Global Policy Forum

Bolivia Waves the Flag

The Economist
May 27, 2000

Flags of convenience have always had a rather suspect air. Never more so, surely, than when they are run up by a country without a coastline. But to landlocked Bolivia, that is part of the point: it hopes that its flag of convenience, formally launched this week, will not only attract foreign shipowners with tax-free incentives, but also strengthen its claim to a part of the Pacific coastline that was lost to Chile in a war in 1884.

The flag will come under the auspices of the defence ministry in La Paz (at 3,600 metres, the world's highest capital city). There, it will benefit from contact with the Bolivian navy, a Gilbert and Sullivan affair with admirals but no warships. Bolivia is also taking advice from a former leader of the world's biggest flag-of-convenience country, Panama.

The ambitious scheme has already had one setback. This month, Pellis Papadopoulos, its representative in Athens, was sacked as a deputy registrar after refusing to allow a visiting Bolivian delegation see his books. A replacement is being sought for the key job of selling the flag to Greek shipowners.

Meanwhile, Bolivia continues to press its claim for access to the Pacific. Although it has no diplomatic relations with Chile, it holds regular talks with the Chilean government. With Chile unlikely to hand the land back, a corridor linking Bolivia to the sea appears to be the only realistic option.

Apart from international shipping, Bolivia is also making a bid for seagoing and riverborne trade within Mercosur, the South American free-trade group. Bolivia is an associate Mercosur member and has already signed up Argentine barges, which carry soyabean and sugar down the Paraguay and Parana rivers.

Being landlocked is no barrier to the flag-of-convenience business, as Luxembourg has already demonstrated. Bolivia's plan will, however, bring it to the attention of the International Transport Workers Federation (ITF), which blacklists flags of convenience and tries to make shipowners sign agreements guaranteeing crews international rates of pay.

The ITF has recently announced that it wants its benchmark pay rate to rise on January 1st 2001, from $1,200 to $1,400 a month. That has angered shipowners, who criticise the ITF for ignoring market realities. A strong dollar means that seamen from developing countries such as Poland, India and the Philippines take home more money, though their wages are already high in relation to their domestic economies.

Pay talks between the ITF and employers, including P&O, Shell and American oil companies, have stalled. A final meeting is scheduled for early July, days before a key ITF committee meets to ratify the new contract. At the same meeting Bolivia may find itself added to the ITF's blacklist. But inclusion is not as bad it sounds. Flags of convenience now account for more than half the world's merchant tonnage, and they show no signs of slowing.

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