13 June 2002
Maritime Administrator Backs Boosting U.S. Merchant Fleet
(Country's security at stake, he says) (3030)
U.S. Maritime Administrator William Schubert calls for expanding the
U.S. merchant fleet to enhance U.S. security and emergency
preparedness.
Testifying June 13 before a special U.S. House of Representatives
Armed Services Committee panel, he said that the United States
critically needs a strong merchant fleet with U.S. crews as it
continues to fight terrorism around the world.
Schubert said that more U.S. crews employed on U.S.-flagged ships
would provide the pool of seafarers needed for commercial and
government sealift fleets in times of national emergency or crisis.
He noted that between 1980 and 1998 developed countries including the
United States lost about half -- by tonnage -- of their general cargo
ships to major open registry countries, such as Liberia, the Bahamas,
Panama, Cyprus and Malta.
An open registry country, also known as a flag of convenience country,
offers its maritime flag registration to owners from another country.
It usually attracts them with easy registration, low or nonexistent
taxes and no practical restrictions on the nationality of crew.
Schubert said that many open registry regimes lack transparency and
strong, enforceable rules.
He said that owners who register their ships through these regimes do
not need to have any connection to the country sponsoring the
registry. As a result, Schubert said, the flag of convenience regimes
can inadvertently open the door for criminal and terrorist activities
that would be impossible under U.S.-flagged vessels or those
registered under other reputable state flags.
Schubert admitted that encouraging ship owners to return to the U.S.
flag would be "a daunting task" considering the economic advantages of
open registries.
But he also cited countries that have successfully used market and
financial incentives to make registration under domestic flags more
attractive to local investors.
"The best way to protect our homeland and national security interest
across the globe is a strong U.S.-flag fleet manned by U.S. citizen
mariners," he said.
Schubert suggested also other measures to reduce terrorist and
criminal threats in the maritime domain, including:
-- pre-screening of crews before they arrive in U.S. waters;
-- working with international organizations and other countries on
preventing fraudulent practices associated with seafarer credentials
and other vessel certificates;
-- seeking international guarantees on the universal and fair
implementation of international maritime and labor standards;
-- exercising the authority of port state control to eliminate
substandard ships.
Following is the text of Schubert's testimony as submitted for the
panel's record:
(begin text)
DEPARTMENT OF TRANSPORTATION
STATEMENT OF WILLIAM G. SCHUBERT
MARITIME ADMINISTRATOR
BEFORE THE SPECIAL OVERSIGHT PANEL
ON THE MERCHANT MARINE
ARMED SERVICES COMMITTEE
U.S. HOUSE OF REPRESENTATIVES
JUNE 13, 2002
Mr. Chairman and Members of the Panel:
I welcome the opportunity to appear before you today to discuss flags
of convenience and the implications on national security posed by
these vessels.
First, I would like to thank you for holding this hearing. Our
heightened need for homeland security requires that we examine the
potential impact of the lack of transparency within open registries,
which could ultimately lead to a serious threat to our Nation's safety
and security. The international corporate operations of the maritime
industry are a complex domain often one over which the United States
exerts very little control. Open registries, informally known as
"flags of convenience," are often complicated and convoluted corporate
operations. A dialogue on this important aspect of the international
maritime industry certainly complements the discussions on port and
container security in which Congress and the Administration are
actively involved.
Since the tragic events of September 11th, the media has reported some
disturbing occurrences in the maritime industry relating to the war on
terrorism. First, in an October report, the United Nation's (UN's)
Security Council voiced concerns regarding the Liberian Registry which
is operated out of the United States by the Liberian International
Ship and Corporate Registry (LISCR). The Chairman of the Panel of
Security Experts on Liberia found that a total of four payments from
the LISCR to the Government of Liberia had been made to non-government
accounts and two of these irregular deposits were payments for arms
and transportation in violation of UN sanctions. Less than two months
later, ABC news reported that Norwegian intelligence had discovered
that 23 merchant vessels were operated under al Qaida control. In
January, the Israeli navy seized a vessel transporting 50 tons of
weapons and explosives destined for the Palestinian Authority. The
ship, the Karine A, was owned by an Iraqi who had registered the ship
through Tonga under the kingdom's flag-of-convenience registry, which
was run by a Greek company in Piraeus, Greece. Recently, four
Pakistani crewmen disappeared from a Maltese-flag cargo ship, which
was docked in Chesapeake, Virginia. One of these crewmen was recently
captured in Texas, but the other three men remain missing.
I highlight these reports, not to repeat old news, but to mention some
of the possible maritime threats, which have already been reported to
the public. However, there is a much more involved picture to paint.
Why Open Registries?
Ship operators, seeking to lower costs, register their vessels in open
registries that feature unrestrictive laws, and low tax liability,
vessel registration fees, and crew costs. There is considerable
variation among these open registries, however. For example, Liberia's
maritime and corporate registry has an international reputation as a
quality registry, with the fleet having a relatively low average age,
below average Port State Control detention rate and low casualty
figures. However, some open registries do not enforce minimum vessel
safety or design standards. Foreign crews are often paid low wages and
live in squalid conditions aboard "ships of shame," with little or no
oversight or recourse in cases of abuse and mistreatment, which can be
common in the open registries. The International Labor Organization
(ILO) has undertaken the ambitious task of updating and consolidating
dozens of seafarers' welfare conventions, and my agency, MARAD, is
leading this effort on behalf of the United States.
Further, many crews aboard flag of convenience vessels do not have the
same high quality training as U.S. merchant mariners and mariners from
OECD [Organization for Economic Cooperation and Development] member
states. Lastly, a ship owner who registers his or her vessel in an
open registry does not need to have any connection or link to the
country sponsoring the registry. As a result, the flag of convenience
regimes can inadvertently open the door for criminal and terrorist
activity that would be impossible under the U.S.-flag registry or
other reputable flag states with high standards like the United
States.
Between 1980 and 1998, countries with developed market economies,
(including the United States, Western Europe and Japan) lost about
half of their general cargo vessel tonnage to major open registry
countries, such as Liberia, the Bahamas, Panama, Cyprus or Malta. For
market economies, their share of world general cargo vessel tonnage
dropped to approximately 25 percent, while open registries gained, and
continue to gain, in world tonnage. Open registries have captured
approximately 60 percent of the capacity of the world merchant fleet.
In the year 2000, four of the top five registries were open
registries. The United States, the world's largest trading nation, was
in 12th place in 2000.
Effective U.S.-Controlled (EUSC) Fleet
The open registries include ships considered to be under effective
U.S. Control (EUSC). The registries commonly associated with the EUSC
concept are Liberia, Panama, Honduras, the Bahamas, and the Marshall
Islands -- and usually crewed by foreign nationals. These ships are
majority-owned by U.S. citizens and are thus subject to requisition
pursuant to Section 902 of the Merchant Marine Act, 1936. The core of
the EUSC concept is the assumption that the concerned nations will not
interpose any objection to the exercise by the United States of its
power of requisition over ships on their registries. There are no
agreements, formal or otherwise, underlying the EUSC concept, which
originated in the Department of Defense as a way to avoid the
Neutrality Act prior to World War II, before our entry into that
conflict, when we wished to supply Great Britain. The composition of
the aggregate of EUSC ships varies over time depending on the economic
interests of their owners, the usual incentive being relatively low
crew costs. Not all EUSC ships are militarily useful and the
requisition power does not cover the crewing of any ship
requisitioned.
The U.S. as a Flag State
It is critical, now more than ever, to have a strong U.S. merchant
marine and U.S. crews. U.S. crews employed on U.S.-flag ships provide
the pool of seafarers needed for both commercial and government
sealift fleets in times of national emergency or crisis.
Bilateral and multilateral treaties governed by admiralty and
international law direct that the national flag of commercial vessels
engaged in merchant trade and in military supporting roles determines
the resolution of maritime disputes. Therefore, the continued presence
of U.S. flag vessels, which are supported by the Maritime Security
Program (MSP) and Voluntary Intermodal Sealift Agreement (VISA)
program, in the foreign trades provides legal standing for the U.S.
Government to protect the interests of American businesses and
consumers, including in particular the trade interests of the United
States. As a result, the U.S. Government may directly intervene in
disputes with foreign countries that regulate or otherwise restrict
the operation of U.S.-flag ships, carriers, ports, and connecting
intermodal operators abroad to assure that U.S. interests are
protected. Because we have U.S.-flag vessels engaged in international
trade, we have a recognizable presence in the market which gives
shippers a competitive choice of service providers and injects a
healthy competitive discipline to the market.
While bilateral treaty rights could be upheld with the presence of a
single ship in each major U.S. foreign trade with an individual
country, the credible presence of a U.S.-flag fleet of vessels in
larger numbers in international trade provides the U.S. Government
with the greatest influence in international bodies that create
international standards of conduct with respect to shipping safety, as
well as commerce. Today, MARAD, the U.S. Coast Guard, the Department
of State, the United States Trade Representative, and the Federal
Maritime Commission are able to initiate, as well as negotiate the
international rules, regulations and guidelines that affect U.S.
foreign trade, public safety, and environmental protection, as a
flag-state member. These organizations include the UN's International
Maritime Organization (IMO) and World Trade Organization (WTO), the
Organization for Economic Cooperation and Development (OECD), as well
as number of regional groups.
Now more than ever, our presence as a flag-state is critical to our
national interests. If we lost all our U.S.-flag vessels to open
registries tomorrow, our presence in the international maritime arena
would be diminished to that of a port state only -- at a tremendous
cost to U.S. national security and economic interests.
Returning to the U.S. flag
Encouraging shipowners to return to the U.S. flag is a daunting task,
especially when compared to the economic advantages of open
registries. However, the best way to protect our homeland and national
security interests across the globe is a strong U.S.-flag fleet manned
by U.S. citizen mariners. If we did not have the Jones Act, cargo
preference, and the MSP and VISA programs, I can assure you it is
unlikely that ships would remain under U.S.-flag, and the U.S.-citizen
mariner pool needed by the Department of Defense in times of national
emergency or war would disappear.
In general terms, the following differences between the U.S. and
foreign open registries apply:
U.S. flag Flag of
Convenience
Taxes & Fees High None or Little
Regulatory Requirements High IMO Minimum
Standards
Crew & Vessel Ownership(1) Crew-- Not known; not
(1) As defined by various licensed -- 100 transparent
statutes percent U.S. citizens
unlicensed -- 75
percent U.S. citizens
Many maritime scholars, industry experts and some members of Congress
have suggested a complete reexamination of the tax laws which govern
merchant shipping in order to create more incentives for investment by
shipowners to return to the U.S. flag. These and other options to
increase the number of vessels under U.S. registry should be fully
explored and given the highest consideration.
Who is crewing the world's merchant fleet and vessels entering the
U.S.?
Over 97 percent of U.S. overseas trade (by tonnage) now arrives or
departs on foreign vessels. In November 2000, the Maritime
Administration compiled a report entitled, "Foreign-Flag Crewing
Practices" which summarized 9,760 crew lists of over 3,456
foreign-flag cargo vessels calling in 1998 at the top four U.S. port
areas in terms of cargo tonnage (Houston, TX; New Orleans, LA; LA/Long
Beach/San Diego, CA; and Newark, NJ/New York, NY) and three additional
ports for geographic balance (Miami, FL; Savannah, GA; and Seattle,
WA). While the study did not cover all foreign-flag vessels entering
U.S. ports, the seven ports examined accounted for 38 percent of all
U.S. port calls in 1998 and 209,719 individual crewmember entries. At
the time, 1998 data was the latest available for the study.
The study found that the Philippines, China, India, Russia, Ukraine,
Greece, Poland, Croatia, South Korea and Myanmar were the ten most
common nationalities of foreign-flag crews calling at the seven major
U.S ports sampled. In addition, North Korea ranked 12th and Indonesia
ranked 12th among mariners calling in 1998.
Like the vessel owners who have registered their ships in the open
registries, there is little relationship between the vessel's flag and
the nationality of crewmembers aboard each vessel. For the top five
foreign vessel flags, the crews were primarily from five different
nations:
Flag Nation Primary Crew Nationality
Panama Philippines
Liberia China
Cyprus India
Bahamas Russia
Greece Ukraine
The top 10 mariner-supplying nations for vessels engaged in domestic
as well as international trade in 2000 and 1995 are presented in the
table below. However, Russia and China are rapidly becoming dominant
in mariner supply.
Country Share of Total Rank
Philippines 36.9% 1
China 6.5 2
India 5.8 3
Russia 5.2 4
Ukraine 4.1 5
Greece 4.1 6
Poland 3.9 7
Croatia 2.4 8
South Korea 1.9 9
Myanmar 1.6 10
Conclusion
While it would be difficult to eliminate the lack of transparency and
other problems inherent in the international operations of the open
registries, there are things we can do to further deter threats from
the maritime domain. Pre-screening of crew identification before
seafarers arrive in U.S. waters is critical. U.S. authorities should
have positive and verifiable identification cards for all crew members
to help deter crew from using a seafaring position to illegally enter
the United States. These forms of identification could also assist
authorities in capturing individuals who illegally jump ship.
We must also continue to work with other governments and agencies to
prevent fraudulent mariner documentation and practices associated with
the issuance of seafarer credentials and with other vessel
certificates. A recent International Maritime Organization study found
that the incidence of fraudulent practices was found to be "much
higher than anyone thought" before the IMO study: 12,635 cases of
forged certificates and roughly as many incidents of "laundering"
(where forgeries were used to obtain legal qualifications from
authorities which failed to check for original documentation). In the
Philippines, for example, which is a significant source of seagoing
labor, the sale of seafarer certificates was found to be profitable
for organized syndicates engaged in "transnational business" as well
as for civil servants to supplement their income. In addition to
obtaining employment on board vessels, fraudulent certificates have
also been used for illegal immigration, to commit piracy, to traffic
drugs and immigrants, and for other criminal activities. In addition,
around 85 percent of employers detected fraud over the past five
years. MARAD is working with the ILO to achieve a new international
agreement on positive and verifiable identification for all seafaring
personnel.
Finally, high cost registry requirements, regulatory standards, and
taxes and fees make it difficult for U.S. carriers in international
trade to compete with low-cost, flag-of-convenience vessel operations.
The United States does not need to lower its labor and environmental
standards, but should continue to work with the International Maritime
Organization to assure international standards are fair and
universally implemented. We should, however, explore ways to make the
U.S. flag more attractive to potential U.S. citizen investors, through
market and financial incentives that have been successful in other
seafaring countries.
In today's environment, we should not compromise our security. In the
United States we know who owns our ships, who operates them and who
crews them. There is no better assurance to our nation's national
security interests than a strong U.S.-flag merchant marine.
I would be remiss if I did not at least mention the Coast Guard's
efforts in this area. According to the 2000 Port State Control (PSC)
Project Report, the total number of vessels visiting U.S. ports rose
slightly from 1999 to 2000, while the number of detained ships
declined. Of the 51,871 port calls made by 7657 individual vessels
from 95 different flag states, 11,767 exams were conducted and 193
vessels were detained. Additionally, the three-year rolling detention
ratio of detentions to individual vessels dropped from 5 percent to
3.6 percent in 2000, providing evidence that the quality of vessels
visiting U.S. ports is improving.
As a final comment, I would like to see the truly bad
flag-of-convenience operators relegated to a role of
"flag-of-inconvenience." We neither need nor want those ships whose
owners try to circumvent the legitimate demands of the world maritime
community for safe, high quality ships. While it is not the policy of
the United States to dictate where shipowners invest their money or
register their ships, we must continue to pursue the elimination of
substandard ships utilizing our port state control authorities to the
fullest extent. We must vigorously lead international efforts to
eliminate the underlying conditions that have led to notoriously weak
vessel registries.
I would be pleased to answer any questions you may have at this time.
(end text)
(Distributed by the Office of International Information Programs, U.S.
Department of State. Web site: http://usinfo.state.gov)
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