Flagging out

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In shipping, flagging out is to be understood as changing the national flag without changing the ownership structure of the ship. Counter-terms are flagging back and changing the flag .

In this context, a national flag, the use of which allows substantial cost savings, is called a flag of convenience and the corresponding state is called a flag of convenience state .

shipping

Reasons for flagging out

The switch to open shipping registers is carried out for various reasons. An important field is cost savings. Above all, savings are made on wages , taxes and duties.

  • Lower wages result from the largely lower taxation in the flag of convenience states, which generate lower wage costs for the shipping companies, but also from mostly lower social benefits for the crew members (determined by the respective wage system ).
  • The income of the registered ship is less taxed or not taxed at all in countries with flags of convenience and there are often lower taxes.
  • The occupation standards of some of the flag of convenience states are often simpler and therefore cheaper to comply with. The occupation regulations of most of the first register states (in Germany for example the ship occupation regulations ), which define a standard for the number and qualification of the crew members, are relatively strict. In addition, a shipowner under flags of convenience has fewer or no restrictions on the nationality of the crew.
  • The security requirements and official monitoring of many states of the flag of convenience are lower than in the states of the first register.
  • In many countries with flags of convenience, the owner has the option of remaining anonymous.

Arguments against flagging out

Since the existence of flags of convenience, criticism has been leveled in three main areas:

  • Bad working conditions and low wages
  • Distortion of competition
  • Deficiencies in safety and environmental standards

history

Ship registers in today's sense first appeared in Great Britain from 1660 as a result of the navigation act of 1651, but the historical roots for flying a different or false flag in order to gain an advantage for the ship in question go back much further. The oldest evidence of the flagging out principle can already be found for the time of the Roman Empire and the Middle Ages. Further historical examples of this practice can be found from the time of the Spanish monopoly trade in the Caribbean , which was circumvented by British traders using the Spanish flag, or in the 17th century by British fishermen off Newfoundland who used the French flag to enforce British bans bypass. German shipowners bypassed Napoleon's continental barrier by flagging them up, as did American traders who brought their ships under the Portuguese flag during the British-American War to avoid problems with the British. In the context of the transatlantic slave trade , flagging was also often used to overturn corresponding bans.

The origins of today's flagging go back to the time immediately after the First World War, when Panama first and shortly afterwards Honduras opened open shipping registers. As early as August 1919, during the prohibition period, an alcohol smuggling case involving Belen Quezada, who had been flagged out from Canada to Panama, became known. In the early 1920s, US shipowners flagged the large passenger ships Reliance and Resolute to Panama to circumvent US prohibition regulations . At the same time began United Fruit Company , Fruit vessels flying the flag of Honduras ' to operate. In the 1930s, Greek shipowners began to register large numbers of ships in Panama. During the Civil War in Spain, a number of Spanish ships were flagged out to Panama, and at the start of World War II , the United States used registration in Panama to make deliveries to warring nations despite neutrality laws . As early as the mid-1930s, union resistance to the incipient flagging-out practice arose in the United States for the first time.

The practice of flagging out on a larger scale began after the end of World War II . The former US Secretary of State Edward Stettinius Jr. and the President of Liberia , William S. Tubman initiated the establishment of an open Liberian shipping register in 1947, which was kept in New York under the chairmanship of Stettinius and in a large number of regulations the US Register was the same. The first registered ship was the World Peace . In 1967, less than twenty years after it was founded, Liberia replaced the British register as the largest in the world.

In July 1958, the ITF passed a resolution to boycott flagged ships. On the one hand, flagging should be stopped by an intergovernmental agreement that there should always be a genuine link to the flag that it is flying between a ship, its owner or operator and its crew. In addition, it should be ensured that crews of all nationalities on flag of convenience ships are protected from exploitation.

In 1950, a total of 6.6% of the world merchant fleet was flying the flags of Panama, Honduras and Liberia. The abbreviation Panhonlib used for these three flag states was at the time synonymous with flags of convenience as such. By 1970 the proportion flagged out had risen to around a quarter, with additional flags of convenience having been added. In order to counteract the increasing migration of merchant fleets from the relevant primary registers, various European countries began to set up offshore registers or international secondary registers since the 1980s, which offered shipping companies easier tax conditions and simplified crewing requirements.

Due to increasing difficulties with the register in Liberia, the company International Registries , which emerged from Stettinius Associates , built another open register from the United States in the Marshall Islands from 1988 to 1990 and gave up its seat in Liberia during the reign of Charles Taylor . In 1997, Brazil also set up a second register with simplified conditions. In the meantime, the share of ships flagged out had increased to around 43% in the 1990s and in 2008, according to UNCTAD, 67%, i.e. two thirds of the merchant fleet , were registered in countries other than the owner countries of the respective ships.

With the adoption of the Paris Memorandum of Understanding by 17 European countries, Canada and the Russian Federation , the establishment of port state controls began in 1982 in order to carry out checks on ships without looking at the flag. The system of port state control was extended to other parts of the world until the 1990s and, among other things, places an increased focus on ships that display flags with an above-average frequency of defects.

Classification of the ship registers

There are four different types of shipping registers, which must be classified depending on the type of operation and requirements:

Conventional first register

Traditional initial registers with national merchant fleets have been the common form of operation for registering a ship for hundreds of years. As a rule, initial registers only allow their own nationals to operate or own a ship and require crews residing in the flag state concerned.

Traditional open registers

Open registers have only minimal requirements for registering ships there. The flag state allows other nationals to own and operate ships, which can be registered via consulates, for example. Some states with open registers keep them entirely in other states (for example, the registers of Liberia, the Marshall Islands, or Panama are kept in the United States). Often only one mailbox company in the flag state is needed to establish a formal connection between state and ship. Often states with open registers have only low safety, environmental and manning requirements. Flag states with open registers often do not have the means or the will to enforce their own or international rules against the shipowner, and little or no nationals of the flag state need to be employed. Registration fees are usually a significant source of income for states with open registers. As a rule, they levy no or only very little taxes on the earnings of the registered ships.

Well-known open registers are: Antigua and Barbuda , Bahamas , Bermuda , Belize , Myanmar , Canary Islands , Kayman Islands , Cook Islands , Costa Rica , Cyprus , Gibraltar , Honduras , Lebanon , Liberia , Malta , Maldives , Marshall Islands , Mauritius , Netherlands Antilles , Panama , Seychelles , Somalia , St. Vincent , Sri Lanka , Tuvalu and Vanuatu .

Offshore register

Offshore registers are registers in dependent areas or colonies of larger flag states with primary registers. They are designed as an alternative to open registers and are primarily aimed at shipowners who keep the flag of the relevant primary register but want to operate their ships under economically more favorable conditions. For example, staffing regulations that are easier to meet or lower taxation apply, but the higher-level flag state retains administrative control comparable to that in the initial register.

Examples of offshore registers for the UK's primary register are Bermuda , Kayman Islands and Isle of Man , Kerguelen for the primary register of France , the Netherlands Antilles for the primary register of the Netherlands , Luxembourg as the offshore register for Belgium and the Faroe Islands for the primary register of Denmark .

International registers

The international registers of some European countries, also known as secondary registers, are comparable in many regulations to offshore registers. They are also designed as an alternative to open registers. Here, too, simplified regulations for staffing and more favorable taxation are offered, while strict requirements are made with regard to the nationality of the owners, safety and ship operation.

Examples of secondary registers are the international registers of Norway , Denmark, Finland or Germany .

Criteria for classification as a flag of convenience

To assess when a ship carries a so-called "flag of convenience" (also "flag of convenience", "shadow flag", English "flag of convenience"), various criteria have been developed in the last few decades:

Genuine link criterion

After the end of the Second World War, the genuine link criterion was initially discussed by the International Law Commission and legally enshrined in the 1958 Geneva Convention on the Law of the Sea in the Convention on the High Seas. According to the intergovernmental working group of the United Nations Conference on Trade and Development , the question of whether a ship is flying a flag of convenience must be tied to a genuine link between the ship and the flag. The existence of this real connection results from the following criteria:

  • the merchant ship contributes to the flag state's economy
  • The purchase and sale of the ship, as well as the revenues and expenses of the ship's operations, can be viewed as part of the flag state budget
  • nationals of the flag state are employed on the ship
  • economic ownership of the ship is to be assigned to the flag state

Rochdale criteria

As early as 1970, a British committee of inquiry established the so-called Rochdale Criteria to decide whether a ship flies a flag of convenience:

  • the flag state allows other nationals to own and operate
  • Accessing and exiting the ship register is easy
  • taxes on the ship's earnings are low or nonexistent
  • the flag state does not need the registered space for its own purposes, but is interested in the fees for the registered tonnage
  • there is little or no need to employ nationals of the flag state on the ship
  • the flag state does not have the means or the will to enforce its own or international rules against the shipowner

ITF criteria

The International Transport Workers' Federation (ITF) defined 1974 as follows: If beneficial ownership of and control of a ship is in a state other than the flag state, it is to be assumed that it is operated under the flag of convenience. The ITF maintains a list of countries that are defined as flags of convenience. According to their information, the majority of the ships involved in accidents in 2001 sailed under such a flag of convenience, although they also make up a significant proportion of the world merchant fleet. In addition, the ITF advocates the crews flying under a flag of convenience and tries to negotiate collective agreements.

The following flags are used by the ITF as flags of convenience (Oct. 2018):

OECD criteria

In its paper Study of the Expansion of the Flags of Convenience and of Various Aspects Thereof flags of convenience, the Sea Transport Committee of the Organization for Economic Cooperation and Development defined flags of convenience as flags of states which, in contrast to states whose flag management is linked to strict conditions and far-reaching requirements, Permit the flying of their flag for ships owned by nationals or companies of other countries by their laws and make this flag flying easy through their practice.

Street

Flagging has already made school in road freight transport . Some German freight forwarders allow their vehicles abroad, e.g. B. in Cyprus.

aviation

Countries like Aruba are actively competing for foreign aircraft owners, here at an air show

Flagging out can also be found to a small extent in aviation . Here it is understood in the strict sense that the nationality mark carried by the aircraft does not match the nationality of the actual operator.

Reasons are e.g. B.

  • the relocation of costs / profits to tax-favorable areas,
  • different approval and maintenance modalities.
  • Leased aircraft remain the property of the lessor and are therefore also entered in the aircraft register at the lessor's headquarters .

Examples of flagging out in aviation

  • The company jets of Volkswagen AG were registered on the Cayman Islands through the subsidiary Lion Air Services until 2017 and thus carried the aircraft registration VP-C… .
  • Many owners of smaller, non-commercial machines like to have them registered in the United States , because the maintenance regulations there are less bureaucratic. The USA knows the possibility that the owner - for aircraft exclusively used by him - can carry out the maintenance himself instead of an aeronautical company.
  • Many aircraft of Russian airlines that were not built in Russia are registered on the basis of leasing contracts or to circumvent import duties abroad, for example in France, Ireland, Germany or the Bahamas.
  • With the introduction of Regulation (EU) No. 1178/2011 (EU-FCL) on April 8, 2015, the approval, training and licensing of pilots and flight attendants will be regulated by the European Union . This means that a pilot can freely choose the aviation authority of an EASA member state and later switch to another state at his own request. The responsibility of the license administration arises neither from the nationality nor the residence of the pilot. This is used, for example, to circumvent the German special feature of a background check for pilots under Section 7 of the Aviation Security Act .

Personnel policy definition of flagging out

Colloquially, however, flagging is also used in the trade union area when aircraft belonging to an aviation company are operated by external personnel or are operated entirely by a subcontractor in the colors, on the routes and sometimes under the customer's call sign. Here, the primary motivation is usually to take advantage of differences in collective agreements and cost structures; in some cases, flags are also flagged out in order to compensate for management-related bottlenecks in extreme growth situations.

Rail transport

Some German railway companies , including the HGK , allow their freight cars in Slovakia , Romania or Bulgaria . The reason is likely to be simpler and cheaper admission formalities in these countries. Due to the RIV capability, these wagons can be used across Europe regardless of the country of their registration.

Web links

Footnotes

  1. ↑ Homepage of the Federal Maritime and Hydrographic Agency
  2. ^ Flag of convenience. In: Gabler Wirtschaftslexikon online. Retrieved January 13, 2018 .
  3. ↑ Z Oya Özçayir: Flags of Convenience and the Need for International Co-operation , In: International Maritime Law , Vol. 7, No. 4, May 2000, pp. 111-117.
  4. ↑ a b c d e A.K. Febin: Evolution of Flags of Convenience , Shipping Law Notes , December 4, 2007.
  5. ^ Boleslaw Adam Boczek: Flags of Convenience: An International Legal Study , Harvard University Press , Cambridge, 1962, p. 8.
  6. ^ Boleslaw Adam Boczek: International Law: A Dictionary , Dictionaries of international law , Issue 2, Scarecrow Press, 2005, p. 280.
  7. ↑ Jane Marc Wells: Vessel Registration in Selected Open Registries , The Maritime Lawyer , No. 6, 1981, p. 226.
  8. ^ Heinz Neukirchen: Seafaring in the course of the millennia , transpress publishing house for transport, Berlin (GDR) 1985, p. 412.
  9. ^ A b c Thomas West: Outflagging and Second Ship Registers: Their Impact on Manning and Employment , European Parliament, Luxembourg, Social Affairs Series, SOCI 107 EN, April 2000, p. 9.
  10. ↑ Flags of convenience at ITF Global
  11. ↑ Volkswagen pulls company jets out of tax haven. Welt, November 11, 2017, accessed October 16, 2018 .