History and role of the Flag State
The flag of a ship has, from earliest days, provided an indication of that vessel’s nationality – the country under which it derived its legal status and whose laws applied to its operations. It was, in practical terms, necessary to fly a flag which was a visible indication of the state under whose protection that ship operated, backed up with the papers which would be carried by the Master. And as international trade developed in the Middle Ages, protection was important as warring nations and city states built naval forces to establish their writ at sea and control seas they claimed as their own. The earliest examples of what have become known as “open registers” or “flags of convenience” stem from the Classical period when Roman and Greek ships used the flags of the other country to secure trading advantages. In the Middle Ages, ships trading in areas far from their homes might arrange to fly the flag of the “controlling” state so to gain its protection and cargo rights. There were examples of British-owned merchant ships trading in the Mediterranean flying the flag of Venice or Genoa, also of ships with papers of more than one state on board to insure themselves against capture. The concept of flags of convenience re-emerged in the 1920s when a number of US passenger ships were re-registered under the Panamanian flag to avoid prohibition restrictions. In the early days of WWII, many US-owned ships traded under the Panamanian flag to facilitate their operation in the European war zone. The freedoms enjoyed under flags of convenience (FOCs) were noted closely by many more US owners and in the 1950s there was an explosive growth in US-owned tonnage operating under the Panamanian and Liberian flags. The US flag had become expensive for owners and the attractions of an FOC – freedoms from tax and fiscal control, minimum regulatory oversight, no restrictions on crew nationality, restricted financial liabilities facilitating “single-ship companies”, minimum legal formalities, simple mortgage arrangements and no political interference – were overwhelming. All added up to substantial cost reductions and both US and Greek owners, and increasingly those from Norway, sought to take advantage of these freedoms. In a relatively short time, the Panamanian and Liberian flags were dominating the world’s sea lanes at the expense of the traditional maritime nations whose owners increasingly found themselves disadvantaged by the costs and freedoms enjoyed by FOC operators. Seafarers, especially from the traditional maritime nations, have been the big losers in this flight to the FOCs in which there was brisk competition between registers to offer the cheapest registry fees and greatest freedoms. Shipping standards under many of these flags were lax, notably on the manpower front, with poor standards of oversight. Some of these flag states, while they might have been nominally members of the International Maritime Consultative Organisation (later to become the International Maritime Organization or IMO), took little part in its affairs, being focused entirely on the need to raise revenue from registration fees and building their market share. Later, as a result of a number of high profile accidents that had exposed the term “flag of convenience” to a great deal of political and public opprobrium, some FOCs have made strenuous efforts to improve their oversight standards and to rid themselves of the less scrupulous owners and their “rustbucket” tonnage. Some established effective inspection systems, while others have, in recent years, moved to open their maritime authorities to the scrutiny of IMO auditors. The division of ship registers into classes graded by quality has been a positive move that has encouraged better standards. There has, however, been no shortage of alternative registers to which shipowners can relocate their ships expelled from the more reputable flags.