FINLANDS SJÖFART J SUOMEN MERENKULKU 39
In other words, the OECD proposal would
ensure that corporations pay taxes and
participate in the common societal effort
regardless of where they base their operations.
This development is particularly interesting for
the shipping industry because of its ability to
move ships with ease from one legal jurisdic-tion
to another.
The primary legal authority governing the
activities of a merchant ship is the state in
which the ship is registered i.e. the flag state.
Under Article 94 of the United Nations Conven-tion
on the Law of the Sea (UNCLOS) a flag
state is required to effectively exercise its
jurisdiction and control in matters administra-tive,
technical, and social over ships flying its
flag. Additionally, under Article 91, there must
exist a genuine link between the state and the
ship.
Shipping today is dominated by flags of
convenience (FOCs) by which shipowners of
one country can hire the flag of another
country. These FOC flag states do not insist on
a genuine link and consequently are unable to
exercise jurisdiction and control. If that were
not bad enough, they corrode the governance
of the global shipping industry and fuel a race
to the bottom on social, environmental and
safety standards.
The FOC flags offer regulatory advantages, low or zero
corporate tax and complete flexibility over crew recruit-ment.
The global top three ship registers (Panama,
Liberia, and the Marshall Islands), all declared FOC by the
International Transport Workers’ Federation (ITF),
account for over 40% of the world fleet, but well over 50%
of the world fleet is currently registered in FOC states. The
failures of these flag states to exercise effective control
has led to the necessity for port states to step in to enforce
international standards, thereby externalising the cost of
flag state failures.
These FOC flag states have been crucial for shipowners
to increase profitability at the expense of society. For a
shipowner, different factors can motivate them to seek the
commercial advantage flowing from choosing to register
their ships in these FOCs, including tax avoidance,
limiting liabilities, light touch compliance with interna-tional
maritime social, safety and environmental conven-tions
and hiding behind the corporate veil by availing
themselves of beneficial company and financial law.
When it comes to employment standards, the advan-tages
provided to shipowners is often referred to as ‘social
dumping’. Such practices are particularly evident in
European shipping, where it is legally possible to employ
third-country nationals onboard ships engaged in regular
intra EU/EEA services and pay them far below European
standards. Such practices undermine the EU acquis,
infringe upon the EU principles of equal treatment for
equal work, and enable discrimination between seafarers
in terms and conditions of employment on grounds of their
residence but in practice this is de facto on grounds of
nationality.
The ongoing Covid-19 crisis has exposed the complexity
of a global industry with unfettered mobility of labour and
capital. FOCs have not adequately assumed jurisdiction
and control over the social matters concerning their ships.
Shipowners have been forced to turn to their own coun-tries
for help and many have been ignored by their govern-ments,
leaving seafarers working on ships registered in
FOC states without access to their fundamental social and
employment rights.
It is estimated that 90% of international trade by volume
is carried by sea. Yet seafarers, who have been at the
forefront of maintaining trade and the flow of essential
medical supplies, food, and energy, have been treated like
second-class workers. Hundreds of thousands of seafarers
went beyond their original tours of duty, in some cases for
more than 17 consecutive months, and often without
access to shore-based leave and medical treatment.
Social dumping also undermines the goals of the EU
state aid guidelines for maritime transport. It is a practice
that needs a holistic response from member states.
Various countries have established favourable tax regimes
under the EU guidelines, referred to as tonnage tax
systems, through which subsidies for shipping activities
are provided to support the growth of that country’s ship
register and promote employment of national seafarers.
These tax systems also cover so-called ancillary activities
to shipping such as port operations.
Including shipping in the OECD global minimum tax
proposal would encourage shipowners to choose bona fide
flag states: those that comply with Articles 91 and 94 of
UNCLOS. It would still enable them to access favourable
state aid systems and ultimately contribute to giving
workers access to decent work in the most strategic sector
involved in global trade. This would support and enhance
the EU’s maritime resilience.
In the current context, where all member states are
struggling to recover from Covid-19 and have committed at
the Porto Summit to continue deepening the implementa-tion
of the European Pillar of Social Rights at EU and
national level, the OECD proposal for a global minimum
tax would ensure that public investments made by society
to promote an industry also provide returns in form of job
creation, adequate training, and decent working condi-tions.
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