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Flags of Convenience Vessels: Recent Developments

Published online by Cambridge University Press:  27 February 2017

Ebere Osieke
Ebere Osieke*
Affiliation:
International Labor Office, Geneva; Diplomacy Training Program, Graduate Institute of International Studies, Geneva
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Extract

The phenomenon to which the expression “flags of convenience” is applied dates back to the end of the First World War when certain nontraditional maritime countries, especially Panama, Liberia, and Honduras, started to register foreign-owned vessels under their flags for economic reasons and exercised minimal control over the activities and operations of these vessels. This practice aroused considerable controversy and opposition. The seafarers’ unions were concerned about the low standards alleged to prevail on these vessels and about the loss of job opportunities for seamen from traditional maritime countries. The shipowners from certain European countries, supported by their governments, saw the practice as one that generated serious competition against them, especially because of the virtual tax-free concessions accorded to the owners of flags of convenience vessels.

Type
Research Article
Information
American Journal of International Law , Volume 73 , Issue 4 , October 1979 , pp. 604 - 627
Copyright
Copyright © American Society of International Law 1979

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References

1 There has so far been no generally accepted definition of the term “flags of convenience.” However, in its inquiry into shipping, the United Kingdom committee under Lord Rochdale (1970) identified 6 features common to flags of convenience countries as follows:

(i) the country of registry allows ownership and/or control of its merchant vessels by non-citizens; (ii) access to the registry is easy. A ship may usually be registered at a Consul’s Office abroad. Equally important, transfer from the registry at the owner’s option is not restricted; (iii) taxes on the income from the ships are not levied locally or are low. A registry fee and an annual fee, based on tonnage, are normally the only charges made. A guarantee or acceptable understanding regarding future freedom from taxation may also be given; (iv) the country of registry is a small power with no national requirement under any foreseeable circumstances for all the shipping registered (but receipts from very small charges on a large tonnage may produce a substantial effect on its national income and balance of payments); (v) manning of ships by non-nationals is freely permitted; (vi) the country of registry has neither the power nor the administrative machinery effectively to impose any government or international regulations, nor has the country the wish or the power to control the companies themselves.

Committee of Inquiry into Shipping, Report 51 (London: HMSO, Cmnd. 4337, 1970). The committee became known as the “Rochdale Committee” after its chairman.

2 See Boczek, B., Flags of Convenience: An International Study 28-37, 64-83 (1962)CrossRefGoogle Scholar.

3 For some of the views and comments on flags of convenience and related issues, see Boczek, note 2 supra; Brown, E. D., The Legal Regime of Hydrospace (1971)Google Scholar; McDoucal, M. & Burke, W., Public Order of the Oceans 1122 et seq. (1962)Google Scholar; Bowett, D., The Law of the Sea 55-59 (1967)Google Scholar; Colombos, J., International Law of the Sea 387-91 (6th rev. ed. 1967)Google Scholar; O’Connell, D., International Law for Students 256-67 (1971), 2 International Law 612-30 (2d ed. 1970)Google Scholar; Baxter, R., The Law of International Waterways 13-14 (1964)Google Scholar; Roux, J. M., Les Pavillons de Complaisance 23-79 (1961)Google Scholar; McDougal, Burke, & Vlasic, , The Maintenance of Public Order at Sea and the Nationality of Ships , 54 AJIL 25 (1960)CrossRefGoogle Scholar; Romans, , Flags of Convenience and International Law , 3 Virginia J. Int’l L. 121 (1963)Google Scholar; Singh, , International Law Problems of Merchant Shipping , 107 Recueil des Cours 65 (1962)Google Scholar. See also the unsigned article in 69 Yale L.J. 498 (1959-60), The Effect of United States Labor Legislation on the Flags of Convenience Fleet.

4 Although the Amoco Cadiz was registered in Liberia, it was owned by the Standard Oil Company of Indiana, and was on charter to Shell of London at the time of the accident. See The Sunday Times (London), March 19, 1978, at 1, col. 1. The Amoco Cadiz could therefore be regarded as a flag of convenience vessel, in the sense in which that phrase is generally employed; see note 1 supra.

5 The Amoco Cadiz ran onto sharp reefs in high seas on Thursday night, March 16, 1978. After heavy pounding, the ship broke up the next day, and 3 of the 15 holds split open. The spill of Arabian light crude oil onto the high seas and the French coast in Brittany was estimated at about 140,000 tons, more than 4 times the 30,000 tons spilled onto English and French beaches by the Torrey Canyon in 1967—previously the worst spill on record. See The Sunday Times, note 4 supra, at 1, col. 1 and 2, col. 1.

6 These measures include the boycott of December 1958, organized by the International Workers’ Federation against flags of convenience ships. However, the boycott involved a breach of national collective agreements and, in some cases, a breach of national law. Nevertheless, the impact of the boycott, combined with a liberalization of Greek maritime law, led to the only temporary decline in flags of convenience tonnage so far registered. See OECD Maritime Transport Committee, Flags of Convenience, reproduced in Joint Maritime Commission (21st sess.), ILO Doc. JMC/21/4 (1972). On the intergovernmental level, it may be recalled that an attempt was made in 1959 to deny Liberia its seat on the Maritime Safety Committee of IMCO, an action that was subsequently rejected by the International Court of Justice; [1960] ICJ Rep. 150. In 1972, the Maritime Transport Committee of the OECD established an Ad Hoc Group on Flags of Convenience “to investigate more fully the economic, safety and environmental consequences of flags of convenience fleets”; OECD report, this note supra, para. 36. Attention may also be drawn to the Recommendation on Shipping Policy adopted by the Committee on Economic Affairs and Development of the Parliamentary Assembly of the Council of Europe; see Council of Europe, Parliamentary Assembly, Report on European Shipping Policy, Doc. 3662 (1975).

7 Convention on the High Seas, 450 UNTS 82, Art. 5.

8 See Boczek, supra note 2, at 243-86.

9 McDougal, Burke, & Vlasic, note 3 supra, at 28-29. In the same vein, Boczek (note 2 supra, at 291) has commented that

the concept of the genuine link inherited from the ILC by the Geneva Confer continued to be vague and undefinable and, at the same time, through the retention of the explicit non-recognition clause by the Second Committee of the Conference, contained elements contrary to logic and international practice and potentially harmful to international commercial intercourse and international relations in general.

For further criticisms of the provisions of Article 5, see McDougal, , International Law and the Law of the Sea , in Law of the Sea 21-22 (ed. Alexander, ,. 1972)Google Scholar; and Neblett, , The 1958 Conference on the Law of the Sea: What was Accomplished, id. at 38 Google Scholar.

10 Jessup, , The United Nations Conference on the Law of the Sea , 59 Colum. L. Rev. 234, 256 (1959)CrossRefGoogle Scholar.

11 Professor Sørensen concluded that if a genuine link does not exist, a foreign state should be free not to recognize the purported nationality of the ship and treat it as a stateless ship, having no right of access to its ports; Sørensen, the Law of the Sea 202 (International Conciliation Pamphlet No. 520, 1958).

12 See UNCTAD Secretariat, Economic Consequences of The Existence or Lack of a Genuine Link Between Vessel and Flag of Registry 5, 7, and 12-15, UNCTAD Doc. TB/B/C4/168 (1977).

13 In fact, the 1958 Geneva Conventions have been expressly rejected by some states, particularly from the developing countries. In a statement at UNCLOS III, Caracas 1974, Mr. Warioba of Tanzania reflected the attitude of these states:

For several centuries certain concepts and dogmas had regulated State relationships in the oceans. Efforts had been made from time to time to modernize the law, particularly at the 1958 and 1960 Geneva Conferences. But those patchwork efforts had been insufficient. As a result of technological progress, and particularly of political developments over the previous 15 years, existing rules no longer met the requirements of contemporary reality. Many States that had recently acquired independence had been confronted with rules that ran counter to their interests. . . .

1 Official Records, UNCLOS III, at 93. For further details on the attitude of Third World countries on questions of the law of the sea, see Osieke, , The Contribution of States from the Third World to the Development of the Law of the Continental Shelf and the Concept of the Economic Zone , 15 Indian J. Int’l L. 313-32 (1975)Google Scholar.

14 According to the OECD report, note 6 supra, the ships registered in the countries associated with the practice of flags of convenience were as follows: Liberia, 997 in 1960, and 2,060 in 1971; Panama, 607 in 1960, and 1,031 in 1971; Honduras, 59 in 1960, and 54 in 1971; Lebanon, 74 in 1960, and 65 in 1971; Cyprus, 0 in 1960, and 277 in 1971; Somalia, 0 in 1960, and 109 in 1971; Singapore, 0 in 1960, and 185 in 1971; Costa Rica, 44 in 1960, and 0 in 1971. Thus the increase in the number of these vessels was from 36,311 in 1960, to 55,041 in 1971 (51.58%). The OECD report also indicates that by the end of June 1971, the ships flying the flags of Liberia, Panama, Lebanon, Somalia, Cyprus, and Singapore totaled 47.6 million gross tonnage(grt), and made up 19.3% of the total world fleet. According to the recent report by the UNCTAD Secretariat, note 12 supra, there was further expansion of the fleets registered in Liberia, Panama, Singapore, Cyprus, and Somalia, although it is noted that there was no increase in Somali registration between 1975 and 1976. On the

whole, the report shows that as a result of this further expansion, the fleets registered in the main flags of convenience countries amounted to 101.2 million grt (187.1 million dead weight) in mid-1976, representing 27.6% of the total world fleet.

15 8 Official Records, UNCLOS III, UN Doc. A/CONF.62/WP.10 and Add.1 (1977), reprinted in 16 ILM 1108 (1977).

16 It would nevertheless be better to define the term “genuine link” in the new convention in order to eliminate any doubts that may exist on the matter.

17 The subject was first discussed at the 2d session of UNCTAD in 1968, as a result of a statement presented to the conference by the International Confederation of Free Trade Unions; see UNCTAD Doc. TD/NGO/2. The UNCTAD Secretariat report, note 12 supra, was prepared on the basis of a resolution adopted by the 6th session of the UNCTAD Committee on Shipping, Res. 22 (VI), on Aug. 9, 1974. For the operative parts of the resolution, see the UNCTAD report at 1.

18 In UNCTAD terminology, “open registry vessels” is used to designate “flags of convenience vessels.” 19 The report (at pp. 71-72) stated that the main elements of such a definition could include the following requirements:

  • a)

    a) The vessel or the company owning the vessel should be beneficially owned for a substantial part by the flag state or its nationals;

  • b)

    b) The principal place of business and effective management of the legal entity which has beneficial ownership of the vessel should be located in the flag state;

  • c)

    c) The principal officers of the legal entity beneficially owning the vessel should be nationals of the flag state;

  • d)

    d) Financial control should be exercised by the flag state and profits of the companies which beneficially own the vessels should be subject to taxation in the flag state; and

  • e)

    e) The flag state should assume and carry out full and regular control over the standards of the vessel, as well as regarding the qualifications and conditions of employment of the crew.

20 In a subsequent explanation on this point, the UNCTAD Secretariat stated that according to a report published in 1975 (H. P. Drewry Shipping Consultants Ltd., World Shipping Under Flags of Convenience 62 (Report No. 37, London 1975)), a modern handy-sized bulk carrier operated under the Liberian flag with European officers and a Hong Kong crew would probably have an annual crew cost, including direct and indirect payments, of about $220,000-$250,000, while a similar vessel operated under the UK flag with UK officers and again a foreign crew would find its annual crew costs at around $300,000-$350,000, the savings for the Liberian ship being made chiefly in indirect payments and in employing a minimum-sized crew. According to the Federation of American Controlled Shipping (FACS), a U.S. flag tanker or bulk carrier with a typical crew of 32 had a total payroll cost of about $1,750,000 a year. Payroll costs for a comparably sized Italian crew, which was predominant in the FACS fleet, totaled about $545,000-$595,000 per year. It was estimated that a Filipino crew of 30 men had a payroll cost of about $240,000 per year. See Report or the Ad Hoc Intergovernmental Working Group on the Economic Consequences of the Existence or Lack of a Genuine Link Between Vessel and Flag of Registry, UNCTAD Docs. TD/B/C.4/177, TD/B/C.4/AC.1/3 (1978).

21 The Ad Hoc Working Group, which met in Geneva from February 6-10, 1978, was convened on the basis of Resolution 33 (VIII) of the UNCTAD Committee on Shipping adopted at its 8th session, giving effect to the recommendation embodied in the report of the UNCTAD Secretariat, supra note 12. The mandate of the 44-member group was

to review the economic consequences of the existence or lack of a genuine link between vessel and flag of registry and to report to the Ninth Session of the Committee on Shipping or to the Fifth Session of the United Nations Conference on Trade and Development, whichever takes place earlier.

See Report of the Ad Hoc Group, supra note 20.

22 Report of the Ad Hoc Group, supra note 20, at 16-21.

23 Id. at 6-22.

24 Id. at 17-19.

25 See id., annex.

26 See The Economist (London), May 26, 1979, at 97.

27 The resolution also called for a study of the feasibility of establishing a legal mechanism to regulate the operations of open registry fleets and for reconvening the Ad Hoc Intergovernmental Working Group to consider these reports and submit, recommendations to the Trade and Development Board or the UNCTAD Shipping Committee, whichever met earlier, for whatever decisions might be appropriate. See UNCTAD Doc. TD(V)CG/CRP.1 (1979). The industrialized market economy counties voted against this resolution, and the socialist countries of Eastern Europe and Mongolia abstained. The voting was 81 in favor, 22 against (Group B, IMEC), and 9 abstentions (Group D plus Mongolia). See UNCTAD Doc. TAD/INF/1079 (1979), at 15. After the vote Liberia stated that it supported the resolution on the understanding that it gave the UNCTAD Secretariat a mandate to study the feasibility of establishing a legal mechanism to regulate open registry fleets, but not to set up such a mechanism. Liberia would change its laws if open registry were proved to be detrimental to developing countries. Id. at 16.

28 See UNCTAD Doc. TD(V)CG/CRP.2 (1979). The industrialized market economy countries abstained on this resolution. The voting was 91 in favor, 0 against, and 23 abstentions (Group B). See UNCTAD Doc. TAD/INF/1079 (1979), at 15-16.

29 The shipowners’ group, while not disputing that there might be some transfers of ships to foreign flags, warned that their extent should not be exaggerated. Moreover, the shipowners felt that it was not the business of the ILO to set itself up as a tribunal to make an investigation into what it considered to be fictitious transfers of ships, or to draw up what would be tantamount to a blacklist. In their view, the transfers between individuals in different countries were legal, and if any action was necessary in regard to them, that was a matter for the governments, and not the ILO. See ILO, Minutes of the Tenth Session of the Joint Maritime Commission 16, 95 (Geneva 1934); see also, Report V, Preparatory Technical Maritime Conference: Substandard Vessels, Particularly those Registered under Flags of Convenience 3 (1975).

30 For details of these discussions, see Argiroffo, , Flags of Convenience and Substandard Vessels—a Review of the ILO’s Approach to the Problem , 5 Int’l Lab. Rev. 437 (1974)Google Scholar.

31 When the matter was discussed by the Joint Maritime Commission of the ILO at its 14th session in December 1947, it adopted a resolution requesting the governing body of the ILO “to urge governments and shipowners’ and seafarers’ organisations to give due attention to and to determine their attitude towards those cases of transfer of flags which may prove detrimental to the safety, conditions of employment and social protection of seafarers.” Also in 1949, the ILO, at the request of the Government of Panama, carried out an official inquiry into the charges that were made against that country’s merchant shipping; see ILO, Conditions in Ships Flying the Panama Flag—Report of the Committee of Inquiry of the ILO (Studies and Reports, New Ser. No. 22, 1950).

32 For the texts of these recommendations, see ILO, Conventions and Recommendations, 1919-1966, at 925-27 (1966).

33 See OECD report, Flags of Convenience, supra note 6, at 4; see also ILC, Report of the Committee of Experts on the Application of Conventions and Recommendations 6 (Report III, pt. 4C, 57th sess., 1972).

34 ILC, Prov. Rec. No. 15 (62d (maritime) sess.), Docs. 15A and B, reprinted in 15 ILM 1288 (1976).

35 ILC, Prov. Rec. No. 15, supra note 34, at 7.

36 Id. at 7–8.

37 According to Colombos:

Modern international law has developed this freedom of intercourse and provided for the maintenance of law and order on the high seas by the recognition of the jurisdiction which States exercise over the vessels which fly their flags. Such jurisdiction is, as has already been pointed out, not over the high seas, but over the property and persons, upon it.

Note 3 supra, at 289. See also McDougal, Burke, & Vlasic, note 3 supra.

38 The Torrey Canyon disaster occurred in an area considered to be within the contiguous zone of the United Kingdom but the flag state, Liberia, nevertheless held an inquiry into the accident. Indeed, the Liberian Board of Investigation found that the stranding was due entirely to the master’s negligence and that the vessel and her equipment were in perfect condition and functioning normally. See the Official Report of the Liberian Board of Investigation, May 1967, 6 ILM 480 (1967). See also E. D. Brown, note 3 supra. Liberia’s Commissioner of Maritime Affairs also appointed a board of inquiry to inquire into the grounding and loss of the oil tanker Amoco Cadiz. The board unanimously found that the Amoco Cadiz was grounded as a result of a breakdown of its steering engine, which caused a loss of maneuvering power. For a detailed analysis of the conclusions of the board of inquiry, see Chukwu, , Amoco Cadiz Inquiry , West Africa, No. 3219, March 1979, at 532-33 Google Scholar.

39 ILC, Prov. Rec. No. 15, note 34 supra, at 8. For the statements made in this respect by Liberia, Sri Lanka, and the Soviet Union, see id., at 2, 3, and 9.

40 Id. at 8–9.

41 Id. at 9.

42 Ibid.

43 See D. O’Connell, supra note 3, at 262-63; P. Jessup, The Law of Territorial Waters and Maritime Jurisdiction 144-94 (1927), and the works cited therein. See also Hackworth, y, Digest of International Law, 1941, at 208-24 Google Scholar; and Mc-Dougal, Burke, & Vlasic, note 3 supra.

44 536 UNTS 27.

45 Regulation Nos. 20 and 19, respectively.

46 See International Regulations for Preventing Collisions at Sea, 1960. For the most recent and competent analysis of these regulations, see Mankabady, S., Collision at Sea: A Guide to the Legal Consequences (1978)Google Scholar.

47 640 UNTS 133.

48 Art. 21.

49 Art. 23.

50 Paragraph 4 provides:

Such measures shall include those necessary to ensure:

  • (a)

    (a) That each ship, before registration and thereafter at appropriate intervals, is surveyed by a qualified surveyor of ships, and has on board such charts, nautical publications and navigational equipment and instruments as are appropriate for the safe navigation of the ship;

  • (b)

    (b) That each ship is in the charge of a master and officers who possess appropriate qualifications, in particular in seamanship, navigation, communications, and marine engineering, and that the crew is appropriate in qualification and numbers for the type, size, machinery and equipment or the ship;

  • (c)

    (c) That the master, officers and, to the extent appropriate, the crew are fully conversant with and required to observe the applicable international regulations concerning the safety of life at sea, the prevention of collisions, the prevention, reduction and control of marine pollution, and the maintenance of communications by radio.

51 See, e.g., the statement of Mr. Gruènais (workers’ delegate of France) during the 56th (maritime) session of the International Labor Conference, 1970; Record of Proceedings 199—200

52 See 3 Off. Rec., UNCLOS III 43-56, UN Doc. A/CONF.62/27. For various comments on the Torrey Canyon disaster, see Brown, E. D., The Lessons of the Torrey Canyon , 21 Current Legal Prob. 134 et seq. (1968)Google Scholar; The Torrey Canyon (Cmnd. 3246), April 1967; and the Official Report of the Liberian Board of Investigation, note 38 supra. See also Juda, , IMCO and the Regulation of Ocean Pollution from Ships , 26 Int’l & Comp. L.Q. 558, esp. 562-64 (1977)CrossRefGoogle Scholar.

53 The first major step toward international control of marine pollution was taken in 1954 when a conference held in London adopted the International Convention for the Prevention of the Pollution of the Sea by Oil which prescribed certain “prohibited zones” extending to at least 50 miles from the nearest land within which the discharge of oil or oily mixtures was prohibited. Extensive amendments were made to the 1954 convention by a conference convened by IMCO in 1962, and by the IMCO Assembly in 1969 and 1971. For further details on the convention and amendments, see UN Doc. A/CONF.62/27, note 52 supra. For the various studies on the activities of IMCO in the area of marine pollution, see E. D. BROWN, note 3 supra, chs. 4-5; Juda, note 52 supra; and UN Doc. A/CONF.62/27, note 52 supra, at 43-56.

54 26 UST 765, TIAS No. 8068, reprinted in 64 AJIL 471 (1970).

55 Art. I.

56 Art. III.

57 Art. VI.

58 Art. VIII.

59 The text of the convention is reprinted in 64 AJIL 481 (1970).

60 Art. III.

61 Art. V.

62 Arts. IX and X.

63 Art. VII.

64 The text of the convention appears in Executive Branch for the Senate Comm. on Foreign Relations, 92d Cong., 2d Sess., Section-by-Section Analysis of the Proposed Act Concerning Compensation for Oil Pollution Damage 3-22 (Comm. Print 1972).

65 The text of the convention is reproduced in 12 ILM 1319 (1973); see also IMCO Doc. MC/CONF./WP.35 (1973).

66 The ship may be detained until the authorities satisfy themselves that it can proceed to sea without presenting a reasonable threat of harm to the marine environment; Article 5.

67 See Oxman, , The Third United Nations Conference on the Law of the Sea: The Seventh Session (197Q) , 73 AJIL 1, esp. 24-27 (1979)Google Scholar.

68 Arts. 197-207.

69 Art. 212(2).

70 Art. 212(3).

71 By March 15, 1979, the ILO Convention Concerning Minimum Standards in Merchant Ships, 1976, had been ratified by 6 countries: Spain, France, Norway, Sweden, Finland, and the Netherlands. The convention will enter into force 12 months after the date on which there have been registered ratifications by at least 10 members with a total share in world shipping gross tonnage of 25%; Article 6.

72 It should perhaps be mentioned that on March 2, 1978, the competent maritime authorities of Belgium, Denmark, France, the Federal Republic of Germany, the Netherlands, Norway, Sweden, and the United Kingdom of Great Britain and Northern Ireland concluded a Memorandum of Understanding at The Hague concerning the maintenance of standards in merchant ships, having regard to the present ILO Convention and other instruments adopted by the ILO and IMCO. The hope had been expressed that Italy, the Republic of Ireland, and Greece would become signatories to the memorandum; see Grosrichard, , La Mer Indigne , Le Monde, March 20, 1978, at 17 Google Scholar, cols. 3–6.