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What Is a Flag of Convenience?

Maul Law March 27, 2018

Listeners of the hit podcast Casefile may recall last August’s episode dealing with the 1998 disappearance of Amy Lynn Bradley aboard a cruise ship owned by an American corporation but registered or “flagged” in Norway. The phenomenon of ships being registered in foreign countries has come to be known as the “flag of convenience” problem. Because a ship  primarily follows the laws and regulations of the country where it is flagged, there is an incentive for ship owners to register their craft in states with loose oversight of safety, security, and labor issues. The Bradley case, which made headlines around the world, proved vexing to American investigators as the Norwegian registry of the ship coupled with its port location when Bradley went missing (Curacao) dictated in large part the laws that had to be followed. While some steps have been taken since 1998 to address this problem, flags of convenience remain a common feature of the maritime industry.

Not so with airlines. When international commercial aviation began to appear a as a viable industry after World War II, countries moved quickly to ensure that airlines could only be registered in the home states of their owners and that those owners needed to substantially own and effectively control the air carrier. In fact, international transit rights are contingent on the “purity” of an airline’s ownership profile. For instance, under the air services agreement between the United States and Canada, if Air Canada were to be purchased by, say, British Airways, the U.S. could move to restrict or rescind Air Canada’s right to conduct service to and from the U.S. Moreover, international aviation law takes the further step of almost absolutely barring cabotage, that is, the transit of passengers and cargo within the territory of another country. Under current cabotage restrictions, British Airways, for example, is barred from boarding passengers in New York and deplaning them in Los Angeles.

While these restrictions are largely justified on the basis of national security, organized labor has long opposed flags of convenience on the grounds that it encourages owners to seek registering in states lacking strong minimum wage, work hour, and workplace safety rules. There is also a safety element in play. Although the 1944 Convention on International Civil Aviation (“Chicago Convention”) and its regularly updated annexes impose a uniform set of minimum safety criteria for international air transport, the truth of the matter is that many poor countries lack the infrastructure to properly monitor their airlines and air transit systems. Understandably, critics of flags of convenience highlight the possibility that airlines will be flagged in poor, low-oversight states, leading to an increase in airline crashes and fatalities.

Whether that is true or not is debatable. As discussed previously, most international airlines are subject to the Montreal Convention, a treaty that maintains stringent civil liability for air carriers. Even if American air carriers such as United or Delta wanted to “flag” themselves in a foreign state in the hopes of reducing regulatory costs, the fact remains that both of them would be subject to hefty civil damages awards should they injure or kill passengers in the course of international transit. It is doubtful these and other major-market carriers would be able to compromise their safety standards without causing alarm among their insurance agents and investors.

None of this is to say that flags of convenience are nothing to worry about. In the realm of maritime law, this problem has been blamed for helping to shield vessel owners from civil liability to encouraging criminals to use both passenger and cargo maritime transit as a vehicle to move drugs, weapons, and even enslaved people around the world. Unfortunately, finding true transnational cooperation to address these and numerous other issues associated with flags of convenience is still proving elusive.