Globalization, Competition, and Convergence: Shipping and the Race to the Middle

This article examines the impact of globalization on international environmental, safety, and labor standards through the lens of impact of open registration in shipping--the ability of shipowners to choose in which states to register their ships. Shipowners have moved registration of ships to low-standard states, while traditional national registries relaxed standards in an effort to keep ship registrations. But recent successes in increasing standards have come from mechanisms of exclusion: ships that remain outside the international regulatory process are prevented from benefiting from their free riding by the imposition of trade restrictions, dockworker boycotts, and inspection and detention processes that single out those operating outside the international regulatory framework. KEYWORDS: globalization, environmental standards, labor standards, international regulation, ships. Those concerned about globalization generally have long been concerned that international competition will lead to a downward convergence of environmental and labor standards. This convergence could happen individually--states could competitively lower standards in an effort to lure industry and thus gain economic advantage, in what is referred to as a regulatory "race to the bottom," or it could happen collectively, as international standards mandate a least-common-denominator level of regulation. (1) Ingo Walter, despite noting the contribution of environmental costs to plant closings in the United States, suggests that the bulk of the evidence "does not suggest massive environment-induced locational shifting thus far. " (2) Yet evidence, both anecdotal and statistical, suggests that industries sometimes will move to take advantage of low environmental or labor regulations. Walter, despite the broad conclusion of minimal shifting, does point to smelters, refineries, and asbestos plants that were constructed outside the United States due to weaker environmental controls elsewhere. An examination of level of environmental regulation and industry location choices in states belonging to the Organization for Economic and Community Development (OECD) finds a relationship between environmental regulations and level and patterns of exports. As David Wheeler points out, even those who do not find support for the pollution haven hypothesis should exercise caution, because "there is no theoretical reason why industries with exceptionally high pollution control costs should ignore regulatory concerns. " (3) And there is no theoretical reason for governments to ignore such industry decisions in deciding on levels of regulation. The jury appears to be out on the extent to which regulatory havens will come to exist and to draw industry to them and on the broader impact this phenomenon will have on global regulatory levels. Shipping is a particularly relevant sector within which to examine hypotheses about the effects of globalization. This industry demonstrates the very real threat of lowered standards in response to globalization and freer trade. If regulatory havens or races to the bottom are to be encountered any-where, they would likely be found in shipping. As a report from the Australian parliament noted, "It is a world of too many ships that are over aged and under maintained chasing too little freight for too little return. " (4) Ship registration is an often overlooked method of "moving" industries to a location with lower environmental and labor standards. Moreover, open registries present a potentially easier form of encouraging industrial movement than do standard pollution havens. From the perspective of shipowners, registration in an open registry does not require physically relocating an industry; it simply means changing the flag flown and the port indicated on the stern. Fees are sent to an office, and inspectors--if any are required--generally go to where the ship is. Many ships registered in such localities never even visit their flag states. …