Proposal for a COUNCIL DIRECTIVE amending Directive 90/684/EEC on aid to shipbuilding
Date: 1994-10-12
Institutions: European Commission
Subjects: OECD, Spain, State aid, competition, industrial restructuring, shipbuilding

COMMISSION OF THE EUROPEAN COMMUNITIES 

COM(94) 444  final 
Brussels,  12.10.1994 

94/0238 (ACC) 

Proposal for a 
COUNCIL DIRECTIVE 

amending Directive 90/684/EEC on aid to shipbuilding 

(presented  by the Commission) 

i 

v. 

EXPLANATORY MEMORANDUM 

I. 

Introduction 

The current rules for  State aid to  shipbuilding  are laid down in the Council  Directive 
90/684/EEC  of  21  December  1990  on  aid  to  shipbuilding,  as  amended  by  Directive 
93/115/EC of  16 December  1993. This directive expires on 31 December 1994. 

II. 

EEA relevance 

The  Seventh  Directive  on  Aid  to  Shipbuilding  was  not  incorporated  into  the  EEA 
Agreement.  However,  on  21  March  1994,  the  EEA  Joint  Committee  adopted  a Joint 
EC/EFTA  Declaration,  according  to  which,  if  the  Seventh  Directive  were  prolonged 
beyond the end of  1994 or replaced by a new Directive,  the Directive in force  shall be 
integrated into the EEA Agreement with effect  as from  1 January 1995. 

A  directive  amending  the  Seventh  Directive  is  therefore  to  be  extended  to  the EEA. 
However, no specific  adaptations for EEA purposes are required. The adaptation of the 
Directive to the EEA shall be made in accordance with Protocol  1  to the EEA Agreement 
on horizontal adaptations. 

III. 

State aid policy 

The main objectives  of  the Community's  existing  shipbuilding  aid policy,  as presently 
enshrined in the Directive, are: 

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 to maintain a sufficient  level of Community  shipbuilding activity  in those 
segments where Community  yards will  remain  competitive  under normal market 
conditions and encourage thé structural adjustment of the EC shipbuilding industry 
towards higher value-added, specialised ships in order to ensure the industry's long-
term competitiveness; and 

- to  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 

to ensure full  aid transparency. 

In  te  Commission's view, the policy  has in general been effective  and largely achieved 
its aims, safeguarding the Community yards and enabling the EC broadly to maintain its 
market  share while  restructuring.  A key  element  of  the  policy  has  been  the  common 
procaic&sn  aid  ceiling  for  shipbuilding  and  step  conversion  set  annually  by  the 
Commission  in  accordance  with  te  Directive  This  is  intended  to  allow  the  most 
competitive  Community  yards  to  maintain  their  activities  despite  the  abnormal  world 
market conditions,  and at  te  same time serves ID encourage  te  less competitive yards 
to undertake  te  necessary restructuring. This is reinforced by  te  Directive's principle of 
progressive reduction in  te  annual ceiling of aid granted as a percentage of the contract 
value  before  aid  The ceiling,  which  was  28% in  1987,  has  since been  progressively 
reduced and has been set at 9% since  1992. 

Market stteafeon 

At present,  te  industry  is  still  in  difficulty,  with total  capacity  still  in clear  excess of 
demand.  The  latest  data  available  to  the  Commission  services  show,  however,  a 
considerable  increase in new orders compared with 1992, both at the Community and the 
world  levels.  m  1993,  at  world  level,  new  orders  at  te  end  of  the  year  totalled 
14 526  100 cgt, representing an increase of 64.7% compared with 1992. The Community 
obtained as improved share of those new orders, with 2 919  100 cgt which represents an 
increase of 66%. France, Denmark and Italy were the countries in the European Union 
which most benefited from this improvement  However, at world level, Korea and Japan, 
with increases m orders of 240% and 48% respectively,  kept  te  lead. In Europe, Finland 
and Norway also performed quite well. 

This improvement in  te  market situation, although significant,  is however not enough to 
offset  te  deterioration registered in  1992. The order book figures, at the end of the year 
at world level  were, in  1993, s#H lower  ten  te  ones registered in the years  1990 and 
1991. F o r te  Community (5 393  900 CGT) and Western Europe (6  556  100 CGT), one 
has to go sack to  1988 for a lower figure to nave been registered (5  005  600 CGT and 
6  121 800 CGT respectively). Also the snips completed in  1993 still register  a decrease 
as compared to  1992, both in the European Union and in the whole of Western Europe 
(from  2 845  100  CGT  to  2.591  600  in  te  EU  and  from  3 399  100  CGT  to 
3 010 300 CGT in Western Europe), reflecting  te  continued deterioration in new orders 
between  1990 and  1992.  At world level  there was,  nevertheless,  a slight  improvement 
(from  12 118 400 CGT to  12 379 700  C0I> 

In spite of this uneven performance,  the industry operators are confident that this could 
be the beginning of a sustainable market upturn, which is due in view of the old age of 
the world fleet, the new safety  and environmental requirements and the expected boost 
to world trade in the aftermath  of  the new GATT Agreement.  Nevertheless  the same 
operators  are  also  concerned  about the  market  impact  of  planned  substantial  capacity 
increases in Korea. 

The OECD agreement and future EU policy 

.. 

•. 

• 

• 

After several years of negotiations within the OECD, a text of an agreement respecting 
normal  competitive  conditions  in the commercial  shipbuilding  and repair industry was 
finally  agreed on  17 July  1994.  The Agreement  will  have first  to be signed and then 
ratified,  accepted or approved  by all participating countries, with the aim to enter into 
force on  1 January  1996. 

No aid for shipbuilding is to be allowed except for aid for research and development as 
well  as  social  aid  related  to  closures,  which  will  continue  to  be  allowed.  Aid  for 
restructuring is excluded with the exceptions provided for, in the Agreement, for Korea, 
Belgium, Spain and Portugal. Export credits for ships shall be allowed under the rules of 
the  OECD  understanding  on  export  credits  for  ships.  Domestic  credits  on  terms 
equivalent  to  export  credits  are  equally  allowed.  In  order  to  prevent  future  cases  of 
"hidden subsidies'Vdumping, a mechanism to control  injurious pricing has been decided. 
Disputes  shall  be  settled  in  panels  similar  to  the  GATT  panels.  The  USA  has  been 
allowed to keep its Jones Act for ships but subject to an annual tonnage ceiling and up 
until three years after the entry into force of the Agreement, after which period a review 
will take place. 

According to the text of the OECD Agreement, as from 1  January 1996 no aid other than 
te  aid allowed by the Agreement shall be authorized in the Community. This leaves one 
year for the Community yards to prepare for the new situation. The easiest way to achieve 
this  appears  to  be  the  prolongation  of  the  present  directive,  with  only  the  minimum 
changes. 

Accordingly,  it  is  proposed  to  prolong  the  present  directive,  with  only  the  minimum 
changes. These would consist  of: 

(a) 

the extension of its period of validity up until 31 December 1995; 

(b) 

(c) 

the elimination of the word "metal-hulled" from the definition of the vessels covered 
by the directive,  in order to take account of the technical  progress in the industry 
in recent years. 

-

the introduction of a new Article 5 A, providing for Spain to be allowed the payment 
of loss compensation to the public yards which represent aids already approved in 
past but not paid up due to budgetary difficulties,  as at 31 December 1994, accrued 
with the  interests due to  delay  in the payment  schedule,  up to  a maximum total 
amount of Pta 89.104 billion to be paid by 31 December  1998. 

IV.  Conclusion 

In view  of the  above,  it  is  proposed that the  Council  adopts,  after  consultation  of the 
European  Parliament  and the  Economic  and  Social  Committee,  the  attached  proposal 
amending the Council Directive 90/684/EEC on Aid to Shipbuilding. 

Proposal for a 
ÇQUNCT, DIREÇTWE 

amending Directive 90/684/EEC on aid to shipbuilding 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  te  Treaty  establishing  the  European  Community,  and  in  particular 
Articles 92(3Xe)and  113 thereof. 

Having regard  to  te  proposal  from  te  Commission, 

Having regard  to  te  opinion of the European Parliament, 

Having regard  to  te  opinion of  te  Economic and Social Committee, 

Whereas Council Directive 9Ô/684/EECa>, as last amended by Directive 93/115/EC(2), will expire 
on 31 December 1994; 

Whereas the aid policy established in Directive 90/684/EEC has generally achieved its objectives; 

Whereas the text of an agreement respecting normal compétitive conditions in the commercial 
shipbuilding  and repair industry  has been agreed within  te  OECD between  the world's most 
important shipbuilding nations, including the Community, which excludes all aid for shipbuilding, 
except for aid for research and development and social aid related to closures; 

Whereas that agreement should enter into force on  1 January 1996, after deposit of instruments 
of ratification,  acceptance or approval by  te  parties thereto; 

Whereas the parties to the agreement have agreed not to increase their present level of aid to the 
shipbuilding industry until the entry into force of  te  agreement; 

Whereas provision should be made for Spain to pay aid already approved by the Commission in 
1991(3) for which a derogation to the OECD agreement has already been made up until the end 
of  1998; 

Whereas the latest technological  developments in the building of vessels makes it appropriate to 
adapt the definition of vessels covered by Directive 90/684/EEC eliminating the requirement that 
vessels should have a metal hull, 

(1) 
(2) 
(3) 

OJ No L 380, 31.12.1990, p. 27. 
OJ No L 326, 28.12.1993, p. 62. 
OJ No C 66,  14.3.1991, p. 10. 

HAS ADOPTED THIS DIRECTIVE: 

Article  1 x 

Directive 90/684/EEC is amended as follows: 

1. 

i 
Article  1 is amended as follows: 

the opening phrase of point (a) is replaced by the following: 

"(a)  "shipbuilding" means the building  in the Community  of  the following  sea 

going vessels:" 

in  point (b),  the term  "metal-hulled sea-going vessels" is  replaced by  "sea-going 
vessels". 

2. 

The following  Article 5a is inserted: 

"Article 5a 

Notwithstanding Article 5(1),  Spain may grant operating aid above the set aid ceiling in 
so far as it concerns aid already approved in the past, in the form of loss compensation 
to the public yards to facilitate  their restructuring,  and which has not been paid due to 
budgetary difficulties  up until 31 December 1994. This outstanding aid, plus interest due 
to delays in the payments' schedule,  amounts to a maximum  of Pta 89.104 billion  as at 
31  December  1994,  of  which  Pta  64.196  billion  represent  the  outstanding  aid  and 
Pta 24.908  billion  represent  the  interest  on  arrears.  Release  of  this  total  amount  of  a 
maximum  of  Pta 89.104 billion  must  be  subject  to  individual  notification  and  prior 
approval  by  the  Commission  before  31  December  1995  and  must  be  paid  by 
31 December 1998." 

3. 

Article  13 is replaced by the following: 

"Article 13 

This Directive shall apply from 1 January  1991 to 31 December 1995." 

Article 2 

Member States shall bring into force the laws, regulations and administrative provisions necessary 
to comply with this Directive. 

When Member States adopt these provisions,  tese  shall contain a reference to this Directive or 
shall be accompanied by such reference at the time of their official  publication. The procedure 
for such reference  shall be adopted by Member States. 

This Directive shall enter into force on  1 January  1995. 

Article 3 

This Directive is addressed  to  te  Member States, 

Article 4 

Done at Brussels^ 

ForteCouscii 

BSN 0254-1475 

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