Ph.D. (c), M.Sc., Capt. LUU VIET HUNG
Maritime College No.1
M.Sc. NGUYEN VIET HOANG SON
Vietnam Maritime University
The article attempts to conduct a brief analysis of pros and cons about Open Registry system, taking into account the status quo of Vietnam maritime industry. Recommendation of application of the system is also provided.
Open registry and Flag of Convenience (FOC) have been in operation since the World War II and saw its rapid growth over the past years which accounts for roughly 70% of the world fleet . Open registry has become an important source of income for the States that are employing it, mostly the developing ones. Ten years have been passed since the last recommendation for the establishment of an open registry of ships in Vietnam, and now the subject has been brought up again due to the innovation policy from government to push up the economy, especially in maritime sector. Therefore, this article will review the pros and cons of Open Registry and open the discussion of whether Vietnam should opt for an Open Registry System.
2.1 The advantages of Open Registry System
First of all is the economic benefit, mainly from tonnage taxes and registration fees, which are considered to be among the most profitable income sources for the State. For example, revenue generated from Liberia’s maritime registry, second world largest Open Registry State, was estimated to be approximately $18 million annually, and was accounted for 25% of the national income . Similarly, since Panama Flag runs over 21.5% of all vessels trading in the world’s oceans today, compare to only 12.2% belongs to Liberia , the income from open registry services of Panama is obviously much larger.
Secondly, opting for open registry will attract more ship-owners due to both legal and economic reasons. Having the choice of flag enables ship-owner to control the operational costs of the vessels. For example, vessels restrictions under open registry will be minimized or even removed. State that allowing open registry usually provides only fewer requirements on the technicality, maintenance and safety of operations of the vessels and will grant the owners the free of choice in most cases . Administration and registration fees are low, coupled with favorable tax environment. Moreover, registration under a FOC generally means an unrestricted choice of crews in the international market, thus allowing operators to lower the labor costs by recruiting the crew from a less expensive market (i.e. developing countries), and at the same time avoiding the social charges. Another reason is the lesser stringent regulatory control imposing on vessels flying a FOC. Although Vietnam is a developing country, where is a big market of seafarers with low labor costs, the maritime industry has been seeing its gradual decline over the last few years. Thus, flagging out would help the country to not only entice more ship-owners, but also to create more potential job opportunities ;, so that to resolve the current surplus in the national seafarers market.
Another benefit of Open Registry system is arising from the incorporation, or other fees associated with meeting residency requirements , by reducing tolls and fees while passing a certain area, and also the political advantages when an incident occurs .
2.1 The disadvantages of Open Registry System
Nevertheless, open registry is facing many criticisms from other States that are loyal tothe closed registry, and also from international communities due to the issue in labor practices and the safety to the environment. Besides, Vietnam will have to confront the competition from other States operating FOC if Vietnam decides to join into the business of FOC.
As discussed above, open registry enables ship-owner to “immediately” lower his operational cost through the outsourcing of the crew, and by escaping from frequent inspections and regulations imposing on the crew . Seafarers working on a FOC ship are receivinginsufficient wages, living in poor on-board conditions with exhausted working period and without proper rests and they are often lack of training and/or certificate requirement . Since the objective of applying Open Registry is to attract the ship-owners, FOC countries do not enforce any minimum social standards or trade union rights for seafarers, in order to maintain the ship-owner’s interest.
This problem has caught the attention from The International Transport worker’s Federation (ITF) and the Organization has had a strong campaign targeting vessels flying FOC since 1984 . Besides, traditional States having genuine economic links with vessels, usually those are developed, have suffered damage from the reduction of tax revenue and job opportunity of seafarers because they have been substituted for lower-waged seafarers from developing nations. Furthermore, Vietnam has adoptedthe MLC 2006, which to ensure the proper conditions of seafarers, and although it is a judicious decision, it will actually lessen the temptation of foreign ship-owners to register under Vietnamese flag orrecruit Vietnamese seafarers.
Second concern over the FOC is the safety of the environment. Open registry States set up a very quick and flexible way of registration that allows vessel to be registered without calling a port in the Flag States. Most of the times, owing to the interest of the ship-owner, States of FOC often close their eyes on safety requirements. Ironically, more International mandatory rules are introduced resulting from the rapid growth of FOCs and the growing concerns over its safety, however, those States are actually less willing to participate in those Treaty as these are the barrier preventing ship-owners to register under their flags.
Thirdly, Vietnam would face a strong competition from other players in the FOCs market, such as pioneers including Liberia, Panama and Marshall Islands (8.6% of the world total DWT) or fast growing States like Hong Kong, China (8%) and Singapore (5.5%)  Besides, the “economy of scale” trend that increasing the ship size but reducing the number of ships,in the long term, will reduce the number of vessels and vessel registration, which would make the competition much fiercely. Vietnam would have to be innovative in providing added values to the customers, or targeting a specific vessel typeas what others did.For illustration, Panama caters largely for dry-bulk carrier while Liberia servesmainly oil tankers. Countries of ownership could also be specialized as another method, such as Panama flags are mostly used by Japanese . Nonetheless, Vietnam must keep pace of its national lawmaking systems simultaneously, because becoming an open registry State will attract not only ship-owners but also Port State Controls and other International Organizations such as the ITF.
Vietnam has promulgated in Article 9 – Decree No. 29/ND-CP the revision governing the registering and sale of ships. It regulates that in the circumstance of first register in Vietnam, used (secondhand) ships must be less than 10 years old from the build date for passenger ships, and less than 15 years old from the build date for other types. This would put a pressure to local ship owners with limited budget. As a result, they will not register under Vietnamese flag, but rather buy an old ship of 20 to 30 years old and register under other Open Registry Flag (such as Panama and Liberia), and operate in Vietnamese sea. Obviously, the income from Open Registry source will be lessened.
Establishing Open-registry would create a profitable source of income for Vietnam, however it also requires the State to be ready to confront negative responses for international communities and also fierce competition from other FOC States.Moreover, the maritime legal system in Vietnam is still at developing stage, and Vietnam is still remaining in the black list of Tokyo MOU. Therefore it is recommended that Vietnamese government should not jump into FOC market at the moment, but to first mature the maritime law and prepare all the necessary steps before setting up the open registry system. More quantitative analysis on cost and benefit should also be conducted before considering the option.
 UNCTAD. (2013). Review of maritime transport 2013 [Review]. Retrieved August 6, 2014, from http://unctad.org/en/publicationslibrary/rmt2013_en.pdf
 Schoen, J. W. (2003, August 11). Liberian shipping draws scrutiny. Retrieved August 6, 2014, from http://www.nbcnews.com/id/3072983/t/liberian-shipping-draws-scrutiny/#.U-I7NPmSxSE
 Dinh, V. H. (2013, May 29). Quasi Flag of Convenience. Retrieved August 6, 2014, from http://www.bantinhanghai.com/bai_viet_general/gioithieuvecobanthuantienquasiflagofconvenience
 Swan, J. (2002). Fishing vessels operating under open registers and the exercise of Flag state responsibility (FAO Fisheries Circular No. 980). Retrieved August 6, 2014, from Food and Agriculture Organization of the United Nation website: http://www.fao.org/docrep/005/y3824e/y3824e06.htm
 Febin, A. K. (2007, December 4). Evolution of Flags of Convenience [Web log post]. Retrieved August 7, 2014, from http://shippinglawtimes.blogspot.se/2007/12/evolution-of-flags-of-convenience.html
 Gregory, W. R. (2012). Flags of Convenience: The development of open registries in the global maritime business and implications for modern seafarers (Unpublished master's thesis). Georgetown University, Washington, D. C. Retrieved August 7, 2014, from https://repository.library.georgetown.edu/bitstream/handle/10822/557688/Gregory_georgetown_0076M_11950.pdf?sequence=1
 Nguyen, L. C. (2012). The introduction of Flag of Convenience Regime and its influences over parties in shipping industry. Journal of Maritime Science,32(11), 70-72. Retrieved August 7, 2014, from http://www.khcn.vimaru.edu.vn/tckh/sites/default/files/data/So_32_11_2012/70_Che%20do%20treo%20co%20thuan%20tien.pdf