No C 189/20 Official Journal of the European Communities 28. 7. 86 
Additional opinion on the guidelines for a Community policy in the shipbuilding sector (J) 
(86/C 189/10) 
In its opinion of 26 September 1985 on the proposal for a Council Directive amending Directive 
81/363/EEC on aid to shipbuilding, the Committee argued that it was extremely important for the 
Community to work out precise guidelines for a series of well-coordinated measures on which an 
overall policy for the shipbuilding sector could be based. 
With this in mind, on 25 September 1984 the Section was instructed by the Committee Bureau to 
draw up an additional opinion on shipbuilding (rapporteur: Mr Arena). 
The Section adopted the opinion on 5 March 1986. 
At its 236th plenary session (meeting of 23 April 1986) the Economic and Social Committee 
adopted the following opinion by a large majority with two dissenting votes. 
1. Background 
1.1. More than 10 years after the onset of the 
shipbuilding crisis, the situation justifies concerned 
appraisal of the industry's future and, by definition, the 
effectiveness of the policies pursued to date in an attempt to 
halt the decline. 
1.2. The greatest cause for alarm is the absence of any 
sign of relief. Capacity utilization rates are still too low 
despite constant and continuing efforts to trim capacity to 
fit demand. 
1.3. Accordingly, the Committee wishes to consider the 
industrial policy aspects and the outlook for the shipbuild­
ing market before going on to express its views on the 
Commission's guidelines regarding aims and the means of 
achieving these aims. 
2. State of the Community shipbuilding sector: produc­
tivity and competitiveness 
2.1. Overall productivity trends show no significant 
improvement despite capacity shedding and substantial 
improvements in terms of rationalization. Employment, 
and hence production capacity, in this sector have dropped 
by over 50 % since 1975 but output has fallen at the same 
rate because of dwindling orders. 
2.2. The methods used for achieving these cuts can be 
questioned. The Commission departments have a point 
when they claim that it would have been preferable — in 
terms of industrial policy — to close down a larger number 
of shipyards rather than cutting the capacity of each on a 
more or less proportional basis. Even leaving aside the 
(!) OJ No C 258, 10. 10. 1985, p. 7. serious local social and economic side-effects, closures 
would not, however, have played a decisive part in 
regaining the required productivity levels, demand has 
fallen too drastically. On the other hand, work reorganiza­
tion and restructuring measures have had a substantial 
impact — and the labour force can certainly not be accused 
of lack of commitment as regards individual output. 
2.3. The restructuring process has failed to achieve 
substantial results because these measures and this 
commitment have not found their parallel in a steady flow 
of activity. Neither the volume nor the phasing of work 
have been adequate to match the efforts to increase 
productivity and the efficiency of the system as a whole. 
2.4. Clear-cut proof of this state of affairs can be found, 
even today, in the report on the state of the shipbuilding 
industry in the Community (Doc. COM(85) 548 final), 
which points out (paragraph 4.2.1) that despite further 
shedding of capacity in 1984, the average capacity 
utilization rate was still only around 60 %. The reason for 
this is to be found not only in the stagnation of world 
demand for ships, but equally in the reluctance of Far East 
countries, despite their informal commitments, to reduce 
their capacity to the same extent as in Europe, or even, in 
some cases, to halt its expansion. 
2.5. Hence the growing frustration over the effects of the 
large-scale and costly (in both economic and social terms) 
schemes to adjust shipbuilding capacity. 
2.6. As regards competitiveness, the differential be­
tween the Community's costs and prices seems to have been 
increased in recent years by (a) rising production costs, 
which (as has been seen) have not been adequately offset by 
a sufficient pick-up in productivity and are also boosted by 
the structural costs of unused capacity, and (b) in the steady 
28. 7. 86 Official Journal of the European Communities No C 189/21 
post-1981 drop in market prices ( — 40 %), which fell to 
1976/78 levels on average in 1984. Statistics for the first 
nine months of 1985 confirm this downward trend. 
2.7. It is well-known that prices — in practice fixed by 
the Far-East shipyards, which together account for over two-thirds of the world market — have for vears little more 
than covered the 'external' costs (materials, specialist 
services, etc.) borne by Community shipyards (see Table 1). 
These costs account at most for 60 to 65 % of the total cost 
of building a ship. 
TABLE 1 
Illustration of prices for newly built ships charged by Far-East shipyards compared with just the 'external' 
costs borne by Community shipbuilders in 1985 
Type of ship 
General cargo: 5 000 dwt 
Panamax: 62 000 dwt 
Product carrier: 40 000 dwt 
Fruit carrier 
Crude carrier: 80 000 dwt 
Crude carrier: 130 000 dwt 
Container ship: 2 500 teu (J) 
Bulk carrier: 220 000 dwt (million US $) 
5,6 
16 to 17 
23,0 
19,7 
19,6 
42,0 
27,0 
38,5 External costs 
(million US $) 
6,3 
14,0 
19,0 
18,0 
17,5 
35,7 
24,0 
33,2 
(') Twenty-foot equivalent units. 
Source: Linking Committee. 
2.8. Everything therefore goes to show that restructur­
ing measures, however trenchant they may be, do not 
suffice to achieve a competitive industry. Similarly, without 
a sufficient workload, it would be unrealistic to set any 
theoretical target for Community shipbuilding capacity. 
2.9. Since it must be expected — as all the most 
authoritative market forecasters agree (see Table 2) — that 
world demand will remain for some years at a very low 
level (10/12 million cgrt), the ability of European 
shipbuilding to survive (at any rate in certain Member 
States) must be seriously questioned. 
2.10. Here clear signs are already visible as regards both 
shipbuilding structures and the size and quality of the 
secondary component, viz. the various suppliers of 
materials, parts and equipment who, as mentioned above, 
together account for around 60 % of ship-production 
costs. 
2.11. Just as shipbuilding companies lacking the 
necessary cash flow cannot invest in the plant or research 
required if they are not to fall behind their competitors, 
Community secondary suppliers need reliable market 
outlets in order to sustain their own R&D, production 
and after-sale services. 
2.12. Both shipbuilders and their suppliers deplore the 
disturbing drop in qualified staff, despite the training 
schemes organized, due to their inability to offer attractive 
career prospects in the immediate future. This trend is particularly at a time when technological advances will 
increasingly influence production processes and products. 
2.13. Consequently the very infrastructure of this 
industry — a cornerstone of Western Europe's maritime 
economy — is now under attack. The decline may turn out 
to be irreversible. More generally, all the various skilled 
activities that make up this system (shipping, commercial 
and speciality services, as well as shipbuilders and ancillary 
sectors) show increasing signs of erosion. 
2.14. Another area that has not escaped is ship repairs, 
which is badly hit by the current structural changes in 
demand. Here again great sacrifices (on both the economic 
and employment fronts) are being forced on the Member 
States. As this sub-sector is often closely interlinked with 
shipbuilding, these sacrifices ultimately exacerbate the 
latter's plight in various ways. The Committee would 
suggest that the Commission also give due attention to the 
ship-repairs sub-sector. 
3. World production trends 
3.1. Table 3 shows the distribution of the world market 
among the major shipbuilding areas. 
3.2. In all international forums where attempts are made 
to find solutions to the shipbuilding crisis, attention is 
focused on two points: (a) tailoring of production capacity 
to discernible market trends, and (b) ways of ensuring a 
return to reasonable price levels. 
3.3. Though views still diverge sharply on the produc­
tion capacity cuts made in the Japanese shipbuilding 
industry, it is clear that by far the major brunt of the crisis 
TABLE 2 
PAST AND PROJECTED TRENDS IN WORLD SHIPBUILDING PRODUCTION (M/CGRT) o 
n 
CGRT, 
25 — 
20 
15 
10 — / / 
y 
SAJ 
— AWES B 
I 
9 
3 
I 
PAST TRENDS FORECASTS 
77 ' 78 ' 79 80 ' 81 ' 82 ' 83 ' 84 ' 85 ' 86 ' 87 ' 88 § 89 ' 90 ' 91 ' 92 ' 93 ' 94 ' 95 ' 96 
: AWES/SAJ. oo 
\l 
oo 
OS 
28. 7. 86 Official Journal of the European Communities No C 189/23 
has so far been borne by European shipyards. In addition, 
while the drastic downscaling of this sector seems a 
permanent fact of life in Europe, that is not altogether true 
in Japan despite the period of relative hardship this country 
is currently experiencing (perhaps for the first time) both on 
the domestic and international fronts. Several factors— (a) 
fierce competition from Korea and Taiwan, (b) the 
substantial constrasts that have surfaced between large and 
small shipyards, (c) the repercussions of the collapse of one 
of Japan's largest shipping consortia (Sanko), (d) the visible 
gap between the shipbuilding and advanced technology 
sectors of the Japanese economy — have made cracks (or so 
it would seem) in the Japanese Government's systematic 
and carefully programmed strategy for the entire sea-going 
sector, which was a lynchpin of the impressive expansion of 
Japanese shipyards and fleets up to the early 80s. The 
prospect of a deregulation drive in fixing production aims, 
and hence a large scale free-for-all, would spur Japanese 
shipyards to more aggressive tactics, with foreseeable side-
effects on world market conditions. It is worth mentioning, 
however, Japan's proposals for the new technological leap 
forward in this sector planned for the end of the next 
decade. 3.4. In the case of South Korea — which hitherto has 
been reluctant to engage in negotiations on production 
capacity and prices — its relatively undeveloped tech­
nology should be more than offset by very low labour costs 
and state aids for several years to come pending the 
heralded new investment programmes, which would seem 
merely to have been postponed. The heading 'rest of the 
world' conceals the eruption onto the international 
shipbuilding scene of the People's Republic of China which, 
together with Brazil and Taiwan, reflects the gradual shift 
in this sector towards the industrializing countries. 
4. Forecast for the European shipbuilding industry 
4.1. In the light of the above, two paths seem open to 
Community shipbuilders: either to follow the example of 
Sweden, which has virtually ceased to build merchant 
ships, or to equip itself properly so as to survive the next 
few years, when the market crisis will still be in its most 
acute phase, and be ready to face up to the challenge of the 
1990s concentrating, for instance, on as specialized a 
product as possible. 
TABLE 3 
Trends in world order books (% in CGRT) 
Japan 
Western Europe 
(EEC) 
Rest of world 
(South Korea) 1976 
46 
29 
(17) 
25 
(2) 
100 1977 
44 
33 
(18) 
23 
(3) 
100 1978 
40 
31 
(19) 
29 
(2) 
100 1979 
42 
33 
(18) 
25 
(4) 
100 1980 
47 
31 
(17) 
22 
(6) 
100 1981 
42 
32 
(18) 
26 
(6) 
100 1982 
42 
26 
(18) 
32 
(9) 
100 1983 
50 
16 
(11) 
34 
(14) 
100 1984 
50 
22 
(15) 
28 
(10) 
100 1985 
44,5 
24,5 
(19,5) 
31 
(8,3) 
100 
Source: Lloyd's - EEC. 
4.2. It seems superfluous to reiterate yet again the 
reasons for preserving a shipbuilding industry tailored to 
the needs of Member States' fleets and Community 
seagoing transport. supply/demand balance should any further cuts in Europe 
merely make it easier for shipyards in other parts of the 
world to increase their share of the world market unless 
prevented from so doing by effected agreements. 
4.3. Regardless of the outcome of the required action by 
the Member States' governments, and in particular the EEC 
to get Japan and Korea finally to shoulder a fair share of the 
burden of the crisis, the Community shipbuilding industry 
(with variations from country to country) will clearly have 
to press ahead in the next few years with the process of 
restructuring capacity, constantly bearing in mind that 
seagoing transport is of key importance to the Community, 
as the world's largest trade partner, with the heaviest sea 
traffic. 4.5. They key factor is the shipyard utilization rate, the 
main aim being to achieve an optimum manning level 
(labour being one of the largest heads of expenditure) and 
greater concentration of orders. In this last connection, it 
would be preferable to close down a number of yards so 
that aid can make a greater impact. 
4.4. It would, however, be futile to hope that even 4.6. It has to be asked whether the future size of the 
substantial capacity cutbacks can restore a healthy world Community shipbuilding industry should be determined by 
No C 189/24 Official Journal of the European Communities 28. 7. 86 
the level of funds earmarked for this sector, or by social, 
economic or strategic considerations. 
4.7. The Committee is bound to point out that: 
— further labour shedding would seem more expensive 
and likely to cause greater political difficulties, in a 
period of sluggish economic growth and high un­
employment, 
— should output fall below a certain level, most of the 
industry will be doomed, partly because of the 
impossibility of attracting skilled managers, technical 
staff and workers, 
— naval and merchant shipping requirements make it 
imperative for many countries to maintain adequate 
shipbuilding facilities. 
4.8. In the light of the above, it has to be said that the 
shipbuilding sector has now contracted to the minimum 
sustainable level in some Member States and efforts should 
concentrate on maintaining and safeguarding that level. 
The question is how much further the Community 
shipbuilding industry as a whole still needs to go. 
Consequently the strategical guidelines to underpin 
implementation of a sound Community shipbuilding policy 
need to be determined. 
The policy pursued by the EEC Commission to date has 
consisted of stepping-up monitoring of aid and tightening 
the links with restructuring. A policy focused on the 
collective potential of the Community shipbuilding 
industry — even encouraging cooperation, coordination 
and merger agreements that may not necessarily be 'global' 
— would in fact have been far more effective. The scarcity 
of such agreements to date is due to the lack of unanimity 
between Member States and between shipbuilders. 
4.10. In any event, the deterioration of market con­
ditions beyond anything that could reasonably have been 
predicted has jeopardized the Commission's aims. The 
ultimate goal of a self-reliant shipbuilding industry is still a 
far-distant prospect. 
4.11. One cannot fail to be struck by the discrepancy 
between the efforts being made by the Community 
authorities to control and reduce aid granted by EEC 
countries to their shipbuilding industry and these author­
ities' inability or lack of the necessary energy to track down 
and denounce the multiple forms of aid received by 
shipyards outside the Community, as well as the obvious 
dumping practices which this opinion condemns. 
5. Potential schemes to give the industry a shot in the arm 
5.1. Community shipbuilding policy is bound to be 
founded on the Council resolution of 19 September 1978. It 
is therefore unthinkable that the Member States should not 
be resolved to ensure the survival of this industry. Hence 
the urgent need for measures to sharpen the competitive 
edge of Community shipbuilders vis-a-vis non-member countries, preserve fair competition within the Community 
and establish more equal terms of competition on the world 
market. 
5.2. Community shipbuilders, aware that the main 
responsibility for recovering their competitive force rests 
with themselves, continue to strive jointly with the other 
social partners (despite the difficulties inherent in lack of 
orders) to improve organization and working methods and 
retrain staff at the same time as keeping investment 
(notably in R&D) within the limits of their under­
standably scanty funds. 
5.3. However, without aspiring to obsessive self-
sufficiency, greater attention should be given to encourag­
ing Community shipping companies to concentrate orders 
as far as possible on Community shipyards. These 
companies should also be offered terms enabling them to 
face up more effectively to international competition, 
thereby halting the decline that, in the space of five years, 
has brought about a 20 % reduction (28 %, if Greece is 
omitted) in the Community fleet. The far-reaching changes 
currently taking place in sea transport could determine the 
fate of Community carriers, especially in the vulnerable 
sector of line transport, in the face of the challenge by the 
large United States and Taiwanese shipping companies 
with their new round-the-world services. 
5.4. Several measures still at the project stage merit a 
closer look. The Committee takes for granted the 
operational validity of instruments such as the European 
Social Fund and the European Regional Development Fund 
— though the latter's effectiveness (especially as regards 
non-quota operations) could with advantage be substan­
tially boosted. 
5.4.1. Home-credit scheme 
5.4.1.1. The home-credit scheme (HCS) will attract 
particular attention. Disregarding the many complex 
technical aspects that have to be solved in order to frame a 
satisfactory scheme, and bearing in mind both the 
considerable differences in the workings of national 
financial markets and the fact that conditions on the 
shipbuilding market over the next few years will probably 
become more acute than ever, the HCS should preferably 
be implemented with a certain measure of flexibility (as a 
partial substitute for current arrangements or, in some 
cases, as complement to existing national schemes). 
5.4.1.2. It seems unrealistic to expect that in the next few 
years action by the shipbuilding industry will manage to 
narrow the cost-price gap to such an extent that the HCS 
will offer shipowners enough advantages over the OECD 
28. 7. 86 Official Journal of the European Communities No C 189/25 
export-credit scheme, even if correctly applied in non-
member countries. 5.4.4. Scrap and build 
5.4.2. Research and development 
5.4.2.1. It is unnecessary to dwell on the key role of high 
technology in sharpening the competitiveness of Com­
munity shipbuilding, which has to contend with high 
labour costs. Some technologies cannot be introduced as 
extensively or as fast as in other sectors. However, the 
latter's experience will enable the shipbuilding industry in 
its turn to adopt specifically tailored methods and 
equipment (CAD/CAM techniques, robotics, etc.). 5.4.4.1. The disappointing reception given at the time to 
the proposed scheme linking premiums for the scrapping of 
outdated ships with the building of new ones should not 
discourage a fresh attack on similar lines (possibly focused 
solely on the scrapping side). 
5.4.4.2. Obviously much will depend on the size of the 
premium, which will have to be large enough to act as a 
significant incentive to shipowners. 
5.4.4.3. As to the idea of encouraging the setting-up of 
scrapyards in countries with very low labour costs — an 
idea currently championed particularly by the Japanese — 
the perils of developing production capacity that could be 
converted into shipbuilding and/or repair yards should not 
be overlooked. 
5.4.2.2. R&D cooperation must therefore be given 
every encouragement at all levels: bilateral/multilateral; 
between the Member States' shipyards and research 
institutes. Such cooperation merits special financial 
support, bearing in mind that innovatory techniques 
applicable in traditional processes could be just as valuable 
as basic research leading to radically new processes. 
5.4.2.3. The Committee regrets the absence of any 
R&D programme tailored specifically to shipbuilding and 
hopes that, as an alternative, existing Community 
programmes, such as BRITE and ESPRIT will provide for 
satisfactory measures. 5.4.5. Action to restore balance on the world market 
5.4.5.1. The minimal success achieved so far by the 
Community's efforts to contain Japan's dominant share of 
the market and slow down the rapid expansion of the 
Korean shipyards — the main cause of the disruptive price 
war — should have convinced the EEC and Member States 
that only a determined political drive can bring these two 
countries round the negotiation table to restore a minimum 
degree of order to the world market. Action is needed in the 
shape of either bilateral/multilateral agreements or moves 
within international organizations. 
5.4.2.4. New production methods will have to go hand 
in hand with modernization of the product itself so as to 
capture sections of the market that are less vulnerable to 
direct competition from the 'price leaders' countries. 6. Conclusions 
5.4.3. Standardization 
5.4.3.1. No headway whatsoever seems to have been 
made at the lengthy talks between national experts on 
standardization of the countless components that go into a 
ship. While accepting the theoretical merits, the Committee 
feels that the way ahead might lie not so much in 
standardization for its own sake as in measures to 
encourage a small circle of suppliers so as to achieve 
consistent economies of scale at Community level. In short, 
the idea is not for each Member State to produce identical 
pacts but for a limited number of specialized suppliers able 
to meet the requirements of all Community shipyards at 
more competitive prices. 6.1. The above appraisal of the situation has given rise 
to grave concern over the future of the Community 
shipbuilding industry. Prices have slumped to well below 
the level dictated by slack demand, partly as a result of the 
aggressive tactics of certain producer countries. This factor 
— combined with the disappointing impact of the very 
significant drive by Community shipbuilders to stimulate 
productivity and competitiveness, and with gloomy 
forecasts of the time needed for orders of new ship to pick 
up — augurs the relegation of Community shipyards to the 
bottom of the international league unless speedy action is 
taken to get off the ground a policy differing radically in 
respect of both key principles and implementing arrange­
ments from that pursued to date. 
6.2. In the Committee's view, the Community can no 
longer drag its feet in identifying the minimum level of 
capacity to be defended with all our might. Here it should 
be pointed out that current production capacity (ap­
proximately 2,8 million cgrt) is not even 30 % of what is 
needed to update just the Community fleet handling 
No C 189/26 Official Journal of the European Communities 28. 7. 86 
Community import-export trade, quite regardless of cross-
trading. The Commission must return to the charge and 
determine this minimum capacity determination, making 
sure that Member States are not blinkered by inexcusable 
partisan interests. The accession of Spain and Portugal, 
both of them major shipbuilding countries, further 
complicates the Community's problems. 
6.3. Once the minimum capacity has been identified, the 
Member States (via agreements, possibly along the lines of 
the steel industry market quota arrangements) should join 
with the Community in framing a clearcut policy 
safeguarding the shipbuilding sector. 
6.4. Meanwhile, the Directive relating to the post-1986 
period will have to take account of the aims of the above 
new policy for the resuscitation of an industry which has 
been far too long in the grip of a recession that could have 
dire consequences in terms of the workforce and profes­
sional skills. Attempts to modernize and upgrade produc­
tion methods and products need to be matched by orders 
commensurate with production capacity, as described 
above. This sectoral policy must be accompanied by the 
development of new industries in hard-hit areas, par­
ticularly when further sacrifices prove necessary. Carefully 
thought out production specialization should assist in 
revitalizing the sector. It will then be less difficult to face up 
to the rapid technological changes in the shipbuilding 
industry that are predicted for the 1990s. Naval equipment 
for marine activities other than off-shore oil production is a 
market with huge potential. 
6.5. Ship repairs and shipbuilding are interlinked and 
therefore require coordinated action in the shape of 
restructuring and support measures ensuring the healthy 
survival of this subsector too. 
6.6. As mentioned in its opinion of 26 September 1984, 
the Committee recommends more stringent arrangements 
for monitoring and inspecting ships entering Community 
ports so as to cut down the number of unsafe vessels. 
6.7. Nor must it be forgotten that the fate of the 
shipyards (including ship repair yards) determines that of 
ancillary activities (which account for over half the total 
Done at Brussels, 23 April 1986. cost of building a ship). Consequently firms supplying ship 
components which will have to rationalize and specialize, 
will ultimately receive a substantial share of the aid 
nominally earmarked for shipbuilding. (This aid is anyway 
only the counterpart of the customs protection enjoyed by 
other manufacturing sectors). 
6.8. The scale, and hence the admissibility of such aid — 
ensuring total comparability and transparency — has to be 
assessed in relation to the complexities of the Community's 
maritime sector, which registers a substantial profit. 
6.9. Both on economic and strategic grounds, the 
shipbuilding industry is an intrinsic and inextricable facet 
of this sector. A comprehensive approach is more than ever 
essential in tackling the difficulties of the shipbuilding 
industry in conjunction with those of Comrrfunity ship­
owners. Due mainly to unfair competition from many non-
Community countries, the latter are now menaced by 
dangers reminiscent of the start of the Community 
shipbuilding crisis during the late 70s. Should these dangers 
be underestimated, it will be far harder to secure 
compliance with the Council and European Parliament 
resolutions aimed at protecting the Community's maritime 
sector. 
6.10. Consequently, the Commission should work, on a 
broad basis, for appropriate international political and 
commercial action to resist all kinds of protectionist 
policies followed by third countries, thereby creating a 
climate in which the competitiveness of the Community 
merchant shipping fleet can be restored. This will be an 
effective means of boosting the shipbuilding sector at the 
same time. 
6.11. In particular the Economic and Social Committee 
urges the Commission to play a more active role in GATT 
to end dumping, as well as in bodies cooperating on the 
reduction of shipbuilding capacity, especially OECD 
Working Group No 6. 
Until conclusions are held with the Asian countries and 
produce results, it is essential that the Community take 
measures to safeguard its shipbuilding industry. 
The Chairman 
of the Economic and Social Committee 
Gerd MUHR