Have you ever wondered how the prices of some imported goods are kept so remarkably low despite the additional transportation costs incurred?
Clearly, there are other influencing factors but the common practice of ‘flagging out’, otherwise known as using ‘flags of convenience’ (FoCs) within the international shipping sector has contributed to the competitively low pricing of imported products.
What is a ‘flag of convenience’ (FoC)?
Although there is no official definition for the term ‘flag of convenience’, it is generally understood that an FoC ship is one that flies the flag of a country that does not match the country of the ship’s owner. Under international law, every maritime vessel is required to fly the flag of a State which is responsible for the effective jurisdiction and control of the vessel. Officially, a ‘genuine link’ must exist between a vessel and the State whose nationality it possesses. Unfortunately however, the term ‘genuine link’ has never been legally defined and this has led to the emergence of loose interpretations or even the blatant disregarding of this requirement. Thus, although it would logically make sense for the owner of a vessel to choose a flag from the State associated to their own nationality, this is more than often not the case.
By choosing to fly a foreign flag, a vessel owner can dodge taxes and reduce operating costs. This can be accomplished through avoiding the regulations that accompany flags from more responsible and/or developed states capable of far-reaching and effective law enforcement. Many of these regulations have been developed with the intention of ensuring the safety of seafarers and for protecting the environment from potentially damaging activities. Essentially, a vessel owner that registers their vessel with an FoC has the option of hiring cheaper foreign labour, investing less into vessel maintenance and avoiding regular safety inspections. In addition, government oversight on vessel activities is limited or in some cases nonexistent.
Some argue that the use of FoCs is a necessary tactic in order to stay afloat within the competitive shipping industry and other maritime sectors. Ultimately, consumers benefit from the use of FoCs through the reduced pricing of imported goods. However, the overall cost to society and the environment as a result of exploitive labour practices, pollution and overfishing is clearly significant. Though controversial, FoCs are highly prevalent. Recent estimates suggest that over 70% of the global maritime fleet makes use of the FoC system.
Why are FoCs an issue for fisheries?
Consequences relating to the use of FoCs differ depending on the maritime sector where they are used. The fishing sector is unique in relation to the use and more importantly, the abuse of FoCs. Due to the smaller size and much different operational activities of fishing vessels relative to other maritime ships, many of the more widely accepted international agreements don’t apply to them. Those agreements that do apply unfortunately have not been ratified by a large number of countries. This is particularly worrying considering that the fishing industry has a relatively high casualty rate and there are additional issues to consider that don’t apply to other sectors such as the sustainability of fishing activities. Fishing vessel owners may use FoCs to avoid taxes and reduce their operating costs but they may also use them to evade fishing regulations. The use of FoCs has also been identified as a strategy used by illegally operating fishing vessels, taking advantage of the lack of government oversight that accompanies this system of flag use. In addition, unscrupulous vessel owners have been known to ‘flag hop’, switching the registration of their vessels from one FoC to another, avoiding prosecution by any one flag State and confusing international authorities.
The use of FoCs within all maritime sectors is clearly an issue of concern as this practice negatively impacts both society and the environment. As they are so widely used though, efforts to directly abolish FoCs anytime soon will likely fail.
At the Fisheries Centre, FERU members are actively working to understand more about flag use behaviour within the international maritime fleet, particularly within the high seas fishing sector. Our interest is in deciphering the underlying drivers that motivate participation in the FoC system of flag use. As this research develops, we look forward to posting more on the topic of ‘fishy flagging behavior’ on the high seas.