Panama’s flag has been a favorite among shipowners for over a century, with its easy registration procedure and cutting costs making it an attractive option. However, the practice of ‘flagging out’ and using the Panamanian flag to circumvent regulations raises concerns about safety standards and international maritime law.
Panama’s flag has been a favorite among shipowners for over a century. The recent incidents involving two ships sailing under the Panamanian flag off the coast of Germany highlight the reasons behind this trend.
Easy Ship Registration Procedure
One of the main reasons why Panama’s flag is so popular is its easy registration procedure. Panama operates an open registry, allowing any person or entity to register a vessel under its flag, regardless of nationality. This means that there are no restrictions on the number of registered ships.
Panama has one of the largest registries in the world, with around 16% of global merchant ships flying its flag. In 2023, Panama had over 8,500 vessels registered, making it the largest registry by number of vessels. This ease of registration allows shipping companies to save on costs and circumvent certain regulations.
Cutting Costs with a Flag of Convenience
According to Alexander Proelss, a professor of International Maritime Law at the University of Hamburg, “Panama is a typical flag-of-convenience state.” He explains that such states enable shipping companies to register their ships at low costs and fly the flag, thus circumventing certain wage standards and shipping regulations. For Panama, this registry makes for a lucrative business.
A Practice with Roots in History
The practice of “flagging out” and using the Panamanian flag dates back to the end of World War I and the Prohibition era. During this time, US ships were prohibited from carrying alcohol, but those flying the Panamanian flag were exempt. This led to the introduction of open registries, allowing shipping companies to avoid paying higher wages and offering better working conditions.
The trend continued in the 1980s, with Panama becoming a popular choice for shipowners looking to circumvent regulations. European states responded by opening offshore registries that offered more lenient regulations and lower taxes.
Challenges in International Maritime Law
Despite efforts to regulate the practice, it remains challenging to prohibit ships from sailing under a foreign flag or crossing certain waters. The International Tribunal for the Law of the Sea has clarified that a state’s right to award its flag is not restricted by the requirement of a “genuine link” between the state and the ship.
In recent years, Panama has taken steps to address safety concerns. In 2022, authorities removed over 160 vessels from the registry, including almost 80 fishing vessels suspected of unregulated fishing. However, more needs to be done to ensure that ships flying under the Panamanian flag meet international safety standards.
