Over the past 75 years, shipping companies owned by Americans and Europeans have stopped registering their ships in these countries and have instead asked them to fly “flags of comfort.” By registering their ships on a list of countries such as Liberia, Panama, Marshall Islands and others, they have avoided labor laws, registration fees, environmental regulations, and taxes. This practice allows these companies to operate more profitably at the expense of the workers they employ and the treasury of the country in which they operate.
The move was legal, even encouraged by some in the American government for years. Now that the bottom has fallen from the tourism industry thanks to the Wuhan coronavirus outbreak, these companies – many of whom maintain their main offices in the United States despite foreign registration – cry red-white-and-blue tears as financial Stimulus Congress is passed last week excluded them.
After decades of neglect of responsibility, the arrival of the cruise ship company has long been delayed. If they want a flyer now, let them ask someone else for it.
Flying the ‘Flag of Ease’ is nothing new
The ships had raised the flag of the country where they lived. Merchant ships sometimes use fake flags in wartime, but this kind of modern peacetime shenanigans came during the Prohibition when American ships adopted comfort flags to help run rum.
The former USS Zafiro, an inactive Navy coal ship owned by a group of Americans and Canadians, was named Belen Quezada in 1919 and registered in Panama. Then began the tradition of shipowners who pretended to be foreigners to avoid the legal consequences of their own country.
A article by Adam Green in The Economist magazine, 1843, tells the next story:
Many American ships will follow him; Dry cruises are worried about losing their European competitors, who can serve alcohol to passengers, and shipping companies want to avoid increasingly stringent American labor laws. The Panamanian shipping registry continued to balloon in the 1930s with an eclectic mix of new arrivals: from the Danzig oil tanker to the Norwegian whaler; from smuggling Greek weapons to short-lived pirate radio stations operating off the coast of Los Angeles.
It was not long before the financial services industry paid attention to Panama’s laissez-faire regulatory regime. In 1927, Wall Street helped Panama pass a series of laws that allowed anyone to form an anonymous tax-free company with a few questions.
Other countries soon joined the Panama game. Professor Elizabeth R. DeSombre wrote in her 2006 book, “Marking Standards“That the list of Liberian ship registrations was promoted by former US Secretary of State Edward Stettinius as a cost-effective registrant for oil tankers. The Marshall Islands Registry, DeSombre notes, is not even based in the Marshall Islands; run by the successor to the Stettinius company outside the office in Reston, Virginia.
Avoiding the Rules Has Consequences
These are all ways for shipping companies to avoid taxes, circumvent regulations, employ non-union maritime workers, and deride environmental laws. The biggest exchange, up to now, has been the loss of corporate citizenship that once guaranteed the country of origin of the ship would protect it.
However, since the end of the Second World War, the American navy and allies have been dedicated to sea freedom as a broader concept, not just to their own merchant ships. Keeping international waters open and free from piracy has become a Western gift to the world, regardless of ship registration.
Exchange here is not like that faced by all American industries. We impose many rules to protect workers, rules to protect investors, rules to protect the environment, and taxes to pay for everything. But we also keep the door open to the world, which means a rational economic reaction to those rules often takes someone’s business elsewhere. Free trade allows companies to leave their American workforce this way. Registration of open shipping makes the task easier for yacht owners.
Congress speaks loudly but provides an easy way out for business. Effectively, this has encouraged this kind of behavior. Stettinius is not an evil freebooter; he is a former cabinet official and ambassador with links to the richest people in America and the most powerful company. Her Liberian efforts have been blessed – and often with participation – from these people and organizations. Similar to the bipartisan free trade consensus that has prevailed until now, the people who suffer from it, such as maritime labor, are ignored, and the numbers are reduced.
Nobody Likes Handouts to Foreign Companies
These shipping companies now recognize another exchange: American taxpayers do not like sharing with American companies, but they really hate giving to foreign companies. And if the “foreign” company only becomes foreign to avoid US taxes and laws? It is hard for any politician to say that such companies must get money from the taxes of American workers and American companies that actually live here.
Republican Senator Josh Hawley of Missouri has expressed opposition to foreign shipping lane bailouts. Last week, in response to news about the company, he tweeted, “Come back to America. And pay your taxes. How about that? “President Trump echoed Hawley’s concerns two days later at a press conference.” I like the concept, “he said the word“Maybe, come and register here. Come to the United States. It is very difficult to give loans to companies when they are based in another country. “
Democrats agree with Hawley and Trump on this issue. Representative Hakeem Jeffries from New York tweeted, “Major shipping lines sail under foreign flags to avoid paying U.S. corporate tax rates And now anyone wants American taxpayers to save them? Get it. Defeated. “Representative Peter A. DeFazio from Oregon, also a Democrat, said the same thing:” They are not Americans. They do not pay taxes in the United States. “
The current epidemic has produced several examples of bipartisan cooperation, and this is one of them. Nobody – Democrats, Republicans, or independents – wants to give taxpayers money to companies who have fled our country to save money and avoid regulations.
Trump has said that while he is opposed to banning them out directly, “the shipping lane business is very important,” and, “we cannot let the shipping lane go out of business.” Fortunately, we might not need to do anything to save them. Even though they are excluded from federal loan guarantees, they can still borrow money from banks, and banks seem ready to lend. According to Bloomberg News, Carnival Corporation is in talks with bankers to increase billions in bond issuance, all without the help of Uncle Sam.
That would be a good solution: business can survive in difficult times without government assistance. This should be the only solution available for foreign-flagged cruise ship companies. Lending money to American companies is not necessarily bad; when this is over, workers will need jobs to return. But if Royal Caribbean wants a flyer, let them ask Liberia to take the tab.
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