The term Flag of Convenience (abbreviated FOC) refers to the practice of registering in a different country other than the country it was manufactured in, or where the beneficiary resides (Heidegger et al. 7). All vessels participating in international travel are required to have a flag of the nation under which it will sail. For FOC, the ship is registered in a sovereign state different from its country of origin. The ship’ s activities and all persons aboard are governed by the flag state’ s registration conditions regarding the maritime activity. The main motivation for FOC is economic.
To explain this, the history of FOC is important. In the early 1900s, the United States of America had a number of new laws passed in order to safeguard its maritime jurisdictions. Thus, the first known FOCs can be traced to 1915. It is the time when Honduras and Panama opened their registry for ships whose owners were escaping the frustrating USA laws (Heidegger et al. 7-8). The new laws were causing increases in operating costs such as labor costs, registration fees, and taxes.
The ship owners, especially those from the USA, were favored by the foreign registration because it enabled them to avoid USA labor laws, strict taxation policies, and provision of currency conversion facilities(Herman 4). They were now able to acquire cheap global labor, experience minimal regulations, and pay low registration and taxation fees. All these helped them to run their vessels with lower expenses. FOC’ s popularity grew, especially in the 1950s. Several other countries came on board and initiated open registries in their states. Many of them built a name in the open registry platform.
For instance, Liberia in 1968 had such a large shipping registry that it exceeded the one in the United Kingdom. The ships have been accused of economic bias because they escape several fiscal obligations, forcing governments to review their fiscal policies to compete with FOC-operated ships and states.
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