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INDEPTH: PAUL MARTIN
Flags of convenience
CBC News Online | March 17, 2006

After Paul Martin took Canada Steamship Lines international in the1980s, the Canadian flags came down on three of its ships, replaced bythe flag of the Bahamas – what's often known as a "flag ofconvenience" country. CSL International (a division of the CSL Group)now owns 18 ships that fly foreign flags. CSL ships have, over theyears, flown the flags of Liberia, Cyprus, the Bahamas and the tinySouth Pacific nation of Vanuatu. CSL Group also owns 18 ships that flythe Canadian flag, pay Canadian taxes and employ Canadians.

Martin handed over the company to his sons while he was prime minister, after years of holding it in a controversial blind management trust. But the practice of flying "flags of convenience" continued to attract attention. It was mentioned repeatedly in the campaign leading up to the Jan. 23, 2006 election.

What is a flag of convenience?

Simply put, a flag of convenience (FOC) ship is one that flies the flagof a country other than the country of the ship's owner.

What are the main countries that try to attract foreign shipregistration?

The International Transport Workers' Federation (ITF) lists 28countries as FOC havens. Panama is by far the biggest, with more than 6,000 large tonnage vessels registered there and flying the Panamanian flag. Other major FOCcountries on the ITF's list include Liberia, the Bahamas, Malta andCyprus.

How strong must the connection be betweenthe country of registry and the country where the ship isowned?

Often, there is no link at all. Open registries (which FOC countries have) usually do not require the ship to have any business connection to the country. Often, the ships flying flags of convenience have never even paid a visit to the country where they're registered. Sometimes, the registration isn't even done in the country where the registration is purportedly based. In Liberia's case, the registration paperwork is done by a private company based in Virginia. Cambodia's registration office is in Singapore.

Why do ship owners register their ships in foreign countries?

One word: money. FOC countries have a number of things in common, allrelated to saving the owners ofbig merchant ships big money. The initial registration of the ship inan FOC country is cheaper, andannual tonnage fees are also typically far lower than in the country ofownership. Taxes on theshipping company's profits or dividends are low or non-existent.Savings can amount to millions of dollars a year per ship.

Are there other reasons for registering a ship in another countrybesides saving on fees and taxes?

There can be several other reasons why ship owners will choose to fly aflag of convenience:

1. Ease of registration:
Registering a ship in an FOC country typically involves much less paperwork than in countries with nationalregisters. Sometimes the registration can be done in as little as a fewhours – in Panama's case, by fax.

2. Looser environmental laws and regulations:
Registering a ship makes it subject to the laws and the country of its flag state, regardless of the nationality of theship's owner. In FOC states, those laws can be substantially weaker than those in Canada, the U.S. orEurope. The Bahamas, for instance, does not require oil tankers to havea double hull – a deficiency that became painfully evident afterthe single-hulled, Panamanian-flagged Prestige sank off Spainin 2002, fouling beaches. The Seafarers International Research Centre atthe University of Cardiff points out that some FOC countries, likeCambodia and Equatorial Guinea, have virtually no regulations of anykind. FOC countries have registered about 23 per cent of the world's 88,000 seagoing vessels. But 58 per cent of the vessels lost atsea in 2001 flew flags of convenience.

3. Lower labour standards:
The International Transport Workers'Federation has lobbiedagainst FOC registration for half a century. Ships registered in FOCcountries typically do not need to employ nationals from that country.Owners are free to hire the cheapest labourthey can get. And they usually do. Popular sources of cheap labourinclude the Philippines, India,Indonesia, and Eastern Europe. In some FOC countries, workingconditions aboard ships are seldommonitored and international maritime conventions are rarely enforced.The ITF has documented cases where workers on board some FOC-flaggedships haven't been paid for a year, or lived in substandard conditionsaboard ship with no shore leave. When they complained, some seafarerswere blacklisted. The ITF admits those horror stories come from aminority of owners. Typically, the benefit for the ship's owners fromflying a foreign flag is simply in not having to pay the higher wages ofthe industrialized countries where the ships are owned. Seamen on someFOC ships are paid as little as $1.50 US an hour. CBC Disclosuredocumented last year how the Canadian crew aboard one Canada SteamshipLines vessel was replaced with a Filipino crew after the ship shed itsCanadian flag and was reflagged in 1988. The Canadian crew earned$11.68 an hour. The Filipino workers earned $1.74 an hour.

4. Secrecy:
Some FOC countries allow ship owners toeffectively hide or muddy their trueownership in their registration documentation. Authorities have longcomplained that lax registration requirements make it more difficult toprosecute people smuggling, money laundering and drug trafficking.

Have flag of convenience registries been growing?

Yes. In 2001, flag of convenience registries accounted for over 53 percent of the total tonnage of theworld's seagoing vessels – a percentage that has been steadilygrowing since the first reflagging took place in the 1920s. Among thesix largest fleets, five belong to FOC countries. That's the main reasonwhy shipping companies increasingly say they have no choice but to flagtheir ships offshore – "everyone else is doing it." As CSL's seniorvice-president Pierre Prefontaine told CBC Disclosure,"The reflagging and the change of crews were all required in order toremain competitive in the international market. All our competitors employ foreign crews, and wemust be competitive," he said.

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