Flags of convenience and the Gulf oil spill: problems and proposed solutions.

• Author: Baker, Brian

1. INTRODUCTION II. BACKGROUND INFORMATION A. Registering of Ships B. What Are "Flags of Convenience"? C. Why Flags of Convenience? III. WHAT Is THE SOLUTION? A. Remove Oil Rigs from the Definition of "Ships" B. Eliminate Open Registries Altogether or Make Countries Have to Apply to Get Approval to Register Ships C. The CLEAR Act IV. CONCLUSION I. INTRODUCTION

   The practice of international registration of maritime vessels (1) has long been a point of contention in developed countries. (2) Developed countries fear that by allowing internationally registered maritime vessels to navigate their waters, and make use of their ports, they will be exposed to serious domestic safety concerns. (3) This fear stems from the fact that internationally registered maritime vessels operating within a state's jurisdiction are not subject to the same regulatory standards as domestically registered maritime vessels. (4) Developed countries fear that because they cannot regulate all maritime vessels operating within their jurisdiction that they could then be exposed to weak regulatory standards found in outside jurisdictions. (5) Countries are forced to merely hope that ships operating near or within their economic zone have been inspected and are in keeping with all proper safety regulations.

   With the recent events in the Gulf of Mexico, these longstanding fears have been brought to the surface once again. (6) On April 20, 2010, the Deepwater Horizon oil rig, owned by Transocean Ltd. (hereinafter "Transocean"), and under contract with British Petroleum P.L.C. (hereinafter "BP"), exploded. (7) The explosion killed eleven workers and injured another seventeen. (8) What followed was a catastrophic, three month long oil spill. (9) During the spill an estimated five million barrels of oil, some fifty-eight thousand barrels of oil per day, escaped unimpeded into the Gulf of Mexico. (10) The oil spill finally ceased on July 15, 2010, (11) after disaster response crews placed a large cap onto the well, cutting off flow into the Gulf of Mexico. (12) On September 8, 2010, BP released a 192 page accident investigation report detailing what it found to be the causes of the explosion. (13) The report alleges that BP and Transocean employees failed to correctly interpret a pressure test, and neglected to recognize the ominous signs of the impending disaster, such as a specific pipe, called a riser, losing fluid. (14) The report also alleges that while BP did not listen to recommendations by Halliburton for more centralizers, (15) the lack of centralizers probably was not a cause of the explosion. (16) The blowout preventer, removed on September 4, 2010, had not reached a NASA facility in time for it to be part of the report. (17) In response, Transocean called the report "self-serving" and blamed BP's "fatally flawed well design" as the proximate cause of the disaster. (18)

   So, how is this tragic incident related to flags of convenience? The Deepwater Horizon oil rig, manufactured in South Korea, was operated by a Swiss company under contract with a British oil company. (19) Safety and security of the oil rig was not the responsibility of the United States government, but that of the Marshall Islands--a small, underdeveloped island nation located in the South Pacific Ocean. (20) The Marshall Islands are designated by the International Transportation Workers' Federation (hereinafter "ITF") as a flag of convenience (hereinafter "FOC") country. (21) The Marshall Islands and thirty-one other countries were identified as flag of convenience states by the ITF's Fair Practices Committee, a joint committee of ITF seafarers' and dockers' unions, which runs the ITF campaign against flag of convenience states. (22) Now, as the government tries to figure out what went wrong in the worst environmental catastrophe in U.S. history, this international patchwork of divided authority and sometimes conflicting priorities is emerging as a crucial underlying factor in the explosion of the rig. (23)

   The Marshall Islands, as the registered flag of Deepwater Horizon, was responsible for inspecting Deepwater Horizon and ensuring that the rig was in compliance with all required safety rules and regulations. (24) Nonetheless, the Marshall Islands failed to directly handle this burden. (25) The Marshall Islands outsourced its obligations to inspect ships registered under its flag to an outside contractor. (26) The company responsible for this inspection allowed Deepwater Horizon to maintain low staffing levels and allowed a drilling expert to override the captain on crucial decisions made on the day of the explosion. (27) Some survivors credit these allowances as contributing to the confusion and helping cause the disaster. (28)

   On June 17, 2010, BP, Transocean, and Halliburton representatives appeared at a hearing before the United States House Committee on Energy and Commerce. (29) At the hearing members of the House were noticeably angry with Transocean for registering the Deepwater Horizon vessel overseas. (30) Members of the House insinuated that Transocean did so in order to avoid United States tax liability. (31)

   Mississippi Democratic Representative Gene Taylor asked, "I'm just curious, how long did it take the Marshall Islands Coast Guard to show up when that rig caught on fire, and how long did it take the Korean Coast Guard to show up?" (32) Further, Minnesota Democratic Representative James Oberstar, chairman of the House Transportation Committee noted, "[m]y view after this tragedy is that we need to Americanize the vessels operating in the [United States'] economic zone." (33)

   The congressmen's comments speak directly to the heart of the problem with flags of convenience. The fact of the matter is, due to Deepwater Horizon being flagged under the Marshall Islands, the Deepwater Horizon oil rig was largely outside the jurisdictional regulatory oversight of the United States. (34) Nonetheless, the United States bore the burden of responding to and addressing the disaster; meanwhile, Transocean saved some 1.8 billion dollars in United States tax liability by moving its legal domicile from the Houston area to the Cayman Islands and later to Switzerland. (35) When confronted with this information, Florida Republican Representative John Mica concluded: "I think most of us would like to see every ship that operates [in the Gulf of Mexico] is American flagged, American staffed and American built." (36) Is the congressman's proposal the solution to the problem of flags of convenience?

2. BACKGROUND INFORMATION

   In 1958, a group of nations desiring to codify the rules of international law as related to the high seas, adopted a set of provisions that would thereafter be accepted as generally established principles of international law. (37) A main premise of these provisions was that any country should have access to the sea and should be able to have jurisdictional control over its own ships. (38) However, it was also said that a nation should carry the burden of regulating the ships over which it has jurisdictional control. (39) Thus, the process of registering and flagging ships was born. (40) However, it soon became apparent that this process of registering and flagging ships was ripe for exploitation. (41) Unfortunately, global entrepreneurs looking to capitalize on this process sought registries that gave them a competitive advantage over their peers by offering a lower cost: a more attractive alternative than registering with a developed nation. (42)

   1. Registering of Ships

      The United Nations Conference on the Laws of the Sea ("UNCLOS") sets forth the rules governing the ship registration process. (43) This document adopted and absorbed the rules set forth in the 1958 Geneva Convention on the High Seas. (44) The document came into force in 1994 when the sixtieth state, Guyana, signed the treaty. (45) Article 90 of UNCLOS provides that, "[e]very State, whether coastal or land-locked, has the right to sail ships flying its flag on the high seas." (46) Further, Article 91 of UNCLOS provides for how ships shall be registered:

      Every State shall fix the conditions for the grant of its nationality to ships, for the registration of ships in its territory, and for the right to fly its flag. Ships have the nationality of the State whose flag they are entitled to fly. There must exist a genuine link between the State and the ship. (47) Article 94 of UNCLOS establishes what the duties of the flag state once a ship is registered under their jurisdiction:

      1. Every State shall effectively exercise its jurisdiction and control in administrative, technical and social matters over ships flying its flag....

      3. Every State shall take such measures for ships flying its flag as are necessary to ensure safety at sea with regard, inter alia, to:

         1. the construction, equipment and seaworthiness of ships;

         2. the manning of ships, labour conditions and the training of crews, taking into account the applicable international instruments;

      4. Such measures shall include those necessary to ensure:

         1. that each ship, before registration and thereafter at appropriate intervals, is surveyed by a qualified surveyor of ships...

         2. that each ship is in the charge of a master and officers who possess appropriate qualifications, in particular in seamanship, navigation, communications and marine engineering, and that the crew is appropriate in qualification and numbers for the type, size, machinery and equipment of the ship;

         3. that the master, officers and to the extent appropriate, the crew are fully conversant with and required to observe the applicable international regulations concerning safety of life at sea .... the prevention, reduction and control of marine pollution ... (48)

         As shown, the flag state generally has the responsibility to ensure that everything on the registered ship is in accordance with generally accepted international standards. (49) However, every flag state does...