Tuesday, August 28, 2012

Flying a flag

Paul Buchanan writes on flags of convenience a subject I have some interest in.

" The Marshall Islands is not the only Pacific Island Forum member to be classified as a Flag of Convenience (FOC) state. The Cooks Islands, Kiribati, Tuvalu and Vanuatu offer FOCs. Vanuatu has 77 ships in its fleet, of which 72 are foreign owned (39 by Japan). Tuvalu has 80 ships, of which 63 are foreign owned (Tuvalu has just de-registered under US pressure 22 Iranian oil tankers that were re-flagged in order to avoid international sanctions; it also has a past history of flagging North Korean vessels involved in arms and drug smuggling). Kiribati has 43 flagged vessels, 31 of them foreign owned.  The Cook Islands has over 50 FOC vessels. Tonga maintained an FOC fleet until 2002, when it halted its FOC registry after one of its flagged ships was found to be smuggling weapons from North Korea.

This highlights the problems of open registry. While many legitimate companies avail themselves of FOCs in order to reduce costs, increase their margins and decrease their liabilities, they are also the flag of choice for arms, drug and people smuggling as well as illegal fisheries. The problem is two-fold: In legitimate industries it allows for a “race to the bottom:” lowering of operational standards across the occupational strata (say, for example, in the inspection regimes of blue water fishing vessels or bulk chemical carriers). To this can be added corruption, whereby loose or nebulous regulatory standards imposed by FOCs are manipulated to the immediate benefit of those charged with enforcing rules and regulations. Worse yet, it facilitates criminal enterprise because of the incentive structures involved, and, as has been mentioned repeatedly in security circles, it makes real the possibility of seaborne unconventional acts of warfare."

There is considerable use of Foreign flagged vessels  in the New Zealand fishing industry. The Oyang 75 shows some of the problems this creates. Ironically the Oyang company pays no tax here pays no ACC levies but New Zealand under law has had to make ACC payments and in  some cases welfare benefits. 

" Given these obvious flaws in an international regime that allows for state registration granting sovereignty without responsibility, one would assume that there are conventions and protocols to standardize registration and the awarding of flags across nations. The International Transport Workers Federation has lobbied to that effect for some time. But the reality is that there are no universal regulations or protocols governing seafaring registries. Nation-states can choose to be open or closed registry as they see fit. They can choose to model their registration requirements on those of other countries. The industries involved can and have developed their own regulatory standards and codes of conduct. But in no case do states or industries have an obligation have to accept universal norms—their compliance with such is voluntary.  In other words, sovereignty and self-interest trumps international regulation.

This has very serious implications for the South Pacific. The sale of tokens of sovereignty has been a lucrative source of revenue for Pacific micro-states. The proliferation of Pacific-based FOCs has the potential to surpass these as moneymakers (and indeed, is doing so in the Marshall islands). The real problem is that most of the fishing fleets and mineral, gas and petroleum exploration vessels/rigs operating in the South Pacific are registered under FOCs. This includes vessels working relatively close to shore as well as those operating on the high seas."

With regard to the fishing industry that is changing the Government has given the New Zealand industry four years for the industry to get organised after that only New Zealand flagged vessels will be able to fish in New Zealand's EEZ ( exclusive economic zone )

" Loose regulations minimize legal and commercial risk over the short term. The chain of responsibility is long and compartmentalized so as to minimize the liability exposure of those vested in a FOC operation. Absent a uniform regulatory regime with real enforcement power, commercial interests seek to maximize immediate opportunities within the limits of their capabilities and self-imposed standards of conduct.  Data about accidents and other maritime mishaps, particularly on the high seas, suggests that a majority of the vessels involved are registered under FOCs.  That makes sense if for no other reason then the fact that FOCs comprise the majority of commercial vessels currently in operation."

Indeed the vessels fishing in New Zealand's EEZ  have with justification been accused of modern day slavery.

" The proliferation of FOCs in the South Pacific means that for all intents and purposes there is an unregulated seafaring environment in the region’s blue water. This not only includes fishing vessels and cargo carriers transiting through the South Pacific, but also the new wave of shallow and deep-water seabed mineral exploration floating vessels. The potential for accidents and a variety of illegal behavior at sea therefore rises commensurate with the number of FOC vessels in use.

One way to address the potential problems inherent in FOC seafaring is to use regional organizations to standardize registration criteria among member states. The South Pacific has the Pacific Island Forum and the South Pacific Commission as well as a number of specialized sub-groupings already in place, and these organizations undertake a number of region-wide initiatives that require standards and code of conduct within specified policy areas. However, there are currently no protocols or standards regarding FOCs in place in any South Pacific regional organization. Neither the Pacific Plan or the Millennium Target Goals adopted by the Pacific Island Forum address the subjects of FOCs. More basically, even if there were measures in place regarding the standards and conduct of South-Pacific-flagged vessels, the regional monitoring and enforcement capability is very weak."

That is an excellent idea.

" The main obstacle to regional standardization of FOC registries in the South Pacific is the revenue generation that comes from the sale of tokens of sovereignty. Many Pacific Island Countries (PICs), especially micro-states such as Tuvalu, Nauru and the Marshall Islands, depend heavily on sovereign token sales for hard currency earnings. There is consequently a strong disincentive for them to agree to any move to standardize regulations governing the sale of sovereign tokens."

I guess we could link aid to compliance but apart from that New Zealand and Australia have no ability to alter the regional situation so it is unlikely to change. Also linking aid to anything is fairly dumb given China's likely reaction, just look at Fiji. 

" Futures Forecast:
Until FOC registration requirements are standardized the growth of South Pacific FOC registered vessels will continue, as will the excesses and sub-standard practices associated with them. This raises the risk of a major maritime mishap over the long-term."

Agreed. This has the potential to make MV Rena look like a walk in the park. I recommend reading Paul's article in full over at 36 Parallel

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