The rationale for the operation of open registers can be described in terms of the benefits to the open registry State and the shipowner. Not surprisingly, these benefits are, for the most part, economic. But may be too simplistic to describe the rationale for open registers simply in terms of cash: two other undercurrents influence the operation of open registers by States: one is the political will of States to comply with international requirements, and the other, for those that are not inspired by such a will, is the cost of non-compliance in terms of trade and related sanctions.
Therefore, even if the rationale for operating open registers is largely based on economic benefits for both open registry States and shipowners, it can be tempered to varying degrees by compliance with international instruments and standards. The rationale underlying such compliance is also a significant factor in assessing options for the way forward.
Approximately 29 States maintain open registers that include fishing vessels.[177] Whether an open register is State owned[178] or franchised out to a commercial entity,[179] a compelling rationale for the operation of open registry systems is the economic benefits they bring to the flag State.[180] Economic benefits could be realized in the following ways:
tonnage taxes and registration fees;
franchise and/or royalty fees; and
reduced government expense due to outsourcing.
Secondary, although much less significant, benefits may be sourced from the revenue arising from incorporation, taxes and other fees associated with meeting residency requirements[181] and potential job creation.[182]
Data from Lloyd’s Maritime Information Services in APPENDIX 9, Table 3 shows revenue received from all vessels by 21 States operating open registers. Of the 21 open registry States, with a total of 1335 fishing vessels (representing 7% of all vessels registered in these States), the revenue from fishing vessels totals US$ 3 083 100 or 4.9% of the gross revenue from all vessels.
Even considering that these values are most certainly underestimates,[183] the data demonstrates that the percentage of revenue from fishing vessels is relatively small but revenue received from all vessels by open registry States is not insignificant.
Some States have introduced offshore, or international registers in order to give their national fleet owners access to the same conditions of trade that are enjoyed by the open registers, without diverting their business to another flag State.[184] The offshore registers generally have less stringent conditions than the national registers, but are a responsible response to the flag of convenience alternative.
Some international registers operate as businesses designed to make a profit and can be bought and sold just like any other business. These businesses operate on market economies - the more vessels registered the cheaper the administration cost. It can result in a win-win situation for the register and the shipowner.[185]
However, the realization of profit doesn’t always mean investment in an effective control system. There can be an economic downside because some open registry States lack the means, will or resources to put in place effective control systems for fishing vessels. Some practical difficulties have been experienced by some countries that have decided to establish a separate register for fishing vessels include the lack of expertise and capacity in fisheries administrations that are tasked with operating a ship’s register.
In addition, maritime administrations must cope with a constantly changing legal landscape in respect of all vessels. The implementation of changes to international rules, particularly those impacting seafarers welfare, ship safety and marine pollution,[186] the increasingly complex application of these rules[187] and the often vague technical requirements[188] to apply these rules make it difficult for these administrations, small and large, to keep abreast of developments.
For these changes to be effective, national lawmaking systems must also keep pace. This can be difficult where backlogs and procedural quagmires exist in national legislatures. With limited resources, maritime administrations, particularly smaller ones, are often not able to keep pace with changes and meet new international standards. One result is that a State may avoid the morass by not participating in the relevant conventions.[189]
The increasing regulatory burden extends to fisheries conservation and management measures. For example, implementation of the UN Fish Stocks Agreement requires States to take certain measures regarding their vessels that fish on the high seas, including with respect to licensing and enforcement.
In summary, the operation of open registers by States may be profitable but there are two limiting factors in relation to fishing fleets:
the revenue from fishing vessels appears to be relatively small compared to that from the merchant fleet; and
the operation of open registers is subject to a range of changing requirements, including those applicable to fishing vessels, which may lead to an increase in administrative costs and a need for capacity-building.
The rationale for use of open registers by shipowners is both legal and economic. Stringent regulatory requirements and the burden of social charges on employers are clear factors contributing to the growth of the use of open registries.[190] Having the choice of flag, and therefore nationality, allows vessel operators to control operational costs of the vessel.[191]
Benefits to shipowners of using an open register are, for the most part, economic in nature and derive from:
low or no vessel restrictions;
favorable tax environment;
low administration and registration fees;
no or easy to meet nationality requirements;
quick and efficient registration process;
flexible manning requirements;[192]
lower operational costs of the vessel.[193]
Some of the benefits advertised to shipowners of registering in open register States are illustrated in Appendix 9, Table 4[194].
The principal rationales underlying the use of open registers by all shipowners, discussed above, would also apply to shipowners of fishing fleets: the impressive range of economic and administrative incentives to sharpen their competitive edge and simplify their business obligations. Recent trends show an increasing use of open registers by fishing fleets of all sizes, [195] and these and other possible rationales are discussed below.
There is an increasing number fishing vessels registered on open registers, but no figures are available to show if this also represents an increasing proportion of the global fishing fleet. Table 5 in Appendix 9 describes the number of fishing vessels on some open registers from 1997 and 2001. It shows an increase of 208 fishing vessels registered in that period, bringing the total to just over 1500 vessels. The number of vessels registered with individual open registers has shifted dramatically in some cases. With more information, this could afford some indication as to the rationale for registration. Unfortunately, information regarding the origin of any reflagged vessels is not available. Some observations between 1997 and 2001 are:
the number of fishing vessels on Belize’s register has more than tripled in size to 481 vessels (an increase of 332%);[196]
the decrease of fishing vessels on Panama’s register was about 54% by number and about 70% by percentage;
Honduras’ register changed little;
the number of fishing vessels on the registers of Saintt Vincent and the Grenadines, Cyprus, Vanuatu, and Netherlands Antilles increased with a corresponding increase in the percentage of fishing vessels registered;
there was little or no change in the smaller registries: Malta, Bahamas, Barbados, Singapore, Liberia, Isle of Man, Antigua and Barbuda, China, Hong Kong, Special Administrative Region (SAR), Gibraltar.[197]
There does not seem to be a correlation between vessel size and use of an open register by fishing vessel owners. For vessels between 100 and 1 000 GRT, there are between 100 and 300 vessels registered in each of the five divisions shown in Table 6, and there are almost 100 registered in the 1 500 to 4 000 GRT category. This shows a relatively even distribution of registered vessels, not size-dependent.
Unfortunately the information does not show the proportion this represents of fishing vessels worldwide in each category, so it is not possible to deduce whether a rationale for registration depends on the vessel size.
The opposite conclusion might be drawn: size is probably not a factor, especially when compared to “all vessels” in Table 7, which shows that the bulk of all registered vessels ranges from 1500 to more than 30 000 GRT. [198] This reflects the larger size of merchant vessels, but also ties in with notions of maximum returns for big investments, moreso than the information in Table 6.
A possible rationale for fishing vessels to migrate to, or enter an open register is the freedom of unregulated fishing because of the absence of any flag State control. Some factors which should be considered in assessing this rationale are whether the originating or national State is party to international instruments and/or RFMOs, and implements its obligations on the one hand, and the open registry State is not party to such instruments or RFMOs and does not implement any provisions or requirements.
In order to assess whether the rationale for migrating to an open register is because the originating State - or State of registration prior to migration - is party to relevant international instruments, it is useful to review the ratification “scorecard”. While most States, even most open registry States,[199] are party to the 1982 Convention, many vessels that re-flag to open registry States originate in States that are not party to the UN Fish Stocks Agreement or the FAO Compliance Agreement. For example, vessels originating in Greece, Spain, Germany, France and Portugal, which have signed, but not ratified the UN Fish Stocks Agreement and have not signed the Compliance Agreement, are apt to re-flag to open registry States.[200]
A number of open registry States have either ratified or signed the UN Fish Stocks Agreement: eight have ratified,[201] and nine have signed.[202] Four open registry States have accepted the FAO Compliance Agreement.[203]
Notably, Belize, Panama and Honduras, three of the largest fishing registers, have not ratified the UN Fish Stocks Agreement (although Belize has signed it) or the FAO Compliance Agreement. Morocco, with the third largest number of fishing vessels on its register, has not signed the 1982 Convention but has accepted the FAO Compliance Agreement.
No firm conclusions can be drawn establishing a motivation by the shipowner to select an open register State based on the State’s ratification, or not, of international instruments.
Would a shipowner move away from an originating or open registry State that implements the instruments, even if it is not party?
Practical implementation of compliance measures is discussed in Part IV in relation to actions taken by open registry States and RFMOs. As a result of these actions, open register States such as Belize, Malta, Vanuatu and Panama have been active in encouraging flag State compliance through strategies such as deregistration and prosecution for offences. But still, the number of fishing vessels on open registers continues to grow.
It would seem that practical implementation of the instruments by the flag State, whether or not it is party, may not, in some cases, be a contributing factor to the shipowners’ choice of flags.
Membership in RFMOs by the originating State may provide the rationale for originating States to flag into open registers. Based on EU data,[204] France, Germany, and Spain are members of CCAMLR;[205] France is also a member of IATTC, IOTC and GFMC.[206] As discussed in Part IV, CCAMLR has been proactive in implementing conservation and management measures and encouraging flag State control. IATTC and IOTC have also implemented compliance measures for flag States. This suggests that, at least for vessels from originating States which are members of RFMOs and which fish in the relevant Convention Areas, there may exist a rationale for its vessels to flag under a State which is not a member of the relevant RFMO and thereby avoid compliance requirements.
This analysis, however, does not hold true in all cases. For example, the majority of Spanish vessels which flag out are flagging into Honduras, Panama and Morocco which are members of ICCAT and are required to implement the conservation and management measures under ICCAT.
This situation suggests that some originating States are not re-flagging to avoid the implementation of compliance provisions of conservation and management measures of RFMOs.
Fishing fleets that exceed set limits will suffer economically if required to reduce capacity. To circumvent this problem, where some States deregister their vessels to reduce capacity, the vessels are re-registered on an open register that is not subject to the same capacity requirements.
The extent of this process is not known and therefore its basis as a rationale for reflagging is also not known. However, it is known that EU vessels receive public aid to leave the EU Community register and often re-flag to a flag of convenience. Exactly how many vessels receive subsidies for this purpose is not known, but preliminary investigation found that at least one Member State which re-flagged to the Côte d’Ivoire received Euro 1.1 million. Its current flag is Belize but the owner is the same.[207]
Currently, there is no provision to prohibit the granting of subsidies for transfer to FOCs. However, a new proposal by the EC would prohibit public funding from being used for transfer of EU-flagged vessels to countries which are not Contracting or Cooperating Parties to the relevant regional fisheries organization, and which have been identified by such organizations as permitting fishing in a manner which jeopardizes the effectiveness of international conservation measures. This proposal would discourage reflagging to avoid capacity limitations and would build on regional efforts to identify the States that do not exercise effective flag State control.
Other motivations for fishing vessels to use open registers may include:[208]
the realization of short term profit offered by certain fisheries;[209]
the avoidance of financial difficulties fitting vessels with regulatory gear;
securing a return on major investment; and
the perceived weight of tradition where such fishing has taken place for generations.
A fishing vessel’s competitiveness, the source of its income, is improved by greater access to resources and avoiding constraints imposed in a vessel’s originating State. These benefits are even more important to a participant in those fisheries where fishing capacity exceeds the resource.
The growing percentage of fishing vessels in open registers is perhaps the best evidence of the benefits underpinning the rationale for registration - whether they are based on considerations of safety, labour, or freedom to fish. There appears to be no specific rationale that would apply to all vessels which use open registers. The rationales may be linked directly to fisheries, including the avoidance of fisheries conservation and management measures under international instruments implemented by the originating State or by RFMOs to which an originating States belongs. Alternatively, the rationale may relate to operational costs of owning and/or operating a ship which are generally lower in open registry States, or to the fact that many open registry States are attractive tax havens. It is likely a combination of any one or all of the rationales discussed which motivates vessels to use open registers.
If the rationale behind maintaining an open register is largely economic, it would follow that open registry States are motivated to implement their compliance responsibilities when they are economically adversely affected. Several economic-related initiatives have been implemented which have encouraged some open registry States to take compliance action.
For example, ICCAT restricted international market access for catches from vessels engaging in IUU fishing in the Convention Area. ICCAT collected information on illegal fishing activities based on market data, vessel sightings and other relevant data and implemented import bans into all ICCAT Contracting Parties for[210]:
bluefin tuna from Belize, Equatorial Guinea and Honduras;
swordfish from Belize and Honduras; and
bigeye tuna from Belize, Cambodia, Equatorial Guinea, Honduras and St. Vincent & the Grenadines.
This tactic has proven effective; a range of actions has been taken by States which have been warned that they may be subject to import bans if they do not control their fishing fleets. These include initiating control programs, taking actions against some offending vessels and canceling fishing licenses. Panama and Honduras joined ICCAT and Panama rectified the situation sufficiently to have its import ban on bluefin lifted.
Other positive steps taken by open registry States include:
Honduras requires international fishing vessels to sign an affidavit not to fish for tuna before being registered;
Belize requires a fishing vessel data form to be filed with an application for registration, and has also taken initiatives to “clean up” its register;[211] and
Malta requires its vessels to have a fishing authorization prior to registration.
Some States, including Honduras and Belize, have removed vessels from their register. Without additional action, the act of deregistration alone simply exports the problem as those vessels re-flag in another more lenient State.
Similar trade-related actions have been taken by CCAMLR and CCSBT which also produced successful compliance results.[212]
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[177] See Appendix
1. [178] e.g. Cyprus and Malta. [179] e.g. Liberia, Marshall Islands, St. Vincent and the Grenadines and Vanuatu. Also, International Registries Inc. (IRI) is a U.S.A.-based company which administered the Liberian register until Liberia transferred the operation of its shipping registry to a newly formed company also located in the USA, the Liberian International Shipping Registry (LISCR). [180] Note that registers include fishing vessels with the merchant fleet, and do not exclusively cater for fishing vessels. Information is not available that indicates the extent of additional costs, if any, of including fishing vessels on the register. If they are small, it could be that the revenues would appear relatively large to the open registry State, even though the number of fishing vessels on the register is proportionately low. [181] e.g. incorporation of shipowning companies and establishing domicile in State of registration. [182] e.g. for the crew, and administration of the shipowning company. [183] FAO Fisheries Circular FIIT/C949 An Analysis of the Vessels over 100 Tons in the Global Fishing Fleet, FOA Rome 1999. Also note that the revenue estimates as derived from the annual registration fee alone could represent approximately half of what would be collected from the supply of other documentation. [184] For example, Norway, Denmark, Faeroes, Spain and Portugal. [185] For example, Liberia International Ship Registry Corporation and International Registries Inc. [186] For example, SOLAS Convention has undergone changes from 1948 through 1960, though 1974 and various subsequent amendments to the 1974 Convention. Therefore, for example, in the case of an older ship, parts of the 1960 Convention will apply, parts of the 1974 Convention will apply and parts of the various amendments and Protocols adopted since 1974 will apply. [187] For example, some provisions apply to existing vessels, some to new ships, some to all ships, some to ships meeting certain conditions and some only to certain ship types. [188] For example, the 1998 Maritime Safety Committee issued Circ. 847 entitled “Interpretations of Vague Expressions and other Vague Wording in SOLAS Chapter II-2”, MSC/Circ. 847 dated 12 June 1998 Maritime Safety Committee 69th Session. [189] But it is possible that the non-participation by States may change in the future, regarding safety at sea with the creation of the IMO Whitelist. The Whitelist lists States deemed to be giving full effect to the revised International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (STCW 95). A position on the Whitelist entitles other Parties to accept, in principle, that certificates issued by or on behalf of the Parties on the Whitelist are complying with the STCW 95. IMO Maritime Safety Committee 73rd Session 27 November – 6 December 2000. [190] Fishing in Europe Fact File #6 February 2001. [191] Note that a comparison of registration costs between open registry States and other States does not appear in this paper. While it would be useful in determining economically-based motivation in some cases, it would be very difficult to draw general conclusions. Variable factors would include the policies, laws and administrative practices of each State of registry, whether open or not, specific benefits being sought by the shipowner (e.g. low registration fee, avoidance of legal obligations), and the specific States of registry that are options for specific shipowners. Information available in the public domain does not assist in defining the motivation or options of individual shipowners. [192] ITF considers that many shipowners register in open registry States as a result of those State’s reduction in manning requirements and flexibility in the choice of the nationality of the crew. ITF Troubled Waters. [193] For example, the USA requires that crew on USA flagged vessels are supplied locally, where employment-related costs impose higher financial burdens on vessel owners than employing crew from another State that does not have such obligations. The Netherlands Antilles is one such State that has no nationality or employment requirements for crew members and non-resident crew members are not subject to any national income or wage taxes or social security premiums. [194] Not all the States in the table register fishing vessels, but it illustrates some benefits offered to shipowners of registering any vessel in an open registry State. [195] Lloyds Maritime Information Services and Lloyd’s Register - Fairplay Ltd. World Fleet Statistics 2001. [196] Based Lloyd’s Register - Fairplay Ltd. World Fleet Statistics 2001 which differs from the number of 402 provided by Belize in response to the questionnaire. Either figure places Belize at the top of the open register list. [197] In response to the questionnaire (February 2002) Antigua and Barbuda, Gibraltar, and Liberia stated that there were no fishing vessels on their registers. [198] The fishing fleets constitute a relatively small proportion of the vessels on the larger open registers, with the exception of Honduras and Belize. This is indicated in Tables 6 and 7, and the revenue table supports this conclusion. [199] Twenty-eight of the States listed in Appendix 1 have ratified the 1982 Convention. The States which have not are: Cambodia, Liberia, Morocco, and Tuvalu. [200] McKenna Report op cit. Signatures and ratifications as of January 8, 2002. In total, the McKenna Report states that 392 fishing vessels or fish transport vessels are flagged outside the EU, or over 10% of the total EU – owned fleet. Almost 30% of the Greek-owned fishing fleet is flagged outside the EU and 19% of the Spanish fleet. The other three, Germany, France and Portugal, each have 8-11% of their fleet flying non-Community flags. [201] As of January 8, 2002, Bahamas, Barbados, Cook Islands, Malta, Mauritius, Samoa, Seychelles, Tonga have ratified the UN Fish Stocks Agreement. [202] As of January 8, 2002, Bahamas, Belize, Marshall Islands, Mauritania, Morocco, Netherlands, Seychelles, Tonga and Vanuatu have signed or declared the UN Fish Stocks Agreement. [203] As of August 14, 2001, Barbados, Cyprus, Morocco, Seychelles have deposited instruments of acceptance. [204] McKenna Report, Revised Working Document 3. [205] Greece is a party but not a member of the Commission. [206] This excludes France on behalf of St. Pierre and Miquelon. [207] McKenna Report, Revised Working Document 3. [208] Fishing in Europe Fact File #6 February 2001. [209] For example, Patagonian toothfish and Atlantic tuna fisheries. [210] European Parliament Committee on Fisheries, Report on the role of flags of convenience in the fisheries sector, 20 November 2001; rapporteur Patricia McKenna. [211] “Belize flag weeds out 668 ships to polish tarnished image” Lloyds List January 16, 2002. [212] See Part IV. |
