Mainbrace June 2025 | Page 5

MATTHEW J. THOMAS, JEANNE M. GRASSO, KIERSTAN L. CARLSON, NATALIE M. RADABAUGH

The U. S. Federal Maritime Commission(“ FMC”) announced on May 21, 2025 that it is initiating a non-adjudicatory investigation into whether the: 1) vessel flagging laws, regulations, and / or practices of certain foreign governments, including the so-called flags of convenience(“ FOC” or“ open registries”), or 2) competitive methods employed by owners, operators, agents, or masters of foreign-flag vessels, are creating unfavorable shipping conditions in the foreign trade of the United States( the“ Notice”). The investigation includes a 90-day public comment period, which ends on August 20, 2025.

FMC’ s“ Section 19” Trade Authority Section 19 of the Merchant Marine Act of 1920, 46 U. S. C. § 42101 et seq., authorizes the FMC to evaluate conditions that affect U. S. shipping in foreign trade and to issue regulations or take action to address such conditions. Potential remedies include port fees up to one million U. S. dollars, limits on voyages to and from U. S. ports or the amount or type of cargo carried, and other trade restrictions.

The FMC exercised this authority frequently in the 1980s and 90s( before the sell-off of the major U. S. liner operators to foreign buyers) to force market-opening concessions and eliminate discriminatory fees and trade barriers that impeded U. S. shipping companies’ competitiveness in overseas. However, these powers have been left nearly dormant for the past two decades.

The current investigation does not target particular flag States or propose any remedial measures; rather, it is a non-adjudicatory investigation pursuant to 46 C. F. R. Part 502, Subpart R, which allows the FMC to request information, conduct hearings, issue subpoenas, conduct depositions, and issue reports, at its discretion.

Summary of Investigation This investigation breaks new ground for the FMC, which traditionally has not had any role concerning vessel registries, marine safety, or the International Maritime Organization(“ IMO”) conventions, which set the global framework for vessel regulation. In the Notice, the FMC expressed concern about the conditions created by the wide and uneven range of foreign vessel flagging laws, regulations, and practices. While the Notice indicated that many nations take“ great care in creating standards for vessels flagged by their registries,” it also observed that other countries have engaged in a global“ race to the bottom” by lowering standards and easing compliance requirements to gain a potential competitive edge.

The Notice asserted that FOCs“ operate under lax regulatory oversight, leading to lower safety, environmental, and labor standards... and FOC vessels exploit lower operational costs through reduced taxes, cheaper labor, and irregular maintenance or safety measures.” But the FMC failed to recognize the quality chasm between industry-leading, U. S.-managed international open registries, such as the Marshall Islands and Liberia, versus thinly staffed or sham registries serving non-compliant shadow fleet ships.

The FMC’ s Notice discussed other unfavorable flagging practices, including“ flag-hopping” or using false flags to avoid regulatory oversight; using fraudulent ship registrations without the knowledge or approval of the relevant maritime administration; and operating in the“ shadow fleet,” i. e., outside the regular or official frameworks

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