Opinion on the proposal for a Council Directive amending Council Directive 90/684/EEC on aid to shipbuilding () (94/C 397/22)

On 19 December 1994 the Council decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community, on the abovementioned proposal.

The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 30 November 1994. The Rapporteur was Mr Simpson.

At its 321st Plenary Session (meeting of 21 December 1994), the Economic and Social Committee adopted unanimously the following Opinion.

1. Overall conclusion

1.1. The Committee welcomes the recommendation of the Commission that the existing provisions in the Directive on aid to commercial shipbuilding within the European Union should be extended for a further year to the end of December 1995. The Committee also acknowledges the need for the further proposals in the proposed Council Directive as outlined in COM(94) 444 final.

1.2. This conclusion is, however, to be accepted as a reflection of the particular problems which continue to face this industrial sector. The evidence of continuing world wide over-capacity, a low level of demand from new shipbuilding orders and further large additions to capacity in Japan and, particularly, South Korea confirm that this industry is still vulnerable to very serious market distortions.

2. Market conditions

2.1. The Committee is aware that during 1993 the volume of orders placed with shipbuilders, on a world wide basis, and in the European Union, increased over the very low levels of 1992. However, after allowance for work completed, new orders for shipbuilders in the Community were still not large enough to increase the total level of orders on hand at the end of the year. Indeed the amount of work on order at the end of 1993 was lower than at any time since 1988.

2.2. Little evidence is available of a sustained recovery in shipping freight rates and improved contract prices for shipbuilders. Despite the ageing structure of the world's ships, replacement demand continues to be low. This makes the imbalance between capacity, which is increasing dramatically in the Far East whilst reducing in the European Union, and orders, a source of continuing instability.

3. Fundamental steps

3.1. The longer term correction of the problems of the industry requires a more fundamental approach to the creation of a market less influenced by State Aid and protectionist measures.

3.2. For these reasons, the Committee welcomes the interim steps now suggested by the Commission but accepts that they must be seen in the context of efforts to reach global agreement on the scope, if any, of future aids to shipbuilding.

3.3. The incorporation of the members of the EEA into the amended Directive is a further welcome development which, coincidentally, will also help to present a stronger European influence in the global negotiations.

4. OECD proposals

4.1. Whilst the proposed agreement negotiated by the OECD is fundamental to the logic of the Commission proposal, the Committee notes that the OECD Agreement has not yet been completely finalized and does not guarantee a comprehensive acceptance by all shipbuilding countries. However, the present indications are that an agreement should be reached which would remove, on a global basis, all significant State Aid to commercial shipbuilding. This is an objective which, provided it can be achieved successfully by ensuring open and fair competition, has the support of the Committee.

4.2. In advance of the ratification of the OECD proposals, the Committee believes that shipbuilders within the European Union should continue to have the partial assistance of the present 9 % aid ceiling. Indeed, the Committee hopes that the Commission, within its discretion, if the Directive is amended, will retain the 9% limit, for larger vessels, without any further reductions until the end of December 1995. Suggestions of a stepped reduction during 1995 would, in the opinion of the Committee, be counter-productive.

4.3. At an appropriate stage in the negotiation process the Committee wishes to have further opportunities to comment on the detail of the proposed OECD Agreement. At this stage, the Committee wishes to underline its expectation that the Agreement should have regard to all aspects of shipbuilding aid, whether direct or indirect, aimed at export or home buyers, and involving financial credits for builders or buyers.

4.4. In anticipation of the new OECD Agreement the Committee notes that a critical aspect of the Agreement will be the arrangements for enforcement, or dealing with complaints. The form proposed will be scrutinised carefully to test its effectiveness. The principles of the amended GATT anti-dumping legislation set a framework which the Committee hopes can be met for shipbuilding. Particular conditions may be necessary to impose discipline in the ship building market, including sanctions against the owners, or operators, of vessels which are acquired with the aid of illegal levels of assistance, direct or indirect, although the Committee has reservations about the practicability of such sanctions.

4.5. The Committee suggests that the European Union should not abandon all support for its own shipbuilding industry until it is clear that there is general compliance with the OECD Agreement.

5. Other EU aid

5.1. The Commission has assured that the amended Directive, if approved, would not extend the present levels and scope of aid to shipbuilders in the European Union. This also applies to aid for shipbuilders in the former GDR.

5.2. Also, the Commission explained that the proposal to allow payments of Pts. 89m. to Spanish shipbuilders was a financial adjustment which related to contracts and restructuring agreed before the end of 1993 and represented no increase in the scale, scope, or value of assistance.

5.3. The Committee welcomes the Commission proposal to extend the existing aid to nonmetal hulled vessels.

6. Reservations

6.1. The most important reservation which is held by the Committee lies not with the present proposed amended Directive but with the implications for the evolution of competition policy for the shipbuilding industry in the years ahead. Enquiries suggest that the recent, and current, increase in shipbuilding capacity in the Far East, especially in South Korea, has been undertaken despite requests from the Community for greater restraint on a voluntary basis. The Committee supports the recent comments of Sir Leon Brittan when he suggested to the Korean authorities that the latest increases in capacity in that country would be an obstacle to the achievement of the objectives of the OECD Agreement.

6.2. If the shipbuilding industry within the European Union is to compete in a global market without any significant State Aid and in a period when capacity reductions are of critical importance, the Committee insists that the Community must find means to ensure that, either as part of the OECD Agreement or in parallel, these investments in extra capacity take place in a manner which does not distort competition.

6.3. The Committee wishes to remind the Council of the policy outlined in its earlier Opinion ()() on New Challenges for Maritime Industries. This is especially relevant to the new shipbuilding arrangements, and their links to trading conditions, as they apply to Korea, Japan and the United States.

6.4. In its Opinion on the amendment to the Directive in 1993, the Committee drew attention to its endorsement of the importance of an effective maritime system for the competitiveness of the Community's economy. The Committee said in 1992 that it favoured a radical shift in attitude to help relaunch this sector ()().

7. Aspiration

7.1. In 1993 the Committee concluded, after a similar review of Aid to Shipbuilders, that 'it is certainly not possible to say that the goal of maintaining an effective, competitive shipbuilding industry ... has been achieved or is just around the corner' ()(). In 1994 there are more optimistic and constructive efforts nearing completion. The Committee hopes that the OECD Agreement can deliver successful outcomes to match these ambitions.

Done at Brussels, 21 December 1994.

The President

of the Economic and Social Committee

Carlos FERRER

() OJ No C 334, 30. 11. 1994, p. 13.

() OJ No C 223, 31. 8. 1992.

() OJ No C 249, 13. 9. 1993.