(August 15)The Panama Canal will still allow vessels from Venezuela to pass through the canal provided they have the necessary paperwork, the chief of the waterway said yesterday. So far, new US sanctions appear not to stop Venezuelan vessels from using the Canal.
Trump's executive order
Last week the Trump administration issued an executive order that froze all Venezuelan assets in the US. Although US sanctions should apply only to US firms, the US always acts as if the US were a world government and threatens any country or company that does business with Iran. The US threatens to freeze the assets of any country or company determined to have "materially assisted" the Venezuelan government of Nicolas Maduro.
Canal Authority to remain neutral
Jorge Quijano chief of the Panama Canal Authority argued that waterway authorities should not submit to pressure from third countries on the issue of whether or not vessels could use the canal connecting the Atlantic and Pacific Oceans. If ships could not use the canal they would need to detour around the southern tip of South America a huge distance.
Quijano said: “We are signatories to a treaty of neutrality, also signed by the United States. We have to continue with that commitment as long as they follow the rules of the game, and the rules of the game are that it’s an innocent passage.”
Flags of convenience
Wikipedia describes flags of convenience: "Flag of convenience (FOC) is a business practice whereby a ship's owners register a merchant ship in a ship register of a country other than that of the ship's owners, and the ship flies the civil ensign of that country, called the flag state.[2] The term is often used pejoratively, and the practice is regarded as contentious. Each merchant ship is required by international law to be registered in a registry created by a country,[3] and a ship is subject to the laws of that country, which are used also if the ship is involved in a case under admiralty law. A ship's owners may elect to register a ship in a foreign country which enables it to avoid the regulations of the owners’ country which may, for example, have stricter safety standards. They may also select a jurisdiction to reduce operating costs, bypassing laws that protect the wages and working conditions of mariners.[4] The term "flag of convenience" has been used since the 1950s. A registry which does not have a nationality or residency requirement for ship registration is often described as an open registry. Panama, for example, offers the advantages of easier registration (often online) and the ability to employ cheaper foreign labour. Furthermore, the foreign owners pay no income taxes."
Three countries, Panama, Liberia, and the Marshall Islands who together have just 169 ships register 40 percent of global shipping. Professor Michael Roe of Plymouth university notes that these countries are virtually irrelevant when it comes to shipping but they have cheap flags and low standards of regulation.
Roe notes: ""One way to reduce costs is to choose a flag like Mongolia," Roe said. "It's got no coast, no ports, no real direct relevance to shipping, but it offers a flag that's cheap and low standards, therefore it is good for shipowners. According to the United Nations Conference on Trade and Development, 265 vessels with a total cargo capacity of 664,000 tons are sailing under the Mongolian flag."
If you lose the flag of convenience as now often happens to Iranian ships there are immediate problems: "Under international law, every merchant ship must be registered with a country, known as its flag state, which is responsible for safety and the crew’s working conditions. When a vessel loses its flag, it typically triggers loss of insurance and classification if it does not immediately find another flag."
US can put pressure on open register nations to deflag countries it opposes
The US acts as a type of global policeman punishing any country that violates its sanctions as if they applied globally. The US can use the threat of not doing business with a country that will not follow its sanctions. Thus the US is able to exert key pressure on countries such as Panama, Liberia, and the Marshall Islands to refuse to flag ships from Iran or deflag them.
A recent article notes: "A Reuters analysis of shipping registry data shows that Panama has de-listed around 55 Iranian tankers since January, Togo has de-listed at least three and Sierra Leone one. That represents the majority of its operational fleet of tankers, the lifeblood of the oil-dominated economy, although Iran may have re-registered some ships under new flag states."
Perhaps Iran can find a new open registry state such as Mongolia but perhaps it may find itself blocked from most if not all open registry states by US pressure.
Previously published in the Digital Journal
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