Promotion of Romanian Flag as a Measure to Protect the Seafaring Profession

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Promotion of Romanian Flag as a Measure to
Protect the Seafaring Profession
Dragomir C.1
1 Constanta Maritime University, Faculty of Navigation (ROMANIA)
cristina.dragomir@cmu-edu.eu
Abstract
Protection of seafaring profession is a sine qua non condition for transporting ceaseless a tremendous
cargo capacity worldwide.
If at the time immediately following 1989, when Romania moved from communism to a long period of
transition to the market economy, the Romanian fleet comprised a total number of about 302 s hips, currently that
number has dropped considerably at fewer than 17 vessels under Romanian flag. Concomitant, Romanian sea
transport strategy shifted from the vanishing potential of transporting cargo with Romanian vessels to the
prosperous export of maritime workforce for international shipping companies. In such conditions, today
Romanian economy benefits multiplicatively of large wages gained by Romanian seafarers employed on foreign
ships, considering that wages are spent and invested inside Romanian borders. But due to the fact that Romania
doesn’t have a fleet anymore, there are no any national benefits from practicing shipping, though Romania has a
key position for international trade, transport and transit on water, as it holds strategic access to the Black Sea
and to the Danube, the Pan-European corridor VII. Also, sailing under so many different flags of the world,
many of them with distinct national regulations or requirements, brings up for Romanian seafarers severe social
factors, i.e. lack of group identity that interfere in the normality seafarer life.
An ideal situation will be the one when Romanian seafarers will be able to work on ships under a
renewed Romanian flag fleet. The transformation of Romanian flag into an attractive one not only for
Romanians but also for foreign owners would be possible by applying a favorable policy tax. Promoting
Romanian flag is a possible and achievable strategy to revive Romanian shipping, considering that there are
already three tax models (Dutch, Norwegian and Greek) applied and validated in shipping by other Member
States with positive effects, resulting in a (re-)flagging of the fleet and in a maintenance or improvement of
employment, onboard the fleet and in the maritime cluster.
The aim of this paper is to indicate the relation between promotion of the Romanian flag and promoting
seafaring. The objectives of the paper are the following: identifying ways to encourage national seafaring
profession, pointing solutions for promotion of Romanian national flag, reviewing several attractive policy tax
models existing in European countries and explaining the significant impact that promotion of Romanian flag
would bring to Romanian economy.
Keywords: flag of convenience, open register, multinational crew, employment, multinational culture.
Introduction
Maritime business is considered of strategic importance to all Europeans, since 90 % of all trade
between the Community and the rest of the world is transported by sea, as well as nearly half of the internal
trade [1].
Seafaring has many particularities. Ships are the main means of transport in international trade and even
if a ship is equipped with state of art technology, a significant attention must be focused to those who make this
technology work and ships move – seafarers. There is an obvious tendency to drastically reduce the number of
crew members, but never the human factor can be replaced by technology [2]. Seafaring is particularly difficult
than on shore employment because, unlike other occupations, the job of seafaring asks individuals to leave home
and spend considerable time working and socializing with a group of individuals (crew) in a limited space (ship).
Over time maritime crew life has undergone some changes, occurring difficulties related to the migration of
seafarers from sea to land. Life at sea has always been regarded as an adventure in which enthusiasm has played
an important role, but with time the desire to be near family is overwhelming seafarers. Therefore, even if is a
source of high incomes, seafaring is not perceived as an appealing long term career as other shore jobs.

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On board ship, most seafarers feel isolated from society, home, family and friends for long periods of
time ranging from voyages of one month to one year or even more. In addition, seafaring may be considered a
career with a high degree of risk. It is a job that requires access to a particular system of knowledge and
specialized language. It is a way of life that is not limited by national boundaries and which is characterized by
multinational crews and multinational cultures.
Many people working on shore industries spend a limited number of hours at work and return home
every night or at least every weekend. Outside office hours, they are free to go wherever they want on shore, to
make what they want and to meet who they want. This does not apply in the case of seafarers, as they have to
work, eat and meet every day with the same group of people for weeks or months. The group identity, even in an
isolated environment like the ship, stabilizes the emotional life and up to a certain point, compensates for the
lack of family life [3: 40-44] but unfortunately, many social problems appear when the working schedule is
overloaded and there is no time, or interest, to understand and deal with the mix of cultures on board.
Another problem might add in the case of flag of convenience social contracts. Many owners that
register their ships under flag of convenience (FOC), in countries with attractive tax regimes, also benefit of the
lack of social regulations in the FOC countries. There are many cases of FOC countries with deficient work
legislation, with social regulations that leave place for interpretation, lack of union free expression and socio
professional security, as well as inconsistency in constructing seafarers’ pension schemes or social welfare of the
families. Such problems are meant to disappear if seafarers would be employed ships sailing under their national
flag and would benefit by the social regulations established in their country of origin.
In the last decades was noticed an increasingly deeper reduction of European tonnage, as many
European owners decided to register their ships in countries outside Europe with attractive tax regimes.
European legislative institutions agreed to take measures in order to stop this phenomenon. Some feeble national
legislative initiatives to promote the Romanian flag were discussed between 2012 and 2013 but they were never
enacted due to lack of consistency.
The aim of this paper is to indicate the relation between promoting the national flag and promoting
seafaring profession. The objectives of the paper are to identify concrete ways to encourage national seafaring, to
indicate solutions for promotion of Romanian national flag and to point several attractive policy tax models
existing in European countries. The paper also explains the significant impact that promotion of Romanian flag
would bring to Romanian economy.
1 Literature Review on Flag of Convenience Countries and Basic Tonnage
Tax Models
The flag state is defined in The Blackwell Companion to Maritime Economics (2012) as: “the state in
which a ship is registered (…) The flag state can prevent a ship flying its flag from sailing if the ship is deficient
and does not conform to the requirements of the regulations which it has ratified” [4: 283].
The Maritime Transport Committee of the Organization for European Economic Cooperation defines
the term “flag of convenience” as “the flags of (...) countries (…) whose laws allow and make it easy for ships
owned by foreign nationals or companies to fly these flags, in contrast to the practice in the maritime countries
where the right to fly the national flag is subject to stringent conditions and involves far- reaching obligations”
[5: 125-126]. Flag of convenience implies distinct ownership, registration, tax regime and manning.
Papers on flags of convenience and tonnage tax models were made both by scholar academics, fiscal tax
advisors companies and governmental and non-governmental institutions and are available on international
indexed databases.
A comparison of the most important elements on tonnage tax models (Dutch, Norwegian and Greek) for
the shipping industry was made by PricewaterhouseCoopers [6] while Deloitte established a Shipping Tax Guide
comparing Greece, Cyprus, Luxembourg, Malta, Singapore and UK [7].
In 2006, the Danish Ministry of Economic and Business Affairs elaborated a work entitled “The Danish
Maritime Cluster – an Agenda for Growth” [8] where was presented the Danish Government’s action plan for
growth in the Danish maritime cluster, including financing options with the aim of renewing the fleet of smaller
vessels. In 2004, European Community Ship-owners Associations made an analysis on the effects of the 2004
Community state aid guidelines introduced in 1997 by the European Commission. In 2014, International
Chamber of Shipping (ICS) made a submission concerning the treatment of the taxation of revenue from the
domestic leg of an international voyage [9].
Academic scholar works on FOC and tax tonnage systems were made by the following. F.J. Montero
Llácer published a comprehensive paper on the past, present and future of open registers [10]. C. Elschner
illustrated “how special tax regimes can shape the organizational form choice” in the case of firms in the
shipping sector [11]; K. Mitroussi made an examination of the status of the EU registered fleet with an overview
of factors which affect employment of seafarers, including third party flags, cost considerations, the maritime
cluster effect, and regulatory burdens [12]. E. Kahveci, N. Lillie and P. Chaumette, P. [13] made a study

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financed by European Transport Workers’ Federation related to how to enhance training and recruitment in the
shipping industry in Europe, in which they acknowledge that “the analysis of EU countries showed that while the
tonnage tax has undoubtedly led to an increase in both tonnage and vessel numbers, the decline in numbers of
EU seafarers continued. European ship-owners have continued resorting to recruiting non-EU crews. Finally,
many European employers appear to be moving away from commitments to employ Europeans to deal with the
officer shortage in a serious way”. Therefore, they: “recommend that tonnage tax specifications be structured so
that shipping firms must actively participate in national training schemes and employ significant numbers of
European junior officers and ratings in order to be eligible to benefit from state support” [13].
It is notable to mention that M. Sjöqivst and F. Sorocka [14] made a case study research thesis on the
position of Wilhelmsen Group, a significant Norwegian shipping and logistics provider, regarding the
company’s position towards the reformed 2010 governmental rules for shipping taxation. The paper concludes
that, though, the Maltese tonnage tax model seems as a complimentary system, however in the long run,
according to calculations, the taxation is bigger in the Greek Model, than it was, in that time period, the
European model. Therefore, the improved 2010 Norwegian tax system has been shown to be prospering for
Wilhelmsen Group as for other shipping companies. The 2010 adaptation to a more Dutch Model system in has
made the new taxation system more prospering for shipping companies, as it has been set to a final taxation,
instead of deferred taxes [14].
P. Marlow and K. Mitroussi investigated the shipping taxation policy of the EU by concentrating on the
forms this takes in selected European countries and examined critically the comparative position of Greek
shipping in this context [15].
G. Batrinca (2010) wrote a paper on the benefits and drawbacks of tonnage tax regimes concluding that
“any shipping company before opting for the preferential tonnage tax system must judiciously assess its
complete financial position before such election can be exercised” [13].
2 Tonnage Tax Models
A number of successive steps have been taken to enable the European shipping industry to compete on
the world market. Initiatives for promoting state aid to maritime transport date from 1989 aiming to overlap the
gap between vessels operated under flags of convenience and those operated under EU flags. In 1997, Member
States were allowed to create a tax-free environment for Community ship-owners targeting ships entered in
Member States’ registers. Dutch and Norway governments answered promptly to this initiative by implementing
new shipping policies. Most EU member states have since introduced tonnage tax systems and/or schemes to
reduce crew costs along the lines of the guidelines. During 2003 the Commission made a revision of the 1997
state aid guidelines and the revised guidelines were valid through 2011 [16].
European Union state aid schemes have the aim to support the Community maritime interest, by:
“encouraging the flagging or re-flagging to Member States' registers, contributing to the consolidation of the
maritime cluster established in the Member States while maintaining an overall competitive fleet on world
markets, maintaining and improving maritime know-how and protecting and promoting employment for
European seafarers” [17]. The maximum aid permitted is a reduction of seafarers’ taxes, social contributions and
corporate taxes to zero [18].
The earliest tonnage tax system was introduced in Greece in 1957 is a flat rate tax calculated on ship’s
gross tonnage and age. There is no corporation tax on shipping companies’ profit. Cyprus tax legislation of 2002
enabled Cyprus to become the country with one of the lowest corporation tax rate in the EU. Registration of a
shipping company, is very simple, easy, and can be completed in few days. Tonnage tax for cargo ships is
calculated as (Basic charge + gross tonnage Increment) x age multiplier [19]. The most commonly used model is
the one adopted by the Netherlands in 1996: “The Dutch model”. It is a method by which a derived income is
calculated based on the net tonnage of ships operated. The ordinary corporate tax rate is then applied on the
derived income. The “Norwegian model” is a flat rate tax applied on the net tonnage of ships included and
taxation of dividends at the ordinary tax rate at company level. It also includes very detailed provisions for how
the shipowning companies should be structured in order to avoid difficulties in separating tonnage tax and non-
tonnage tax activities within companies. The “Dutch model” is the most generous model and is used by most
countries with individual modifications. Actual profits are not taxed. Instead, is calculated a specially computed
derived profit by multiplying the net tonnage of a vessel with a standard amount per ton and day. The derived
profit for one or more ships is then taxed in ordinary fashion. The corporate tax rate is 35%. A demand that the
ship should fly the Dutch flag does not exist. A Dutch shipping company can thus use the tonnage tax system
also for foreign flagged ships [18].

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3 Introducing a Tonnage Tax Scheme in Romania as a Mean for Revival of
Romanian Fleet and Protection of the Seafaring Profession
Regarding Romania, which is currently burdened with a post-crisis budget, a solution for the revival of
the maritime sector will be establishing a single tonnage tax. This is considered a simple incentive measure of
shipping that could be implemented without budgetary costs. The main advantage of such tax would be its
extremely low level that could reach sometimes, in real terms, less than 1%, while the shipping industry is going
well. The fee should be calculated based on registered tonnage multiplied by a flat rate per ton estimated profit,
taking into account that member states apply regression calculation scheme for small vessels which have a
higher rate of profit per ton compared to larger ones.
Romania can choose from the two models already validated in EU countries: the Dutch or the Greek
model or even to make their own calculations. Between 2012-2013 was made quite a feeble attempt to promote
such a regulation in OG 19/2012 but the initiative was rejected, probably from political reasons.
What should be taken into consideration are the numerous advantages that introducing a tonnage tax
scheme would imply, not only for foreign or national owners that would find appealing to register their ship in
the Romanian fleet, but also for Romanian economy that will gain more than the amount of tonnage tax, directly
and indirectly: protecting the seafarer profession by offering normal, legal, safer conditions to navigate,
encouraging a healthy maritime cluster with many workplaces available related to maritime domain, offering
many cadetship (practice on board ship) available positions and promoting development of maritime research.
4 Conclusion
A seafarer has the right to choose to work for any shipping company, no matter where the ship is
registered, but should keep in mind that the work contract cannot be established between him/her and the flag of
convenience employment agencies. The work contract must be the result of formal European seafarers’
collective bargaining, prepared by the European Commission, approved by International Labor Organization, by
International Transport Workers’ Federation (ITF) - an organization widely known for its involvement in safety
standards, wages, long hours of work and unsafe working conditions for seafarers or by other international
institutions. Such kind of official agreement, comprising all the social aspects, contributes to protection of the
seafarer career and to the psychological equilibrium of seafarers.
As papers on flags of convenience and tonnage tax models were made both by scholar academics, fiscal
tax advisors companies and governmental institutions, there should be a consensus between governmental
institutions, financial international and national institutions, academics, owners and seafarers associations and
other interested bodies when establishing the most appropriate national tax regime.
As ECSA concluded since 2004, most EU Member States nowadays apply state aid measures in
accordance with the EU state aid Guidelines, in particular fiscal alleviation measures for shipping companies and
labor-related alleviation measures. Member States that have applied state aid measures in accordance with the
State Aid Guidelines face positive effects, resulting in a (re-)flagging of the fleet and in a maintenance or
improvement of employment, onboard the fleet and in the maritime cluster, while member states that do not
apply any state aid measures in accordance with the State Aid Guidelines or apply them in an insufficient
manner have not been able to stop the decline of the fleet and of employment onboard and in the maritime
cluster. There is a need to maintain a competitive state aid regime in order not to lose the competitive position of
the fleet and this is the viable and validated action that Romania has to consider in order to revive Romanian
shipping.
The transformation of Romanian flag into an attractive one not only for Romanians but also for foreign
owners would be possible by applying a favorable policy tax. This is a way not only to protect but also to
encourage seafaring profession, as well as to develop many other job opportunities in the Romanian maritime
cluster. The project of Romanian shipping recovery by successive steps aims to lay the foundations for revival
and restoration Romanian fleet on a well-deserved place among other countries that have fleets registered under
the national flag. This is more than a rational and legitimate attitude, considering that Romania has a key
position for international trade, transport and transit on water, as it holds key access to the Black Sea and to the
Danube, the Pan-European corridor VII.
5 Acknowledgment
This article is a result of the project “Increasing quality in marine higher education institutions by
improving the teaching syllabus according to International Convention STCW (Standards of Training,
Certification and Watchkeeping for Seafarers) with Manila amendments”. This project in co funded by European
Social Fund through The Sectorial Operational Program for Human Resources Development 2007-2013,
coordinated by Constanta Maritime University.

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The content of this scientific article does not reflect the official opinion of the European Union.
Responsibility for the information and views expressed in the article lies entirely with the authors.
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