. The ambiguous registration requirements in clear violation of UNCLOS Article 94.1(a), which instructs states, ‘maintain a register of ships containing the names and particulars of ships flying its flag, except those which are excluded from generally accepted international regulations on account of their small size.’ Most of this errant companies and rogue states hide their real identity to enable them transport counterfeit cargo under obscure identities using FOCs fleets. Cases of rampant abuse by owners and shipping officials subjected to their crew are common with many suffering physical torture, inhuman living conditions, slave labour and unpaid wages with no recourse possible due to the unregulated labour practices and minimal human rights regulations in the registered country. The Maritime Transport Committee of the OECD in 2003 and the 2004 Report of the UN Secretary General’s Consultative Group on Flag State Implementation investigating the effective performance and enforcement of international maritime conventions established that most of the FOCs operated under a ‘complex web of corporate identities’. The real owners therefore mask their identities by utilising multilayered corporations, which registered as the owners including ambiguous trusts, foundations and partnerships and international private businesses. Shipping companies prefer the FOCs registration due to the ambiguity and slack control that enables them circumvent fiscal and technical regulatory standards hence are able to maintain minimal quality and security standards that would be generally unacceptable in other transport sectors like aviation, road or rail segments. This blatant violations are possible even on the citizens of a particular state using a another country’s flag docking in their own country being protected by this foreign flag due to international regulations as expounded under UNCLOS the body charged with governing international shipping Article 97 which states that: ‘No arrest or detention of the ship, even as a measure of investigation, shall be ordered by any authorities other than those of the flag State in relation to matters of collision or any other incident of navigation on the high seas.’ The International Maritime Organization (IMO) In view of the potential gaps in regulations, several nations have expressed concern over the conduct of the FOCs vessels, which can be used to carry out illegal or terrorist activities due to their unfettered entities thereby posing great danger to maritime and public safety. Cyprus and the UK delegations to the Maritime Safety Committee and the Legal Committee of the International Maritime Organization (IMO) in April 2002, expressed fears of such vessels being used for such offensive deeds (Neff, 2007). ISPS Code and the ISSC Compliance Certification Under the terms of IMO (2002), all countries, port administrators and shipping corporations are required to strictly observe the International Ship and Port Facility Security Code (ISPS Code) that provides the minimum security conditions hence mandating all shipping vessels to carry an International Ship Security Certificate (ISSC) compliance certification presented at all entry ports effective from December 2004. Likewise, trading vessels are obliged to have the International Safety Management (ISM) Code, a standardised safety guidelines (HSTF, 2005). Whitehurst (1998) however decried that lack of a tangible mechanism that can enforce international compliance among shipping vessels and ports as the myriad of problems facing the IMO and other international organisations are compounded by lack of implementation measures. He therefore called for an international financing program that will eventually lead to an enforcement agency and countermeasures against those violating the set regulations. The Current Issues Relating to Shipping and Port’s Regulations. The majority of world trade is generally transported along various oceanic routes, as it remains the most viable mode of transport. In view of the emergence of large vessels including super-tankers, aircraft carriers or vehicle carriers, all the other modes of transport are hard pressed to match the sheer bulk and costing available among the merchants shipping fleet vessels (IHS Global Insight, 2009); (O’Keefe, 2002). [See Figure: 1] Figure 1 Offshore Ownership and Issues of National Security According to the US Navy League (2009), 40 percent of the United States economy or GDP will be dependent on oceanic transport and maritime businesses by 2020 thus the prevalence of FOCs controlling most of the merchant routes and markets poses as a great threat to the major developed countries seeking to assert their global muscle. According to a report by research firm Global Insight prepared for the U.S. Maritime department, most of the US trading merchandise (78 percent) is transported via the oceans thus is critical for the country’s economic growth and development. The American Association of Port Authorities and the report by the Interagency Task Force on Coast Guard Roles and Missions the US Marine Transportation System (MTS) handles merchandise totalling to almost $750 billion which amounts to 95 percent of the country’s GDP of all its overseas trade (AAPA, 2005); (ITFCGRM, 1999). However, the report argues that on the contrary, the US maritime policy is ignorant of the crucial significance of the oceanic transport importance is it is still based on the decadent U.S. Merchant Marine Act of 1936 which only recognises U.S. flag fleets. The contemporary maritime situation has many of the country’s owned shipping lines registered offshore to circumvent the country’s environmental, fiscal and labour laws (IHS Global Insight, 2009). Human Trafficking Cartels The effect of unregulated oceanic transport routes is exemplified by the onset of human trafficking cartels as ruthless traders take advantage of desperate individuals fleeing from human conflict areas and underprivileged famished regions by exhorting payment in exchange for transporting them to the developed countries in Europe, North America or Australia through inhuman conditions. Many are hoodwinked into possibly lucrative foreign jobs, only to be handed over to brothels or working in modern slave labour conditions far off from their homesteads as they are shipped via containers or flagless inadequate small boats. The widening gap of global economic disparities is expected to exacerbate the problems even further (Moles, 2004). Shift in Global Labour Patterns Although the contemporary model of shipping vessel registration has liberalised with the onset of the open-registry or FOCs system increasingly spreading to the developing countries where they are predominant, the ownership of the vessels remains in the hands of individuals in the traditional shipping nations among the developed countries (Ruhullah, 2004). This phenomenon has led to a shift in global labour patterns as the conventional maritime professionals in the developed countries dwindle, and the available workforce therein is less inclined to occupy oceanic jobs. Ruhullah (2004) therefore asserts that shipping companies are constrained in engaging well-qualified officers to operate their ships as majority of available labour is found in the developing countries that are less equipped to train them in technical maritime duties. Similarly, Ruhullah asserts that the available labour pool is mostly controlled by a ‘network of third party ship management companies and manning agents’ (Pg. 2). Growth in Global Trade According to the UN Commission on Trade and Development (UNCTAD), global shipping fleet marked the one billion deadweight tonnes (dwt) in 2007, topping over 1.04 billion dwt. Most of this cargo was from the developed nations (65 percent) while the developing countries had 31.2 percent and economies in transition averaged 2.9 percent (IHS Global Insight, 2009). Nevertheless, OECD figures indicated that total global trade averaged US$3 trillion within the same period with almost 90 percent of the trade volume seaborne and real value at 72.71 percent of the total [see Table:2]. Table: 2 Development of International Seaborne Trade, Selected Years (Millions of tonnes) Year Tanker Cargo Dry Cargo Main Bulks a Total (all cargoes) 1970 1,442 1,124 448 2,566 1980 1,871 1,833 796 3,704 1990 1,755 2,253 968 4,008 2000 2,163 3,821 1,288 5,983 2006 b 2,674 4,742 1,828 7,416 a - Iron ore, grain, coal, bauxite/alumina and phosphate b – Estimates Source: UNCTAD (2007) According to UNCTAD (2007, Pg.3) report on the ten top countries involved in FOCs registration, they control the bulk of global trade in terms of deadweight tonnage (dwt) with a total of 53.7 percent of global maritime market trade found among these FOCs based flag states companies. These countries conversely lack any sizeable authentic fleets of their own as a majority of those registered; over 14,000 shipping vessels (over 1,000 GT) are foreign owned. [See Table: 3] Table: 3 Foreign Ownership of Vessels on Select Open Registries Flag State (World Ranking by Number of Vessels 1,000 GRT on Registry) Total Number of Vessels 1,000 GRT Flying Flag Number of Vessels 1,000 Foreign owned - owned by individuals or firms based in other countries         % of Total Panama (1) 5,764 4,949 86 Liberia (2) 1,948 1,904 98 Malta (4) 1,281 1,197 93 Bahamas (5) 1,213 1,134 93 Antigua & Barbuda (8) 1,059 1,021 96 Marshall Islands (11) 902 857 95 Cyprus (12) 868 724 83 Cambodia (18) 586 463 79 St Vincent & Grenadines (19) 582 536 92 Isle of Man (31) 297 210 71 Source: Gianni (2008), Pg. 6 European shipping industry The European shipping industry controls approximately a quarter of all global tonnage while over 40percent of major world fleets are European based nonetheless, most of the profits are consumed outside the EU by FOCs merchants (ETF, 2007). The ETF has therefore argued for a more standardised mechanism in regards to employment qualification terms that are lacking among the FOCs registered crews which has virtually locked out European based technically superior seafarers’ due to low wage regime propagated by the developing countries. FOCs - Overseas Registration and the Prevalence of Inhuman Working Conditions To gain an insight on the impact of FOCs or overseas registrations of fleets on a socio- political and economic issue, we shall examine the detrimental effects of employee relations on the engaged crew from developing countries and loss of employment in developed countries and low standards internationally. Avoidance of Duties and Regulation and Labour Costs Working (1999) cites the reason why more than half of the world’s fleets seek overseas registration is due to avoidance of duties, low wages, environmental regulations and transportation expenditure. In the US 50 percent duty is charged on repairs for US flag ships thus a corporation like Sea-Land fleet with 63 ships all registered overseas was able to save US$3.5 million duty per ship annually. However, Febin (2007) argues that opposition most of the traditional shipping nations to FOCs registration based on the evidently atrocious working conditions are mainly motivated by the equally heavy loss of jobs for their citizens to the less regulated low wage regimes in the developing countries labour pools. Maritime Accidents The majority of maritime accidents are caused by sheer exhaustion; extreme workloads and meagre incentive through insufficient remuneration structure affect crew performance and subsequently elevate the proportion of hazard of calamity. The fact that it has been empirically proofed that 80 percent of maritime accidents are caused by human error reveals that ‘there is a close link between on board social and working conditions and how the vessel is operated and maintained’(ETF, 2007, Pg.7). The ETF has therefore affirmed that specific standardised credentials with particular emphasis on technical proficiency and the suppression of inequitable competition from FOCs can enhance maritime security or safety (ETF, 2007). Blue Certificate In an effort to rein in the FOCs run fleets that heavily exploit their crews, the ITF has been enforcing the signing of a ‘Blue Certificate’ an agreement designed to protect the rights of workers with standardised international ‘terms and conditions for the employment of seafarers’ at the risk of prosecution by ITF agents (Febin, 2007). The terms include: The ship owners sign the ITF Collective Agreement document which outlines basic minimum salaries which are based on EU wage levels; Individual crewmembers receive personal contract letters with specific salary endorsed; All crewmembers are entitled to Union representation including ITF Special Seafarers Department; The owners agree to periodically pay or submit Union dues to the Federations Seafarers International Assistance Welfare and Protection Fund The ITF is informed of any crew changes or contract terms to avoid duplicity hence the owners must avail all records Upon demand, the crewmembers are paid all pay arrears and rate difference as per ITF terms Change of Strategy by FOCs Nevertheless, FOCs flag states are now starting to enforce some international standards to ensure better safety standards in view of persistent condemnations. In Liberia, ships seeking fresh registration or re-registration are required to be not more than 20 years of age unless the relevant authorities enjoin international inspection. The leading FOC registry nation Panama, although lacking an age limit now necessitate registration for vessels over 20 years to undergo special inspection. Bahamas has a 12-year age limit, Vanuatu 20-years, and Cyprus 17-years. The 1982 UN Convention on the Law of the Sea (LOSC) though not ratified by all countries has also mandated Port States to enforce compliance within the set international standards. Likewise, the Paris Memorandum of Understanding in 1982 agreement between 17 European countries and Canada authorised them strictly enforce international standards on vessels docking in their ports. The US Coast Guard and U.S.-flag Merchant Marines also closely monitors its coastline and ports by enforcing international standards as espoused by the IMO (US Navy League, 2009). The farcical ‘pseudo flag’ status of the FOCs is exemplified by the absurdity of Liberia, one of the poorest countries in the world, registering but not controlling the worlds second largest maritime fleet in shipping tonnage after Panama another underdeveloped country. According to ITF estimates (2000), 53 percent of total global tanker fleet is controlled by FOCs in addition to 58 percent of bulk carrier fleet. Most European countries have therefore adopted a similar initiative as in that of the Donaldson Report from the UK, which stated that, ‘port, State Control will be the United Kingdom’s first line of defense against the pollution of its coastline. Safer ships mean safer seas. Safer seas mean less pollution’ (Hekimoglu, 2001, Pg.4). Conclusion The predominance of FOCs among contemporary shipping fleets has heralded an unethical, cruel proliferation of oceanic vessels that have persisted in keeping low standards both in terms of international technical requirements in addition to inhuman working conditions that are perpetuated by international laws that protect flag states. There is an urgent need to formulate enforcement processes to curb the incidence of poor environmental, technical and labour standards to compel these fleets to keep within the international maritime standards. Failure to have a consensus means that the countries that regulate and register closed registries must enforce port rules as stipulated by the IMO and other maritime authorities and organisations. References AAPA (2005). America’s Ports: Gateways to Global Trade. American Association of Port Authorities. Retrieved from AAPA.org on March 3, 2010: EJF (2005). Pirates and Profiteers: How Pirate Fishing Fleets are Robbing People and Oceans. 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