Action Item 1: Launch Open International U.S. Flag

Action Item 1: Launch Open International U.S. Flag

Immediately establish an open international U.S. Flag in the U.S. Virgin Islands (USVI) to provide responsible and transparent oversight to a commercial fleet of foreign and domestically owned and operated vessels.

New international standards are required to create a safer, cleaner, and more transparent shipping industry. The U.S. remains an illogical bystander as other major shipping nations set their own agendas within international forums, carving out their own interests. An immediate and effective way to create new international behaviors and lead through the power of example is for the U.S. to establish an open international U.S. flag in the U.S. Virgin Islands (USVI). The flag will allow the U.S. to command a diverse commercial fleet and reform the practices of international flags.

The shipping industry moves more than $4 trillion USD of imports and exports into and out of the United States every year. For the past fifty years, the U.S. has increasingly relied on shipping lines from other countries to carry most of these goods: Maersk based in Denmark; CMA-CGM based in France; MSC - Switzerland; COSCO - The People's Republic of China; ONE - Japan; Hapag-Lloyd - Germany; Evergreen - Taiwan; HMM - South Korea. The top nine container firms are organized into three alliances that dominate 83% of maritime trade. None of these companies are American. 16 companies control 80% of the world’s shipping container construction and leasing. None of these companies are American either. There is only one U.S. shipping company in the top 30: Matson, ranked 26th, with only 0.2% of global market share.

Fifty percent of the ships that traverse our international waterways are registered in just three jurisdictions – Panama, Liberia, and the Marshall Islands – where loosely enforced regulations and lack of due diligence and oversight has created enormous risk to the U.S. and global shipping industry and facilitated illicit activity on the high seas. The U.S. has traditionally supported the top three open international flag state regimes; however, they have since grown too large for true compliance oversight and lack the desire to provide genuine global law enforcement services. Many open international flag states have knowingly or unknowingly enabled much of the illicit and unsustainable practices seen on the high seas today. In some cases, flag states have turned a blind eye to further restrict the disruption of these practices, running contrary to the U.S.’s strategic interests. The long-term results are plainly visible in the supply-chain dysfunctionality that has occurred over the last year and other unruly behaviors by state actors that run contrary to a transparent and rules-based international order on the high seas.

The creation of an autonomous international flag based in the USVI would allow the U.S. to take a leading role in quality and sustainable management practices and set new standards in maritime operational excellence. A new secondary U.S. Flag dedicated to international trade and commerce would provide a significant increase to U.S. tonnage; increase U.S. maritime labor capacity; uphold higher international standards for the safety of seafarers; allow for greater oversight of global trade and commerce; facilitate green seas initiatives, and incentivize U.S. financing, investment, and ownership in domestic maritime initiatives.

The USVI Flag would also help to meet the needs of the U.S. Military Sealift. Through its formal relationship to the U.S. Flag, USVI-Flagged merchant vessels and U.S. mariners would be permitted and called upon to bolster the needs of Sealift, including through the Voluntary Intermodal Sealift Agreement (VISA) or other USG programs. U.S. Agency stakeholders in the maritime industry such as the United States Coast Guard (USCG) and Maritime Administration (MARAD) would have considerable involvement in the outcomes of the USVI Flag.

The protection of a nation’s sovereign flagged vessels on the high seas is the traditional mission of any deployable Navy. The U.S. Navy has a long history of safeguarding navigational rights and freedoms around-the-globe for ships of all nations, while also engaging adversaries and nonstate actors to protect U.S. flagged commercial vessels wherever they may sail.

As an organized, unincorporated United States’ territory, the United States maintains sovereignty, oversight, foreign affairs, and defense responsibilities for the USVI. The creation of an open, international U.S. Virgin Islands registry will expand the number of U.S. -flagged vessels traversing the world’s oceans. Those ships that fly the USVI flag will carry the same level of protection as their U.S. -flagged counterparts as they travel around-the-world.

This new arrangement will result in additional planning and mission responsibilities for U.S. naval forces in the event of conflict or interference directed at a USVI vessel engaged in lawful trade; this especially applies in global hotspots. With the world’s largest Navy, Coast Guard, and deployable Special Forces, the U.S. will not require an expansion of operational capabilities for this enhancement of operational capacity but may require the engagement of these forces on a more frequent basis. This engagement may be as simple as an increased presence in shipping lanes under threat, an activity that the U.S. already engages in regularly. Such engagements will further strengthen the international freedom of the sea that has facilitated U.S. political, diplomatic, and economic power for the last two centuries.

As the U.S. flag state administrator, the U.S. Coast Guard (USCG) is well-suited to take a leadership role in the oversight and compliance strategy of this new USVI registry. The USCG’s expertise in maritime safety and security will be critical to the transparent functioning of this new registry. The USVI registry will meet or exceed all international standards and governing treaties set by the International Maritime Organization but will also benefit from the USCG’s broad experience in overseeing foreign and domestic vessel compliance.

The USVI registry would be professionally managed as an independent entity while being completely open to all USCG officials, inspectors, and law enforcement personnel. Though independent and separate from the U.S. registry, the USVI registry will enjoy complete synchronization with the USCG and be accessible by other USG agencies involved in maritime safety and security. COPE° will work with the U.S. Congress to ensure any legislation required for implementation enshrines a robust, practical oversight role for the USCG in this new open international registry and ensures complete transparency between the USVI registry and U.S. intelligence, law enforcement and regulatory agencies. This blend of transparency, oversight and independence has the potential to transform the international flag-state apparatus and be the exemplar of compliance-driven, business-friendly, and accountable registries in the global market.

Implementation Capacity

Northeast Maritime Institute developed and currently manages and operates the Commonwealth of Dominica International Ship Registry. The Dominica Registry was facilitated by the U.S. Department of State and the United States Coast Guard, commencing operations in 1999. For the last 21 years, the Dominica Flag, known as the “Flag of Responsibility,” has proven to be a great asset for the disruption of illicit activities—such as human trafficking and sanction/treaty violations—by discovering techniques and identifying problem areas that exist as vessels, commodities and cargo traverse the ocean. While there has been some success, there have been serious limitations on how far the Dominica Registry could go, particularly with the government of Dominica’s inability to ratify relevant treaties, maintain transparent domestic support, and maintain the traditionally needed resources.

Alternatively, the USVI flag will benefit from the full collaborative capacity of U.S. government partners as well as interagency cooperation. Northeast Maritime Institute will bring considerable knowledge and expertise to the development and management of the USVI Flag and stands ready to work alongside U.S. partners and international allies to ensure the success of this unique initiative, including facilitating robust interagency collaboration:

Objectives:

● Continuously upgrade the USVI-flagged fleet, including with state-of-the-art multipurpose crane ships (self-unloading container, dry bulk, break bulk, project ships) and commodity tankers to increase commercial capacity, decrease sovereign risk, and improve national security outcomes. ● Provide extensive maritime employment opportunities to U.S. and international merchant mariners ensuring relevant and active jobs on commercial ships to earn qualified sea time and hone critical skills, including modern and advanced Maritime Education and Training (MET) initiatives. ● Provide financial incentives to U.S. shipyards, ports, and workshops that maintain multifunctional, environmentally sustainable, and economically viable ships. ● Encourage foreign owners to register vessels under the USVI Flag and engage in trade with the U.S., giving the U.S. direct oversight of these vessels and their owners. ● Provide a global reach that the U.S. flag has not seen in half a century, expanding the influence of the United States, and building transparency into global shipping practices. ● Provide an obtainable Carbon, Nitrogen Oxides (NOx), and Sulfur Oxides (Sox) reduction incentive program to facilitate alternative fuel expansion in the maritime sector. ● Enhance maritime strategic benefits through direct alignment with U.S. policies abroad.

Key Benefits:

● Competes with China’s Maritime Silk Road, a core part of the Belt and Road Initiative. ● Provides the U.S. Government with a platform for further intervention on the high seas to counter a wide variety of illicit activities: Combatting Illegal, Unreported, and

Unregulated (IUU) fishing, wildlife trafficking, counter-proliferation at sea. ● Increases ability of U.S. military to enforce security upon the high seas and in foreign trading lanes. ● Adds and maintains multipurpose crane ships and product tankers required for Sealift capacity. This also reduces operational and maintenance costs. ● Provides a destination for U.S. corporate investment in maritime transport. ● Supports short sea shipping initiatives and improves efficiencies, frequency, and the security of cargo as it moves through regional transit points. ● Addresses the need for more qualified personnel in the U.S. merchant marine. ● Provides employment opportunities for U.S. mariners to keep them trained, employed, and qualified during peacetime to prepare for wartime events or Sealift surges. ● Supports and enhances local universities and colleges with maritime education and training capabilities that meet USCG and international standards. ● Creates employment opportunities, economic diversification, and resilience for the USVI. ● Provides more flexibility and cost benefit in maintaining a multipurpose commercial international fleet (since USVI is exempt from the Jones Act.) ● Helps decrease costs of transportation for regional and affiliated states and territories, thus lowering costs to citizens. ● Rejuvenates island economies and stops the brain drain after recent hurricane devastation, through local economic multiplier effects. ● Provide tonnage and vessels to cater to industrial needs (e.g., U.S. Marine highways). ● Reduces port fees and costs for cargo and vessels entering the U.S. through increased

U.S. ownership, including financial incentives facilitated by the USVI flag.

Figure 1 - Chart of Merchant Fleet ship owning nations (‘000 DWT). Note the dramatic reduction in the U.S. fleet compared to most other nations.

Spotlight: Illicit Cargo vs Transparency

Many countries have become increasingly vulnerable to the illicit goods trade. The rise of “narco states” and other malign actors has made maritime security increasingly risky. It has also increased the volume of illicit goods, weapons and narcotics ending up on U.S. shores. Two obvious reasons for the rise of such activities are weak international regulation and a disjointed approach to enforcement by the global shipping community.

Data from the OECD shows that the highest number of customs seizures of counterfeit and pirated products were from postal parcels. Sea transport accounted for the most seized value (see FIGURES 2 and 3 below). Over the last five years, containerships have been responsible for carrying over 55% of the total value of seized counterfeits. In terms of number of seizures, trafficking of fakes via small parcels is growing and becoming a significant problem in terms of enforcement; however, in terms of value, counterfeits transported by container ship has continued to rise.

One of the major reasons for the increased volume of illicit goods being transported across major shipping routes is the use of “Flags of Convenience.” As previously stated, fifty percent of the ships that traverse our international waterways are registered in just three jurisdictions – Panama, Liberia, and the Marshall Islands – where loosely enforced regulations and lack of due diligence has created enormous risk to the U.S. and global shipping industry and facilitated illicit activity on the high seas. The USVI Flag offers a unique opportunity to create a new model for open international registries that will drive new behaviors, standards, and sustainable shipping practices.

Figure 2 - Conveyance methods for counterfeit and pirated products (Source: OECD - 2019).

Figure 3- Conveyance methods for counterfeit and pirated products: Share of Seized Value (Source: OECD - 2019). Note: The percentage of customs seizures for sea/vessel would increase dramatically if the number of container inspections increased. Some leading experts estimate that only 1% of all illicit cargo is intercepted before it reaches consumers.