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iftfr ' ~T,ïm COMMISSION OF THE EUROPEAN COMMUNITIES 
COM(93)160 final 
Brussels, 20 ApriI 1993 
Proposal for a 
COUNCIL DIRECTIVE 
amend i ng Counc iI D i rect i ve 90/684/EEC 
on aid to shipbuilding 
(presented by the Commission) 
Explanatory Memorandum 
introduction 
The current rules for state aids to shipbuilding are laid down in the 
Seventh Directive on Aid to Shipbuilding (90/684/EEC) (as amended by 
Directive 92/68/EEC, providing a special derogation for the shipyards in 
the former GDR), based on Article 92(3)(d) and 113 of the EEC Treaty, 
which was adopted on 21 December 1990. In accordance with Article 13 of 
the Directive its period of validity expires on 31 December 1993. 
This paper briefly reviews the existing policy; assesses the current 
market situation; and sets out the Commission's proposals for Community 
shipbuilding aid policy beyond the end of this year. It is proposed that 
the Council should decide that the Directive be prolonged for a further 
12 months, le up until 31 December 1994. 
This decision is a matter falling within the competence of the Council 
although responsibility for implementation will lie both with the Member 
States and the Commission (see section 2 below). 
2. Existing Policy 
Although the size of the EC shipbuilding industry has declined over the 
years, a competitive industry remains of vital interest to the Community 
and contributes to its economic and social development. The Community's 
existing shipbuilding aid policy, as presently enshrined in the 
Directive, was Introduced against a background of difficult market 
conditions, caused by a declining demand for ships and a rapid increase 
in shipbuilding capacities, particularly In the Far East (with 
competitors benefiting from home credit schemes and domestic-build 
practices to offer ships at below cost-recovery prices), leading to a 
significant imbalance between supply and demand and depressed prices. The 
main aims of the Directive have therefore been to: 
- provide a defensive instrument against unfair competition through 
Injurious pricing, since no effective anti-dumping instrument is 
available given that ships cannot be regarded as imported in the normal 
sense ; 
- thereby maintain a sufficient level of Community shipbuilding activity 
in those segments whose Community yards will remain competitive under 
normal market conditions and encourage the structural adjustment of the 
EC shipbuilding industry towards higher value-added, specialised ships 
In order to ensure the Industry's longer-term competitIveness; and 
- provide, in accordance with the aims of the internal market a level 
playing field so that intra-Community competition in shipbuilding is 
conducted on a fair and equitable basis. 
- ensure full aid transparency. 
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The Directive provides a Community regulatory framework for the granting 
of aids by Member States, on whom notification and reporting obligations 
are imposed In order that the Commission can effectively monitor 
compliance with the rules. 
In the Commission's view, the policy has in general been effective and 
largely achieved Its aims, safeguarding Community yards and enabling the 
EC broadly to maintain market share while restructuring. A key element of 
the policy has been the common maximum production aid celling for 
shipbuilding and ship conversion set annually by the Commission in 
accordance with the Directive. This is intended to allow the most 
competitive Community yards to maintain their activities despite the 
abnormal world market conditions, and at the same time serves to 
encourage the less competitive yards to undertake the necessary 
restructuring. This is reinforced by the Directive's principle of 
degressivlty in the level of the ceiling. The ceiling, which was 28% in 
1987 has been progressively reduced to 9% for 1993. 
Future Policy 
Decisions on future policy very much depend on an assessment of the 
prevailing state of the market and future prospects; and the expected 
resumption of efforts Inside OECD to reach a multilateral agreement to 
phase out all obstacles to normal competition in shipbuilding. These two 
aspects are discussed below. 
4. Market Situation 
After some signs In 1991 that the shipbuilding market was beginning to 
recover following the end of the Gulf crisis, this was not sustained 
during 1992 and there was a marked downward trend with a dip in orders 
and prices, although the Community's market share continued to hold up 
pretty well in the circumstances. 
According to data available to the Commission, new orders worldwide 
totalled 8.904 mi 11 Ion cgt, down 25% on 1991. The order intake by 
Community yards (including the former GDR yards) was 1.821 million cgt, a 
decrease of 16%. This however represented an improvement in the EC's 
market share, up to 20.5% of world orders compared with 18.2% in 1991. 
An analysis of the types of vessels ordered shows that demand in 1992 was 
due mostly to the buoyancy of the market in oil tankers and bulk carriers 
(which accounted for 60% of orders worldwide). ' 
As regards the state of the order books, the continuing gap between 
freight rates and newbullding prices widened, dampening demand for the 
expected necessary renewal of the fleet. 
According to Commission data, the worldwide order book as at 31.12.92 
stood at 22.961 million cgt, down 11.5% on 1991 but higher than during 
the second half of the 1980s. The order book for Community yards 
(including the former GDR yards) showed a decrease of nearly 16% compared 
with the previous year standing at 5.177 million cgt, which represented 
22.5% of the world order book (down 1.2% in 1991). 
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1992 completions worldwide were estimated at 11.838 million cgt, an 
Increase of 2.7% on the 1991 level and the highest level since 1986. EC 
production (including the former GDR yards) was 2.771 million cgt, a 4.5% 
increase on the previous year and the highest level since 1985, 
representing 23.4% of world production, up slightly on 1991. 
As regards prices, according to OECD In 1991 there was a positive trend 
with prices continuing to rise, albeit more slowly than In recent years 
and remaining at levels below those prevailing In 1982 (after taking into 
account Inflation). That trend was not however sustained in 1992, with 
performance patchy, varying from ship to ship. However exchange rate 
fluctuations, in particular relating to the US dollar, have been a 
factor, as confirmed by the 1992 market study conducted for the 
Commission in connection with the annual review of the common maximum 
production aid ceiling under the Directive. 
So far as overall future prospects are concerned, the prospects for a 
market upturn In the Immediate short term appear uncertain at present. 
However It Is generally agreed that the situation should improve markedly 
in the medium to long term given the need to renew the aging world fleet. 
In that context, recent Initiatives dealing with environmental and safety 
concerns caused by substandard ships should encourage scrapping activity 
and lead to increased demand for new ships being generated. It is 
estimated that over 50% of the world fleet Is more than 15 years old, 
broken down as follows: 19% of the world fleet is 15-19 years old, 15% 
20-24 years old and 20% over 25 years old. With such an age profile it Is 
evident that there will be an increasing necessity for new, replacement 
ships. 
Forecasts as to the extent and timing of the recovery in the shipbuilding 
market vary. OECD report that the Association of West European 
Shipbuilders (AWES) forecast that the annual world demand for new ships 
(In terms of deliveries) will remain static at an average of around 12 
million cgt per annum until 1995 before increasing rapidly to around 18 
million cgt by the year 2000 and then falling back to 17 million cgt in 
2005. The Japanese Ministry of Transport similarly predicts a gradual 
increase in shipbuilding demand but expects this to peak In 1998 at some 
13 mill ion cgt. 
OECD Negotiations 
It seems likely that negotiations will resume by mid 1993 on an 
international agreement to phase out all existing obstacles to normal 
competitive conditions in the shipbuilding market. When the previous 
talks broke down in April 1992, the Community had already made it clear 
that it was prepared to accept a deadline of 1 January 1995 for the 
elimination of all shipbuilding subsidies provided that the other parties 
would eliminate all their trade-distorting measures and regulations, 
such as Injurious pricing, home credit schemes and domestic build 
requirements. 
In the Commission's view, such an international agreement is vital for 
the normalisation of the world shipbuilding market and remains an 
important Community objective. However the prospects for a successful 
conclusion of the negotiations are uncertain at present. 
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6. Proposai 
Against the background described above, It Is not possible at this stage 
to determine a longer term shipbuilding aid policy framework. A complete 
abolition of aid to the sector would appear to be difficult to justify at 
this stage given the present market situation. On the other hand, 
a market upturn is expected in the not too distant future; and the 
planned resumption of the OECD negotiations Is also encouraging, although 
there are uncertainties whether, and within what timescale, an 
acceptable multilateral agreement can be concluded. A policy vacuum when 
the current Directive expires clearly needs to be avoided. It is 
therefore proposed that the present directive should be prolonged for a 
short period by extending it for a further 12 months, ie up until 
31 December 1994. 
This would enable the Community to maintain its existing policy 
(including inter alia the principle of production aid degressivity) until 
the situation becomes clearer. Furthermore, If this course is adopted, it 
would be entirely consistent with the Community's negotiating position in 
the OECD talks and would send a clear signal that we remained willing to 
work positively and constructively towards an agreement. At the same 
time, It would leave the Community with sufficient flexibility to adapt 
its shipbuilding aid policy in the light of developments. 
Since the present policy has generally operated satisfactorily, no other 
modifications to the Directive's provisions seem appropriate at this 
11 me. 
7. Conclusion 
Accordingly it Is proposed that the Council adopts, after consultation of 
the European Parliament and the Economic . and Social Committee, the 
attached amendment to the Directive extending its validity until 31 
December 1994. 
In order to avoid unnecessary uncertainty for the Community shipbuilding 
Industry, and to enhance the credibility of our negotiating position in 
the OECD talks, the Commission invites the Council to take a decision as 
soon as possible. 
Proposal for a Council Directive amending Council Directive 90/684/EEC 
on aid to shipbuilding 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European Economic Community, 
and in particular Articles 92(3)(d) and 113 thereof, 
Having regard to the proposal from the Commission, 
Having regard to the opinion of the European Parliament, 
Having regard to the opinion of the Economic and Social Committee, 
Whereas Council Directive 90/684/EEC of 21 December 1990 on aid to ship­
building, as amended by Council Directive 92/68/EEC of 20 July 1992, will 
expire on 31 December 1993; 
Whereas the aid policy established in that Directive has generally achieved 
i ts object Ives; 
Whereas however in spite of the forecasted improvements due to a pending 
increase in new building demand the world shipbuilding market has still not 
yet been fully normalised; 
Whereas the Community's existing policy needs to be maintained in order to 
promote the long term survival of an efficient and competitive European 
shipbuilding industry; 
Whereas the Community is still pursuing its efforts within the Organisation 
for Economic Cooperation and Development (OECD) framework to reach a 
multilateral agreement between the world's most important shipbuilding 
nations on a rapid phasing-out of all direct and indirect public support 
measures to shipbuilding, ship conversion and ship repair as well as other 
obstacles to re-establishing normal competitive conditions in the sector; 
Whereas this agreement must ensure fair competition at an international 
level among shipyards through a balanced and equitable elimination of all 
existing impediments or obstacles to normal competitive conditions and must 
provide an effective Instrument for counteracting injurious pricing 
practices inconsistent with the agreement; 
Whereas the provisions of this and the above-mentioned directives are 
without prejudice to any amendments that may be necessary in order to 
comply with international obligations entered into by the Community, 
HAS ADOPTED THIS DIRECTIVE: 
Article 1 
Article 13 of Council Directive 90/684/EEC shall be amended to read as 
fol lows : 
"This Directive shall apply from 1 January 1991 to 31 December 1994." 
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Article 2 
1. Member States shall put into force the legal. regulatory and 
administrative measures necessary to conform with this Directive by 31 
December 1993 at the latest. 
The measures adopted shall contain a reference to the current Directive 
or shall be accompanied by such a reference when they are officially 
published. The terms of the reference shall be determined by the Member 
States. 
2. The Member States shall communicate to the Commission the text of the 
measures they adopt in the field covered by this Directive. 
Article 3 
This Directive Is addressed to the Member States. 

ISSN 0254-1475 
COM(93) 160 final 
DOCUMENTS 
EN 10 
Catalogue number : CB-CO-93-184-EN-C 
ISBN 92-77-54804-5 
'. )ffice for Official Publications of the European Communities 
L-2985 Luxembourg