Open & Closed Registers – F R Chowdhury (1st Batch)

Under UNCLOS-82, every state that has got ships plying its flag should maintain a register of such ships with necessary particulars so that it can exercise its jurisdiction and control over those ships. It does not give any more criteria than that. There was an attempt to make an international convention on conditions for registration of ships; and as a matter of fact one was adopted in Geneva in 1986 but it never got acceptance from minimum number of states to bring it into force. It still remains a paper document to be accepted or enforced. The purpose was to establish more genuine link between the ship and the flag so that “flags of convenience” can be removed or eliminated. What the Geneva Conference finally drafted was in fact recognition of registers with ships owned by non-nationals. The last minute adoption of the document (on 7th February, 1986) was a face saving attempt of having concluded something. Yet, it was not accepted.

The traditional close registers meant ships owned by nationals of the flag state and managed and manned also by own nationals. In the days of British Empire it started losing its original color. 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, 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 relaxed regulatory regime, lower taxation, ease of fund transfer and cheaper labor 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 These companies were originally made by nationals of the country; and rights and shares were later freely transferred to foreign nationals. This is how foreign nationals owned a company in another country, if it was not allowed to form a company directly. The smart lawyers made lot of money by selling (in fact transferring shares) ready-made companies.

Yet, there were other states that required no such company but registered ships in the name of the owners located 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 final liabilities (including claims against environmental damage or wreck removal) minimizing the role of the flag state. CSR (Continuous Synopsis Record) will show the history and record of the ship. Now there is no reason why ships cannot be registered in the name of foreign owners or companies.

No nation wants to call itself “Flag of convenience”. No state will admit that it earns by selling its flag. So the name has disappeared. The 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 IMO has introduced Member State Audit Scheme.

One common formula that all open registers follow, 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 man-power to investigate actual loss/ profit.

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 its flag under its own administrative control and under national laws. The other is a dangerous practice. Some corrupt politicians and officials conclude deals with foreigners to operate the register from abroad. I refer to such operators as “briefcase businessmen”. Here is a case where national sovereignty is bartered or parted away. Average man on the street knows nothing about it and the nation gets no benefit. Only the corrupt politicians and officials make money.

A word about what can be privatized or not. Ports can be privatized but not the national maritime administration. Similarly airports can be privatized but not the department of civil aviation. The distinction is very clear. One is charging for facilities provided (business house) and the other is a part of the government, a regulatory authority that operates national policy and standards.

Whether open register is good for you or not – it will depend on situation and circumstances. It will differ from state to state. India has huge trade potentials. India has a vast coastline and has also got lot of domestic coastal trade. India has got expertise. India got entrepreneurs who own and operate ships. Why India should make an open register? No need. Perhaps the dominance of foreign ship-owners will kill domestic potentials. Indian seafarers are well trained not only to man Indian ships but also find employment on foreign ships to earn for the country. Better leave it as it is and let it grow further. Take the case of tiny little Gibraltar. It has a population of about 40000 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 – joining point of Mediterranean and Atlantic and closest point of Europe with Africa. Ships do call for bunkers, stores and crew change. The open register 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 the economy (of small population). It provides some employment to locals. It has a sound legal framework that keeps the solicitors busy with litigation and arbitration. Gibraltar has a reputation of being a good jurisdiction for arrest of ships. (I was maritime administrator in Gibraltar from 2000 to 2004 when I turned this old military outpost to a modern hub of shipping activities. During my time the register grew from 27 ships to over 200 ships. I also changed their idea of having maritime administration under port department. National maritime administration was set-up which I headed; and port administration was made solely for the operation of the port).

EU law requires free movement of labor, business and capital. So a German or Dutch can register their ship in the UK. The British government does not have any more nationality restriction for registering a ship under UK flag or manning them. It also follows 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 made shipping more competitive and efficient. It has provided huge employment opportunities for seafarers from the developing countries. Philippines have emerged as the largest supplier of seafarers. Today’s shipping owes a lot to open registers that have transformed shipping as a truly global industry.

There are small states in the Caribbean or South Pacific where there are enough potential for domestic and regional trade. For them open register will be beneficial to increase fleet, increase revenue earnings, possibility of seafarers’ employment, transfer of technology etc. but at the same time presence of foreign owned ship under own flag would destroy the business potential of ships genuinely owned by own nationals. Cabotage will have no meaning. For such countries it is good to have open register but only above certain tonnage, say about 10,000GT where it will be necessary to provide proof of nationality of owners to register ships under that ceiling.

Bangladesh would benefit from a system of restricted open register say for ships over 10000GT. We do not want foreigners to reap the benefit of our domestic and coastal trade but we need to enrich our register. Unless we open our register, we remain where we have been for ages together. We have to develop our expertise in offshore activities and prepare ourselves to explore our sea resources. We need to embrace modern shipping and its changing technology. A large fleet of ships under our flag will enhance our status as a maritime nation. We will have a bigger say in every international forum. It may further boost employment of our seafarers. We may soon see other people ashore with non-seagoing qualifications such as maritime lawyers and insurance experts helping Bangladesh to grow as a center of maritime activities including ship-management, litigation and arbitration. We should not delay. Let us go for it.
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<fazlu.chowdhury@btinternet.com> || Nuku’alofa, Kingdom of Tonga, 01-August-2014
(The writer is in Tonga as a World Bank consultant for transport sector).