Under international law all countries are entitled to maintain a maritime fleet. This includes landlocked countries, i.e. countries without a coast line. Therefore it is possible to register an ocean-going vessel in, for instance, Switzerland. Obviously such ships depend completely on foreign ports.
There is no reason that Space Settlements wouldn’t be allowed to maintain a maritime fleet. Theoretically it would be entirely legal for Space Settlements to open a ship register for terrestrial ships. However, space settlements serving as flag states could be a potential source of controversy.
What is the importance of having a flag state? Scholars of international law sea-going vessels need to be registered in some country. Though it is technically possible to have an unregistered ship, but such a ship could be refused entrance to a port or national navies could legally enter such ship. Also it will be as good as impossible to get such ship insured at the Lloyd’s of London.
If a ship is registered in, say, Germany, it will carry the German flag and when it is in international waters, it falls under German jurisdiction. That means that all people on board are subject to German law. However, if a German ship is in Dutch territorial water, it falls nevertheless under Dutch jurisdiction. Further it is not done for foreign governments to forcefully enter ships of another nation at open sea. Such action would be a grave violation of territorial integrity.
One should not confuse ship registration with ship ownership. It if perfectly possible to register a ship in another country than that of its owners. Some countries limit their registers only to ships owned by their own citizens, but many countries are much less restrictive.
Flags of convenience are a highly controversial topic in public debate. Because certain countries have lax labour laws (involving minimum wage and workplace safety) or have lax tax laws, some shipowners chose to register their ships in so-called flags of convenience in order to circumvent their own nation’s legislation.
Without going into the discussion about the desirability of flags of convenience, the fact that this is a controversial topic should be an important warning for Space Settlements. The plain fact that Space Settlements are not located at Earth, will give rise to the suspicion that ship registers of Space Settlements are “flags of convenience”. Because of this, Space Settlements could get a negative reputation if they allow terrestrial ships to register under their flags.
Such negative reputation could be detrimental for the relations between Space Settlements and terrestrial governments. Also Space Settlements will set their neutrality at stake, as their ships could get involved in international conflicts. Therefore we believe that Space Settlements should explicitly renounce their right to maintain a terrestrial maritime fleet.