Open and closed registers for ships

Under the United Nations Convention on the Law of the Sea (UNCLOS)-82, every state that has ships plying with its flag should maintain a register of these ships keeping necessary particulars so that it can exercise its jurisdiction and control over these vessels. The convention does not provide any further requirement.
There has been an attempt to formulate an international convention on the conditions for registration of ships; and as a matter of fact one was adopted in Geneva in 1986, but it never got acceptance from the minimum number of states to bring it into force. It still remains a paper-document waiting to be accepted or enforced. The purpose was to establish a more genuine link between the ships and the flags so that 'flags of convenience' can be removed or eliminated. What the Geneva conference finally drafted was, in fact, the recognition of registers with ships owned by non-nationals. The last-minute adoption of the document (on 7 February, 1986) was a face-saving effort to reach a kind of conclusion. Yet, it was not accepted.
Traditional 'closed registers' mean ships owned by nationals of the flag-state and managed and manned also by its own nationals. In the days of the British empire, British-flag ships were registered in Bombay, Mombasa and Singapore. They were manned by cheap ratings from colonies in Asia and Africa. Similarly, the Dutch-flag ships were manned by Indonesians.
After the end of the World War II, the Marshall Plan made massive investment in Europe and Japan. Outsourcing became a common practice. Entrepreneurs and investors looked for return of business and profitability. It was necessary to have a relaxed regulatory regime, lower taxation, ease of fund transfer and cheaper labour to attract business and investment. Shipping was no exception. In the days when air travel was not so common, ships provided international travel facilities. The US law prohibited alcohol consumption on ships. Panama took the opportunity to attract those passenger ships to their register by allowing liberal consumption of alcohol. That was probably the start of a system now followed by at least thirty different countries.
The question of genuine link was addressed by many of these countries by having a clause that ships under its flag must be owned by a company registered in the country. These companies were originally established by the nationals of that country; and rights and shares were later freely transferred to foreign nationals. This is how foreign nationals owned a company in another country, if they were not allowed to form a company directly. The smart lawyers made a lot of money by selling (in fact transferring shares) ready-made companies.
Yet, there were other states that required no such companies, but registered ships under the name of the owners located in any corner of the world. The philosophy was simple - ships can be arrested anywhere and owners can be traced through Interpol. Above all, ships will have P&I cover for all liabilities (including claims against environmental damage or wreck removal), thus minimising the role of the flag-state. CSR (Continuous Synopsis Record) will show the history and record of a ship. Now there is no reason why ships cannot be registered under the name of foreign owners or companies.
No nation wants to call itself 'flag of convenience'. No country will admit that it earns by selling its flag. So the category has disappeared. A more acceptable name, 'open register', has replaced it. It matters little whether it is a 'closed register' or 'open register'; it matters whether it is a quality register or not. That is why International Maritime Organization (IMO) has introduced the Member State Audit Scheme.
One common formula that all open registers follow is they impose capacity tax instead of tax based on profit. This way the ship-owner pays a fixed amount based on its tonnage (capacity) and then has no argument with the government on loss or profit. The government is also relieved because it does not have to pay for the manpower to investigate the actual losses/ profits.
The open registers are normally operated in two different ways. One is by the government directly through its own civil servants. In this case, the flag-state operates the flag under its own administrative control and under national laws. The other is a dangerous practice. Some corrupt politicians and officials enter into deals with foreigners to operate the register from abroad. I would like to refer to such operators as 'briefcase businessmen'. This is a case where national sovereignty is compromised or parted with. The average man on the street knows nothing about it and the nation gets no benefit. Only the corrupt politicians and officials make money.
A few words about what can be privatised and what cannot. Ports can be privatised but not the national maritime administration. Similarly, airports can be privatised but not the department of civil aviation. The distinction is very clear. The question of charging arises in the case of one for the facilities provided (business house), and the other is a part of the government, a regulatory authority --- that operates the national policy and standards.
Whether open register is good for you or not will depend on a situation and circumstances. It differs from state to state. India has great trade potential. The country has a vast coastline and has also got a lot of domestic coastal trade. India has expertise. It has entrepreneurs who own and operate ships. Why should India make an open register? It doesn't need to. Perhaps the dominance of foreign ship-owners will kill domestic potential. Indian seafarers are well trained not only in manning Indian ships, but also finding employment on foreign ships to earn for the country.
Take the case of tiny Gibraltar. It has a population of about 40,000 with no trade potential. It has no requirement of its own shipping and there are no local entrepreneurs to own and operate ships. However, it has a gifted location - the meeting point of the Mediterranean and the Atlantic, and the closest point of Europe with Africa. Ships do call for bunkers, stores and crew change. The open register here plays a vital role. There are now about 400 ships on its register. The registration fees, tonnage tax, renewal fees and fees for endorsement of seafarers' certificates generate enough to contribute to its economy (of a small population). It provides some employment to the locals. It has a sound legal framework that keeps the solicitors busy with litigation and arbitration. Gibraltar has a reputation of being equipped with a good jurisdiction for arrest of ships. (This writer was the maritime administrator in Gibraltar from 2000 to 2004. In this period, I turned this old military outpost into a modern hub of shipping activities. During my time, the registers grew from 27 ships to over 200. I also changed their idea of having the maritime administration under the port department. National maritime administration was set up --- which was headed by me; and the port administration operated solely for the function of the port).
EU laws require free movement of labour, business and capital. So a German or a Dutch can register his ship in the UK. The British government does not have any nationality restriction for registering a ship under UK flag or manning them. It also follows the tonnage tax system. It has virtually become an open register. So is Singapore. The original definition of FOC as given by ITF (International Transport Workers' Federation): "where the beneficial ownership and control of a vessel is found to lie elsewhere than the country of flag the ship is flying, the ship is considered as sailing under a FOC" --- has become meaningless.
Open registers have added a new dimension to the world of shipping. It has made shipping more competitive and efficient. It has opened the door for employment of seafarers from the developing countries. The Philippines has emerged as the largest supplier of seafarers. Today's shipping owes a lot to open registers that have transformed the shipping sector into a truly global industry.
There are small states in the Caribbean or the South Pacific where there are enough potential for domestic and regional trade. For them, open registers will be beneficial to increase in fleet, revenue earnings, the possibility of seafarers' employment, transfer of technology etc. But at the same time, the presence of foreign-owned ships under their own flags would destroy the business potential of ships genuinely owned by the countries' nationals. Cabotage will have no meaning.
For such countries it is good to have open registers, but only above certain tonnage, say, about 10,000GT, where it will be necessary to provide proof of nationality of the owners to register ships under that ceiling.
Bangladesh would benefit from a system of restricted open register, say, for ships over 10,000GT. We do not want foreigners to reap the benefits of our domestic and coastal trade, but we need to enrich our register. Unless we open our register, we will remain where we have been for ages. We have to develop our expertise in offshore activities and prepare ourselves to explore our sea resources. We need to welcome modern shipping and its changing technology. A large fleet of ships under our own flag will enhance our status as a maritime nation. We will have a bigger say at every international forum. It may further boost employment for our seafarers. We may also see other people with non-seagoing qualifications such as maritime lawyers and insurance experts helping Bangladesh grow as a centre of maritime activities including ship management, litigation and arbitration.
The writer lives in Nuku'alofa,       Kingdom of Tonga. fazlu.chowdhury@btinternet.com