ARCHIVESHISTORIQUES
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DOCUMENTS "COM"
COM(79)446
Vol.1979/0155

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(79 >446 final
Brussels -25th September 1979
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K ■'
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i •.Γ. ' - .-
\ *- '* %
V,..
COMMUNICATION FROM THE COMMISSION TOTHE COUNCIL
ONASCHEME TOPROMOTE THE SCRAPPING
AND BUILDING OFOCEAN-GOING SHIPS
C0M(79 )446 final

COMMUNICATION FROM THE COMMISSION TOTHE COUNCIL
ONASCHEME TOPROMOTE THE
SCRAPPING AND BUILDING OFOCEAN-GOING SHIPS
1.Introduction 2
2.Grounds forconsidering a
Community scheme 5
3.Type ofaction to "beconsidered 8
4.Procedure forimplementing
the scheme 13
5.Conclusions 19
Annex :Data Sheet

1.Introduction
1.1 .Inits Communication tothe Council of6December 1977 on
the reorganization ofthe Community shipbuilding industry /
the Commission stressed the need for urgent action tobe
taken tosupport the reorganization ofthe sector .
InitsResolution of 1?September 1978 ,the Council recognized
the need tomake qualitative andquantitative adjustments to
the sector .Ittherefore requested the authorities ofthe
Member States and the Community tosupport the restructuring
efforts undertaken bythe industry and toalleviate ,in
particular ,the social consequences ofthe crisis .Inaddition ,
itrequested the Commission toinvestigate measures which
could help toincrease orders for new ships atCommunity
shipyards .
This communication concentrates onthe latter aspects ofthis
resolution .Although theproposals contained inthis document
would have positive social implication for the sector ,this
communication does not concern itself with specific social
measures .
»
The Commission intends topropose ,ingood time ,supplementary
social measures for the sector .These will bedeveloped in
close collaboration with all interested circles .The Commission
will take pain toensure that these measures are consistent
with those others aimed atfacilitating the restructuring of
the sector .

-3-
1.2 The crisis afflicting the shipbuilding industry
appears tobeeven more serious
than indicated intheabovementioned Communication from the Commission
totheCouncil ,thenewenergy crisis having darkened theprospect still
further .
'This applies inparticular totheCommunity industry :itistobe
feared that the extremely low level ofnew orders which the Community
shipbuilding industry haswon since 1975 »a*"!which istending todrop
still further ,will intheyears ahead "bring down production toalevel
even lower than that predicted forthebeginning ofthe 'eighties .
Such asteep decline inactivity will gravely hamper the efforts the
Community industry has "been making toachieve gradual ,orderly adjustment .
This turn for theworse makes such restructuring even more imperative –
and much harder .
The reorganization ofthesector isadifficult ,long-term process which
cannot "besuccessfully carried through unless there isaminimum level
oforders .
Given that theproblem ofthewhole shipbuilding industry inallthe
Member States isaffected ,theCommission feels that ithas aduty to
take the initiative inproposing ascheme tore-stimulate demand inthis
sector over the coming years inwhich the crisis will "bemost severe .
TheCommission considers that anyscheme should satisfy two criteria :
reorganization ofthe sector isindispensable inorder tomaintain
ahealthy andcompetitive industry whose scale ofactivity is
consistent with theCommunity 's "basic interests .Ascheme designed
toraise thelevel ofdemand ,should facilitate asatemporary
measure ,thereorganization while preventing the collapse ofthe
sector :
mview ofthe seriousness ofthe crisis the action should have a
real impact ,inasshort atime aspossible ,onthelevel ofdemand .

Inthelight ofv;vathasbeen said above ,andafter examination ofvarious
possibilities ,itappears that ascheme providing financial assistance
toencourage theplacing ofadditional orders ,combined with thescrapping
ofships which would not otherwise bebroken upyet ,isthe most suitable
(ascrap -and-build scheme ).
Itressembles the scheme inprogress forthe steel industry inthat they
areboth crisis schemes designed tomake the reorganization more tolerable
from thepolitical ,regional aridsocial viewpoints .Forthe steel crisis
plan ,however ,theCommunity was able ,under theParis Treaty ,touse
instruments which bytheir nature have amuch greater impact onthemarket
than those available for the implementation ofthe scrap -and-build scheme .
Although the Commission isunable tomake use ofinstruments ofcomparable
efficacy ,itnevertheless considers that the scheme must betried .There
isareal need for action ,even with more modest objectives .
Inany case ,scrap -and-build will have not only asalutary effect onthe
Community shipbuilding industry ,but also amodest but real impact on
the absorption ofthe fleet overcapacities . Itshould benoted that
asfar asshipyards areconcerned ,the impact will befelt largely on
the construction side since scrapping isnotvery profitable inthe
Community .This impact could beoptimized ifnon-member countries were
also totake steps toreduce their overcapacities ,especially byadopting
the same scrap -and-build scheme .How can those countries beencouraged
andnegotiations opened with them ifthe Community does not first decide
onits own course ofaction ?
This isaspecific ,anticyclical measure with considerable social impact ;
itisnot ,however ,adirect restructuring project ,although itwill
exercise abeneficial effect byimproving the conditions ,which otherwise
msywell become intolerable ,inwhich such .restructuring cantake place .
1.3 This Communication provides the necessary details toenable the
Council todiscuss theprinciple and features ofascrap -and-build scheme .

TheCommission hopes that from this discussion will emerge apolicy on
the choice ofsolutions forimplementing such ascheme .
Inthelight ofthis first discussion ,theCommission will then submit
aformal proposal .
2.Grounds for considering aCommunity scheme
Aid schemes implemented "bytheMember States tohelp their shipyards or
their shipowners have only inalimited number ofcases ledtosufficient
structural adaptation oftheyards .Ontheother hand ,they have made
itpossible toprogressively cutdown production inthe sector without
causing toogreat social stresses .Thetrend inthe level oforders
wonbytheCommunity industry shows ,however ,that these measures arenot
generally sufficient tocope with thecrisis .
Inaddition ,asthefirst half-yearly report onthestate _
oftheCommunity shipbuilding industry
indicates (1), thestate oftheshipping market will intheyears
ahead probably remain characterized byovercapacity andinstability .
Admittedly ,thetotal overcapacity ofthefleets ,which wasstill
estimated at100million dwt (2)attheendof1978 ,hasfallen ,inpart
more orless permanently (onereason being thepractice ofreduced speed )
nevertheless ,thebasic world-wide excess tonnage remains .
Inaddition ,theenergy crisis anditsprobable consequences -in
particular increased inflation andreduced growth rates –will affect
thedevelopment ofworld trade andtherefore ofshipping ;hence the
crisis ontheshipping market islikely toworsen andtolast forseveral
years longer .
(1)C0M(79)469 final of17August 1979
(2)Seeattached Data-sheet .

-6-
Thepresent improvement infreight rates ai;.d secondhand ,market prices
isprobably atenrorary andsectoral development ;moreover ,a
considerable proportion ofthepresent i^iprovement infreight rates
merely represents acompensation for theincrease inbunker fuel prices .
Hence itis unlikely that there will beafundamental overall
recovery oftheshipping market during thenext fewyears .Consequently ,
theoverall volume oforders fornew chips will remain very low ,even
tending todrop further ,aridit 1isprobable ,forexample ,that orders ,
more especially forlarge crude oiltankers ,will basically belimited
toreplacements .
This gloomy prospect fortheshipbuilding industry isespecially confirmed
fortheCommunity because oftheunfavourable state ofCommunity shipping .
TheMember States' merchant fleets areatthemoment having todeal with
ahost ofproblems andtheCommunity 'sshare oftheworld fleet is
continuing todrop ,having fallen from 33.&Ioini960 toapproximately 18f0
in1979 ,i.e. well below thepart inworld seabo rnetransport generated by
the Community .During the nine-
month period from 1July 1978 "to1April 1979 >"th®Community fleet has
even undergone aconsiderable reduction inabsolute value of
2.4million grt ,i.e. ,more than 2>f0ofitstrading fleet of
72.4 million grt .
This trend isLiable toresult intheCommunity shipowners' share of
world demand declining still further .
Orders from Community shipowners already account formore than 75%of
the total volume oforders placed with theCommunity industry .

-7-
Aspointedoutinthefirsthalf-yearlyreportonthesituationofthe
shipbuilding industryintheCommunity,theconsequences ofthe
shipbuildingcrisisaresteadilybecomingmoreacutelyfeltatboth
productionandemploymentlevels.Theindustryisfacedwitha
constantlydiminishing numberofordersonitsbooksduetothefact
thatthelevelofnewordersremainsconsiderably belowtheproduction
level,despitethesignificantdropinproductionthathasoccurred
since1976.
NewordersplacedintheCommunityamountedto2millioncgrtin1978,
whileproductioninthatyearreached3«53millioncgrt.Theorders
onthebooks,whichtraditionally representatleasttwoyearsofwork,
stoodat4.78millioncgrtattheendofMarch1979»equivalenttoa
workloadplanoflessthanoneyear'sproductionatthe1978rate,
sinceover40^oftheworkhadalreadybeencompletedbythatdate.
ThelevelofordersbookedbytheCommunityindustryshowsadownward
trend,inlinewiththecontractingpatternoftheCommunityfleet.
Thefearexistsincertaincirclesthatorders'couldbecomestabilized
atalevelappreciably below2millioncgrtperyearforseveralyears,
whichwouldtendtobringproduction downtoaleveloftheorderof
2millioncgrtorlessperyearduringthatperiod,corresponding to
lessthan5&/°0f"theproductionlevelin1975and1976.Thereisthus
arisk,thatseveralofthebestshipyardswillnotfindfurtherwork
andmaybeunabletocontinueoperatingiftheycannotreceive
additionalopportunities .
Remaininginactiveunderthesecircumstances willresultinasituation
wheretheindispensable rationalization oftheindustry,whichhas
alreadyfallenseriouslybehind,isreplacedbyastraightforward
reductionofcapacity,withoutthenecessarystructuralchanges,toan
extentincompatible withtheessentialinterestsoftheCommunity.
Inthiscontext,onemustalsobearinmindtheseriousconsequences
thatsuchadevelopment couldhavefortherelatedindustriesupstream.

Ontheotherhand,thesituationwouldalsodeteriorateiftheMember
Statesreactedincavidually "byapplyingemergencymeasuresthatwould
distortcompetition andcomplicatetheproblemsofourshipowners.
3.Typeofactiontobeconsidered
3.1Thedropinproduction andthecontinuation ofthecrisisforlonger
thanwasanticipated in1977isincreasingtheseverityoftheemployment
problem.Inordertobeeffective ,anyactionadoptedmustproduce
immediateresults.
Apartfromthedecreaseinordersfortheexpansionofexistingfleets,
wefindthatreplacement ordersarebeingdeferred.Theproposedscheme
isparticularly aimedatspeedingupsuchordering.Afloodoforders
placedwhenthemarketrecoverswouldbealmostasharmfulasthecurrent
scarcityoforders.
Anyactiontoreactivate demandmustavoidincreasingtheexcess
capacityofthefleetsoraffeotingthecompetitivepositionofthe
Communityship-owners .
Severalapproacheshavebeenexaminedinconsultation withthebodies
concerned .Ithasbecomeevidentthatthemeasurewhichbestmeets
therequirements setoutabovewouldbeaschemethataffectsboththe
demandandtheexcessmerchantfleetcapacity.Aschemewhichsolely
encouragedtheship-ownerstoplaceneworderswouldaggravatethe
problemsoftheshippingmaricet;onewhichsolelyfavouredthescrapping
ofoldshipswouldnotonlyhaveaverylimitedscope(sinceitwould
affectonlyshipsflyingtheflagsoftheMemberStates),butwouldin
nowayguaranteetheplacingofadditionalorderswiththeCommunity
industry.

Anaction which combined ,tha reactivation ofdemand with encouragement
toscrap oldvessels could have thedesired effects ,provided that it
were sufficiently extensive .
.3.2 .
-The_essence ofthescrap -and-buiIdscheme Drooosed by .
theCommission isthat financial support will begranted
foranorder to "build ocean-going ships ,placed with aCommunity
shipyard byaship-owner established onCommunity territory .(1),provided
that aspart ofthesame operation thesaid ship-owner also sends ships
tobescrapped representing twice thetonnage tobebuilt ,calculated
incompensatory gross register tons .
-Since .thelevel ofdemand iscurrently oftheoMer o*?"lillinn cart per
year ,with arisk ofafurther downward trend ,theCommission considers that
anobjective intended toincrease orders byaround 1million cgrt per
year foraperiod ofthree years ought toenable production tobemaintained at
level ofbetween 2.5and3million cgrt peryear (2).
This would involve scrapping atthe rate of2million cgrt peryear
over the same period ,for ,inorder tohave acertain impact onthe
absorption offleet overcapacities ,thetonnage tobescrapped would
have tobeappreciably greater than theadditional tonnage tobebuilt
(especially bearing inmind thegreater productivity ofcertain types
ofnewship ),although itshould notexceed alevel that would
discourage the ship-owners .
Itshould beconsidered whether ,and how,certain major conversions of
vessels could inthis context berated asnew building .
(2)Itshould benoted that theEECShipbuilders' Linking Committee
considers that ,even supposing that theneworders placed with
Community shipyards ,under thepresent conditions ,were atthesame
level asin1978 (=2million cgrt ),Community production might be
somewhat below this level over aperiod ofthree years .

-10-
Inconsequence ,t:3Commission recommends atarget of1million cgrtto
be "built 'and .2million cgrt to "bescrapped peryear ,over aperiod of
three years .This question isexamined inmore detail inpoints 3.3and3.4
since itisadvisable toestablish whether thetarget is_financially
bearable andtechnically feasible .
-Inorder tobenefit from thearrangements provided ,theships tobe
scrapped will have tomeet certain very specific eligibility criteria ,
particularly with aview toexcluding asfaraspossible ships that
would atallevents bescrapped during theperiod scheduled forthe
scheme .Shipowners would have toundergo inspection procedures to
ensure that such criteria arecomplied with andthat theoperations
aregenuine .
Should only those ships betaken .into account -which-have-flown -the -flag
ofoneoftheMember States foracertain period before being scrapped ,-
orshould ships that donotmeet this requirement beincluded .
Thefleets under theflags oftheMember States areingeneral ofquite
recent construction ,sothat notenough tonnage forscrapping is
available inthese fleets toenable thetarget of2million cgrt per
year tobeattained .TheCommission thus considers that theship-owner
should beallowed toputforward forscrapping ,inthecontext ofa
scrap-and-buildoperation ,ocean-going ships atleast oneofwhich hasbeen
registered inoneoftheMember States fornotlessthan twelve months
prior tothescrapping contract .
-Asimilar problem arises inrespect oftheships built inthecontext
ofascrap -and-build operation ;that istosay ,provision must be
made fortheir obligatory registration inoneoftheMember States for
acertain period .TheCommission feels that itwould beoutofthe
question forsuch aship ,onthedayfollowing itsdelivery ,tobe
transferred totheregister ofanon-Member State tocompete suDsequently
against theCommunity fleets .Inconsequence ,theCommission suggests
that transfer oftheregistration toanon–Community country within a
period ofsixyears after delivery should ,asa_j;ule _,_impose ^onthe
ship-owner theobligation torepay atleast part ofthesubsidy he
received .

-11-
3.3.TheCommissionsuggeststhatthefinancialsupportshouldconsistof
(a)avariableparttooffsetthedifference "betweenthesecond-handpriceandthescrappingpriceofashipand("b)afixedcomponentto
encouragetheshipownertoinvest.Accordingtopresentestimates,
thevariablepart,calculatedataflatrateonthe"basisofthetype,
sizeandageofthevessel,shouldrangefrom10to75EUAperlightweight
ton*,representing "anestimatedaverageof32.5EUApercgrtofscrappedtonner-:..
anathefixedpartforencouragingconstruction should "be80EUApercgrt.
Withaquantitative objectiveof1millioncgrttobebuiltand2millioncgr1"
tobescrappedperyearoveraperiodofthreeyears,theaverageannualcost
oftheschemewouldbe145millionEUA,givingatotalcostoftheschemefor
3yearsof435millionEUA.Theannualpaymentswould,however,notnecessarily
average1-45millionEUA,as_thepayments_couldbespreado^eralongerperiod
exceedingthreeyears.Itshouldbenotedthatthesumof145millionEUA
represents15-202ofthegovernmentaidcurrentlygrantedforshipbuilding
andshippingthroughouttheCommunity.
Andherethequestionarisesofwhetheraidforthescrap-and-buiId
schemeshouldbeadditionaltonationalaidmeasuresalreadybeingapplied.
TheCommissionwouldmentioninthisregardthatthecurrentmeasures
takenbytheMemberStateshavegenerallynotsufficedtopreventthe
declineofneworderstotheirpresentlevelandwillbeevenless
suitableforcopingwithasituationthatispersisting andwillprobably
growworse.Furthermore ,theaidstoshipyardsareprimarilydesigned
asmeasurestooffsetthedifferences inproductioncostsbetweennon-
CommunityandCommunityshipbuilders ,nottopromotetheplacingof
additionalorders.TheCommissionistnusoftheopinionthatthe
schemecanonlysuceedifitisaddedtothenationalintervention
measures.
3.4._TheCommissionexpectsthatthissystemwillbeableto:
-assistmprovidingtheshipbuilding industrywithabasicworkload;
-obviateaddingtotheexcesscapacityofthefleet,bytyingnew
construction toscrapping:
*
SeeattachedDataSheet.

-12-
-helptoreduceexcesstonnageatworldLevel;
-helptheship-onerstomodernizetheirfleetandhenceremain
competitive;
-assistincenbatingmarinepollution andinfurthering thesafety
ofships.
TheCommission alsohopesthatthisscheme-primarilyintendedtogenerate
additional demandfromCommunityship-owners -willleadtoareductionin
aidsaimedatencouraging ordersfromshipowners innon-member countries who
areinfiercecompetition withCommunityfleets.
Itshouldbepointedoutthetheexecutionoftheplannedprogrammewillhave
apositiveimpactonemploymentinthesector.IntheCommunitydirectem­
ploymentinmerchantshipbuilding yardsdroppedfrom206,354in1974to155,840
in1973,alossofaround25%.In1979anadditionaldecreaseisexpectedof
between10,000and17,000jobs,andthataccordingtopresentmarketindications
50,000murejobscouldbelostoverthenextfewyears.Overalltheworkforce
inCommunityshipyardsisthereforeindangerofbeingreducedbyover50%com­
paredto1975,particularly inthoseregionswheretherearealreadyhigh
levelsofunemployment .
Iftheschemestargetwereattaineditwouldhelptomaintainemnlovmentfor
about35,UUUpersonsworkingintheshipyards,butalsoforacomparable
numberofpeopleinrelatedandupstreamindustries .
Thescrap-and-buiIdschemeisoneofthemeasurestobetakeninthe
contextofmoregeneralactionintheshipbuilding andshipping
industries,forwhichguidelines wereLaiddownintheCommunication
totheCouncilof6December1977.Designedasatemporary measure,its
aimisnottohaveadirectinfluence onrestructuring butratherto'
allowsuchreorganization totakeplacesmoothly.Thescheme,because
■<tconstitutes 3contingency measure,differsfromthoseexcisting
financialinstruments,intendedtohaveastructuralimpact,suchas
thefunasforindustrialrestructuring andreconversion (Article375ofthe
budget),althoughitdoes,inaspecificwayandforaspecificarea,
complement suchfinancialmeasures.Proposalsforaregulation onthe
useoftheseappropriations ,,nowbeingdiscussedintheCouncil,would
allowfinancialcontributions notonlyforreorganization ofCommunity
shipyardsbutalsofortheredevelopment ofregionsaffectedby
suchreorganization .
AttheCommunitylevel,theaimofthescrap-and-buiIdschemeis,there­
fore,toassistinthereorganization ofthesector;butmeasureswill
onlybeeffective,ifcombinedwithnationalaidmeasures.And,
accordingtotheFourthDirective,nationalmeasuresofaidareauthorized
onlyinsofarastheshipyardsareengagedinactivities designedto
restorecompetitiveness .

-13-
Aswith anyaidscheme ,itisimpossible toguarantee unconditionally
that theobjective ofthe scrap -and-buiIdscheme will beachieved .
The success ofthe schemes will depend onboth "thedevelopment ofthe
market and theattitude oftheship-owners .The system canoperate only
onadepressed shipping market ,where freight rates are notprofitable
and thegapbetween secondhand market prices andscrapping prices is
small and remains within limited margins .Ifthe health ofthe market
were restored ,andconsequently thegapbetween secondhand prices and
scrapping prices widened beyond the set limits ,thescheme would
automatically shut off :the market forces alone would besufficient to
attain theobjective pursued .Inany event ,the scheme requires
flexible management ,which means that itmust bepossible to
suspend application ofthe scheme ,ifitbecomes clear the the effects are
nolonger compatible with theobjectives pursued .This would notably be
the case ifvery fewadditional orders were placed .
Theremaining uncertainties cannot beputforward asjustification for
doing nothing :aCommunity approach tothe current situation isaminimum
requi rement .
4. Procedure for implementing the scheme
4.1,Community ornationa ^.financing
The main issue todecide ,asfar asthe implementing procedures are
concerned ,iswhether the scheme requires Community financing and
management orwhether aharmonized national approach tothese aspects
ismore advisable .
Aharmonized national approach gives each Member State theopportunity
ofusing theproposed method ,but does not ensure that all theMember
States will doso.
If,however ,ascrap -and-buiIdscheme ofthe size advocated bythe Com­
mission isrecognized asbeing necessary inorder tosafeguard asubstantial
part oftheCommunity industry ,itseems preferable toensure participation
byallMember States andconsequently tofinance thescheme atCommunity
level .

-14
Even ifall *heMember States agree toparticipate intheproject
onthebasis ofanationally financed approach aimed atachieving
acommon objective ,such anapproach presupposes itssharing among
the Member States .This sharing atanational level runs the risk
offailing toachieve theoverall objective for the Community and
hence the uncertainties ofthe project generally could increase.'
The Commission considers that since aquantitative objective is
essential all theMember States should participate intheproject
andtheCommunity dimension should beexploited .Although not
ruling out the concerted act-ion formula ,itfeels that aCommunity -
financed project would bepreferable .
If,however ,the Council feels that part ofthefinancing should
bedefrayed from thenational budgets ,consideration could be
given toasystem whereby the variable part ofthe financial support
isfinanced bythe Community and the fixed part bytheMember
State inwhich the yard islocated .
4.2 . Execution ofthe scheme
4.2.1 .Ifitisdecided that the scheme should bewholly financed bythe
Community ,thedecisions onallexpenditure should bemade bythe
Commission .Inthis event the Commission will beassisted bya
Consultative Committee made upofthe representatives ofthe
Member States .
TheMember States would participate inthis system inthepreparatory
phase ,especially byexamining and selecting theapplications for
thebenefit ofthe scheme andexamining them inaccordance with the
rules established atthe Community level ,but also insurveying
the correct execution ofeach scrap and build operation financed
under the scheme .

-15
This system ofmanagement wilt not upset thetraditional distri­
bution oforders within theCommunity ,because the Community
scheme merely provides support that complements national aid
granted outside this scheme ,and itisthe latter which forms
the most decisive factor inthe distribution oforders .
4.2.2 .If,however ,itisdecided that the scheme should bewholly
financed bytheMember States ,theCommission would have to
assess itinthe light oftheprovisions ofthe Fourth Directive
onaid tothe sector and ofArticles 92etseq .oftheTreaty ,
anddecide inwhich way the Member States should carry out this
scheme inorder toobtain aharmonized national approach .
Assuming asystem ofwholly national financing achoice should
bemade between several possibilities asfollows :
-Theexecution andfinancing ofthe scheme areundertaken by
the Member State inwhich the ship-owner whoorders the scrap -
and-bui Idoperation isestablished .This system has the
advantage ofnot resulting indistortions ofcompetition
and awalling-off ofmarkets ,provided that the ship-owner
isallowed aCommunity-wide choice ofyards .
Inthat case ,theCommission could ,forexample ,prepare the
framework within which such aid could beadministered .But
itwould scarcely beacceptable for theMember State ofthe
shipowner toberesponsible forimplementation andfinancing
when itistheMember State oftheshipyard ,towhom the
shipowner hasgiven theorder ,which will profit from the
operation .
»

-16-
-Theimplementation and.financingoftheschemearetheresponsibility
oftheMemberStatewheretheshipyardwhichhaswontheorderissituated.
Inthatcase,financialsupportwouldbegrantedtoashipownersituated
intheCommunitywho,aspartofascrap-and-buildoperation,placesan
orderwithashipyardestablishedintheterritoryoftheMemberState
whichisfinancingtheoperation.Thefinancialaidcouldthenbefunded
eitheratnationallevelbynewfunds,orbyexistingfundsforaidto
shipbuilding ,orbyacombination ofsuchfunds.
Itshouldbenotedthatthissystemcouldintheabsenceofanycontrol,
easilygiverisetodistortions ofcompetition .Thisisparticularly
trueifthesystemisimplemented onlybycertainMemberStates.The
MemberStateswhocannotforonereasonoranothertakepartinthescheme,
orwhodosoatalaterstage,arelikelytoseeordersdivertedtothe
otherMemberStates.Asinthecaseofdirectaidtoshipyards,the
Commission mustmakesurethatthisnewsystemcomplieswiththegeneral
criteriaoftheFourthDirective,particularly asregardsselectivity said
theceilingfortotalamountsofaid.
Naturally,caremustalsobetakentoensurethattheprojectremains
whollywithinitssethorizonsofascrap-and-buildschemeandisnot
transformedintoasystemofsupplementary aidtoshipbuilding .
AthirdpossibilitywouldbefortheMemberStateoftheshipowner
totakeonthesubsidycoststhatrelatetocompensation forthedifference
betweenthesecondhandpriceandthescrapprice(variablepart),while

-17-
theMember State ofthe shipyard would take onthe subsidy
costs that relate toencouraging investment bythe shipowner
(fixed part ).
This system raises problems similar tothose ineach ofthe
systems described above .Another drawback isthat itentails
applying totwodecision-making centres for grants offinancial
aid,andthis isnot likely tobeattractive toship-owners .
Theattractiveness ofthe system would disappear completely
ifone ofthe Member States involved inascrap -and-buiId
operation were not aparticipant inthe scheme .
Itisinherent toall forms ofthese nationally financed schemes
that the Member States would beresponsible for the entire
management ,including reception oftheapplication ,examination
andtaking the final decisions respecting theabove-mentioned
rules .
4.2.3 .Ifitisdecided that the scheme should involve both national
and Community finance with thevariable part ofthe financial
support financed bythe Community and the fixed part bythe
Member State inwhich the yard islocated ,itwill benecessary
toestablish Community rules for the scheme and its implementation
bytheCommission andtheMember States ,similar tothose
described under 4.2.1 and 4.2.2 respectively .
Intheframework ofthese rules itshould beprovided :
-that the Commission decides onallexpenditure ofCommunity
finance asdescribed in4.2.1 .
-that theCommission forthe part nationally financed would
have tomake anassessment asdescribed in4.2.2 .

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Inthe realization ofthis mixed system offinancing ,the
Member States will participate especially inexamining and
selecting the applications inaccordance with the rules to
beestablished onthe Community level and also insurveying
the correct execution ofeach scrap and build operation
financed under the scheme .Due tothe inseperable nature of
the scrap and build elements ofthe scheme ,the final
national decision granting aid for the fixed part canonly
betaken ,ifaCommission decision has been made infavour
ofthevariable part ofthe same operation .
4.2.4 .The legal form ofthe Community instruments tobeadopted
inorder tobring into force the methods described above
should bedecided upon inthe light ofthe solution chosen .
However ,itcan beassumed that insystems involving total
orpartial Community finance ,their legal basis will be
Article 235 .
4.3 . Itisclear from the foregoing that theproblems related to
the choice ofthemethod offinancing are serious ,but not
insurmountable .They are sufficiently complex tojustify
the Commission 'sdesire that the Council examine the various
alternatives put forward inthis communication before a
formal proposal ismade .

5.Conclusions
TheCommission "thereforerequeststheCouncil:
1.toadopttheprincipleofa"scrap-and-build"schemetoensurea
minimumlevelofactivityforCommunityyardsandhelptoreducesurplus
shippingcapacitywhileimprovingthecompetitiveness oftheCommunity
fleet;
2.toadopttheobjectiveofonemillioncgrttobebuiltandtwomillion
cgrttobescrappedperyear,forathree-yearperiod;
3.totaiceadecisiononthevariouspracticalsuggestionsputforward
bytheCommission ;
4.torecognizetheusefulnessofinitiatingcontacts(forexamplein
OECD)withnon-membercountriesinterestedinthescheme.
TheCommissionpointsoutthatthescrap-and-buildschemerecommended
hereisinlinewiththeprojectsrecommended bytheCommissiontotackle
thewholeissueofshipyards,includingthesocialaspectsandregional
redevelopment programmes.Inthiscontext,ithasalsoalreadyproposed
thatboththeinternalreorganization oftheshipyardsandthecreation
ofalternative employmentintheregionsinwhichtheyaresituatedshould
bestimulatedbytheuseofsuitableCommunityfinancialaids.Tothis
end,theCommissionhasadvocatedthatfundsfromArticle375ofthe
budgetbemadeavailabletotheshipbuilding industry.

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ANNEX
DATA SHEET
Definition ofthe units used mthe Communication :
Gross register ton (grt)
The register tonnage ofaship isthevolume "below themain deck plus
that ofthetween decks andsuperstructures ,excluding allopen spaces ;
itisexpressed intons .Thevalue oftheton is100 cubic feet ,or
2.83 m^.
Compensated gross register ton (cgrt )
Since thenormal gross register tonnage ofaship does not reflect theamount <
shipbuilding work done (which also represents thedegree ofsophistication
oftheship ),theOECD haslaid down coefficients foreach type andsize
ofmerchant vessel (grtxcoefficient «cgrt ).
Deadweight tonne (dwt )
Thedeadweight tonnage ,calculated inmetric tons ,isequal totheweight
ofthecargo ,fuel ,stores ,crew andpassengers ,ifany ,when thevessel
isfloating atitsnormal load–line .
Lightweight tonne
Thelightweight tonnage ofaship isequal totheweight ofthefitted -
outhull andthepropulsion machinery inworking order .