Opinion of the Economic and Social Committee on the 'Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions: Towards a new shipbuilding policy'
Date: 1998-02-25
Institutions: European Economic and Social Committee
Subjects: aid system, competitiveness, research and development, shipbuilding, shipping policy

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Official Journal of the European Communities

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Opinion of the Economic and Social Committee on the ‘Communication from the Commission
to the Council, the European Parliament, the Economic and Social Committee and the
Committee of the Regions: Towards a new shipbuilding policy’

(98/C 129/09)

On 6 October 1997 the European Commission decided to consult the Economic and Social
Committee, under Article 198 of the Treaty establishing the European Community, on the
above-mentioned communication.

The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing
the Committee’s work on the subject, adopted its opinion on 6 February 1998. The rapporteur
was Mr Simpson.

At its 352nd plenary session (meeting of 25 February 1998) the Economic and Social Committee
adopted the following opinion by 80 votes to one with two abstentions.

1. Preliminary comments

1.1.
For many years, shipbuilders within the Euro-
pean Union have faced intense competition for new
shipbuilding orders. Shipbuilding capacity has been
increased, particularly in South Korea. Because of the
nature of the competition, often perceived to be based
on injurious pricing practices, shipbuilders in the Union
have been permitted to receive State Aid within ceilings
set under the terms of various shipbuilding directives
of which the most recent was the Seventh Council
Directive (1).

1.2.
Late in 1996, the Seventh Directive was renewed
and extended to be effective until the end of 1997. This
extension had the support of the Economic and Social
Committee (ESC) (2). Then, in April 1997, an agreement
in principle was made that would extend this provision
until the end of 1998.

1.3.
The main provision of the Seventh Directive is
from their national
that shipbuilders may receive,
authorities, operating aid for shipbuilding and ship
conversions (but not ship repair) up to a maximum of
9 percent (4,5 percent for smaller vessels and conversions)
of the contract price. This level of assistance has been
progressively reduced from a ceiling of 28 percent which
was established in 1987. In the six year period from 1990
to 1995 (inclusive) a total of ECU 8,3 billion of State
Aid to shipbuilding was notified to the Commission.
Part of this aid, ECU 3,5 billion, was allocated to support
the restructuring of firms in the industry. Operating aid
totalled ECU 4,8 billion.

Since 1994 there has been an expectation that
1.4.
the OECD Agreement ‘respecting normal competitive
conditions in the commercial shipbuilding and repair
industry’, which was completed in December 1994,
would secure a new regime in which all the main
shipbuilding countries could cooperate. This agreement
would have required the removal of most forms of state
aid and, in parallel, would have introduced procedures

(1) OJ L 351, 31.12.1994.
(2) OJ C 30, 30.1.1997.

designed to challenge any instances of injurious pricing.
This agreement has not been ratified by the government
of the United States and has not been implemented.

1.5.
The present Commission communication is a
response to the lack of progress on implementing the
OECD Agreement. The need for alternative actions was
anticipated in the earlier ESC opinion (2). The ESC
wishes to re-emphasize its continuing hope that the
OECD Agreement might still be ratified by the United
States administration thus allowing a more comprehen-
sive arrangement to be implemented.

1.6.
The Commission has presented proposals which
provide that the extended Seventh Directive would lapse
when the OECD Agreement enters into force as it would
if the new Community regime is adopted.

2. Trends in the shipbuilding industry

2.1.
Shipbuilding has, for at least two decades, been
a difficult industry within which to operate profitably
in the EU. Depressed demand, expanded building
capacity in the Far East, and predatory pricing, have
created very difficult trading conditions.

2.2.
In the last twenty years, shipbuilding production
in the EU has fallen by over 40 percent. In 1976, EU
countries produced 27 percent of the world output,
measured in ‘compensated gross tonnage’. In 1986, this
had fallen to 23 percent of a much reduced total, and in
1996 it had fallen again to 21 percent in a significantly
increased global market. Production in Korea rose from
just over one percent of world output in 1976 to 22
percent in 1996.

2.3.
In the eight years, 1988 to 1996, world shipbuild-
ing output has begun to recover from the large fall in
the previous decade. World output, although still below

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the levels reached in the mid-1970’s, has nearly doubled.
Production within the EU has increased only by just
over 50 percent, but is still not up to the levels of the
early 1980’s.

b) structural changes, including consolidation of yards

and closures of non-profitable ones;

c)

formation of strategic alliances between yards;

2.4.
Employment in building new ships in the EU
totalled 65 600 in 1996. This contrasts with 96 100 in
1986, and 208 800 in 1975. This large reduction in direct
employment has also meant a big reduction in indirect
employment of even larger numbers of people in the
industries which supply shipbuilders and in other sectors.
The pattern of employment from 1988 to 1996 offers
tentative evidence to suggest that employment numbers
have nearly stabilized.

The Commission forecasts that, partly because
2.5.
of the need to replace older vessels, demand for new
ships will remain at this higher level for the next few
years before it falls again. Capacity is not adequately
used and is still increasing so that in 2000 production
will use not more than 70 percent of the available
capacity.

Since the Commission Communication was writ-
2.6.
ten, currency fluctuations in the Far East have been
dramatic. In particular, the devaluation of the ‘won’ in
Korea will have serious implications for a number of
sectors, particularly shipbuilding. This adds a new
dimension to the prospects for the industry which cannot
be fully assessed at present (January 1998) and may
require some reassessment of the conclusions reached
by the Commission.

3. Commission proposals

3.1.
The aim of the Commission is that, during the
next five years, from the end of 1998, shipbuilding
policies should facilitate the improvement of the com-
petitiveness of the industry. A new regulation would be
adopted for five years, until the end of 2003, which
should allow sufficient time for the new provisions to
generate a structural change in shipbuilding and see
evidence of a stronger competitive industry.

3.2.
At the end of that period, shipbuilding would
be subject to the same rules as all other industries.
Shipbuilding in the EU is being challenged to improve
its competitive position in the world market to the point
where viability is established and employment can be
maintained.

A number of areas of ‘best practices’ which
3.3.
would improve productivity, relative to competitors,
have been identified by the Commission. These include:

a) strategic planning, focusing on ship types with

growing demand;

d) better integration of ship owners and equipment

manufacturers into production processes;

e) purchasing policies, including maximizing the ben-

efits of subcontracting;

f) closer collaboration with other industries for inno-

vation and technology transfer;

g) aggressive pro-active marketing;

h) more effective use of R&D in design of prototypes;

i) upgrading of production facilities;

j)

investment in improving the quality and use of
human resources.

In the application of these practices, the Com-
3.4.
mission proposes, as part of a new regulation which will
be effective until 2003, that:

1) grant aid on contracts to build ships should end

from 1 January 2001;

2) a series of measures designed to enhance productivity
and competitiveness should be codified as a basis for
bringing this industry into a similar competitive
regime to other industries in the EU.

The detailed proposals are that:

— the permission to grant operating aid should end
on 31 December 2000 (provided that the OECD
Agreement has not been brought into force before
that date. The OECD Agreement would have a
broadly similar effect);

— export credits for ships should continue to be allowed
under the 1981 OECD Understanding but subject to
possible up-dating as envisaged in the 1994 OECD
Understanding which is not yet in force and would
allow not only export credit but also credit terms
for ships for the home market;

— contract related aid granted as development assist-
ance to developing countries should continue to be
permitted;

— aid to finance the closure costs of structural adjust-
ments, including social measures to mitigate the
consequences of total or partial closure, should
continue to be permitted;

— aid for restructuring a shipbuilding enterprise should
be allowed on the same basis as the general Com-
munity guidelines for such aid in other sectors but

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with the strict proviso applying the ‘one time/last
time’ principle for financial restructuring;

— investment aid granted under regional aid schemes
should be allowed provided the project is to improve
the productivity of existing installations;

— investment aid for innovation would be allowed
provided that
the project relates to innovative
products and processes that are not currently used
by other EU operators in shipbuilding;

— aid for R&D should continue to be allowed on the
conditions laid down in the Community framework;

— aid for environmental protection on Community

guidelines should be allowed.

4. General comments

4.1. Basic theme

4.1.1.
The basic theme of the Commission communi-
cation is that, with transitional assistance for five years,
from 1998 to 2003, the shipbuilding industry in the
European Union should, as a result of the actions of
individual enterprises, overcome its structural disadvan-
tages and be able to compete on world markets. As a
caveat, the Commission acknowledges that this would
also be subject to the existence, especially from non-EU
competitors, of fair trading conditions on a global scale.

4.1.2.
The ESC endorses this objective. Continuing
efforts to create fair trading conditions will be needed.
As a consequence, the ESC recommends that further
decisions on shipbuilding should be made based on
regular assessments of progress towards the end of this
five-year period.

4.1.3. Of course, the competitiveness of shipbuilding
in the EU varies from yard to yard and between different
types of shipbuilding. There are, it is acknowledged,
examples of highly competitive builders in certain
market segments. However, in general, the industry still
has difficulty in competing against other builders, some
of whose pricing regimes are regarded as predatory.

4.2. Motives for a policy change

4.2.1.
The Commission has recommended the ending
of approval for operating aid for shipbuilding. The
motivation is complex. Part of the motivation seems to
be a concern that the present operating aid, financed by
national governments, has not been accompanied by the
desired level of restructuring in the industry. A further

consideration is the lack of any strong incentive in the
scheme to improve competitiveness. The ESC agrees
with, and supports, this conclusion reached by the
Commission.

4.2.2.
Although some parts of the industry have
become internationally competitive, the communication
does not argue that the competitive position of the
whole industry is now strong enough to justify this
withdrawal. Indeed, it argues that State aid policy needs
to be refocused to promote and underpin efforts to
improve competitiveness. This leads into support for
investment in innovation and R&D.

4.2.3.
The case to remove operating aids can be made
both because (i) it is now the only sector of manufacturing
with this scale of direct aid and (ii) the Commission
questions whether the expenditure represents a cost-
effective use of public funds which may distort intra-EU
competition as well as partially offsetting the disadvan-
tages relative to non-EU competitors.

4.2.4.
The ESC would be reluctant to support the
removal of operating aid if the prospects for competitive
success were considered too low and if the alternative
measures do not offer an equivalent effect. However,
the long-term aim should continue to be an industry
which can compete with other world shipbuilders.

The Commission should avoid any measures
4.2.5.
which could result in an international ’subsidy race’ and
should continue its endeavours to control, and ultimately
phase out, subsidies to shipbuilding through an overall
agreement within the philosophy of the OECD Agree-
ment. This should be established as a basic principle in
order to avoid the building of vessels for which there is
no economic justification and where the consequences
may be to unfairly distort activity in the shipbuilding
sector and seriously damage the economics of the
shipping industry.

4.3. Competitiveness

The ESC is concerned to consider whether the
4.3.1.
adverse factors which have justified an approved but
diminishing level of operating aid, have now been
reduced to the point where competitive viability can
reasonably be expected.

4.3.2.
In earlier years the Commission has undertaken
work to calculate a justifiable common maximum aid
ceiling which was based on an estimate of the difference
between the costs of the more competitive Community

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shipbuilders and the prices being quoted by international
competitors. This work was used in 1995 to justify the
setting of the current 9 percent ceiling.

4.4. Ship repair operations

The last cost-price comparative study was
4.3.3.
undertaken in 1996/1997. This Commission study is not
quoted in the Communication but is understood to have
suggested that the competitive cost-price gap for certain
types of ships had actually widened. No reliable forecasts
for the next decade are practicable. However, the trends
in market share do not suggest that the relative position
has improved significantly. In addition there is now the
added uncertainty of the effects of currency devaluations
on the cost differences with producers in the Far East,
which may make for more fundamental changes in the
financial elements of competitiveness.

4.3.4.
The Commission does note that ‘many EU
yards still lack competitiveness, (and) in particular lag
behind their major Far East competitors in terms of
productivity’. Also, it concludes that the market is likely
to become even more competitive with total demand
starting to soften in the next decade. These are not
reassuring conclusions on which to justify the with-
drawal of operating aid. The competitive position of
EU yards varies between yards and especially for
different types of ships. The ESC recognizes that, within
the shipbuilding sector, the more successful EU yards
will be likely to specialize in those vessels where expertise
and skill inputs give some comparative advantage.

The ESC therefore would suggest that a further
4.3.5.
comparison to establish the relative competitive position
of the main producers should be undertaken before a
date for the removal of operating aid is decided. In
particular, the Committee has reservations about the
productivity comparisons quoted in the Commission
communication since it is not clear that these have been
corrected to allow for differences in the annual average
working hours of shipbuilding employees in each coun-
try. This would affect a better understanding of the
nature and scale of competitive differences.

4.3.6.
The Commission should consider whether
there is any evidence of continuing market distortion
caused by injurious pricing from competitors. The ESC
welcomes the assurance that at the end of 1999 (one
year before the deadline) the Commission will monitor
the market situation and, if anti-competitive practices
are established, will consider introducing appropriate
measures. This assurance would be more convincing if
there was a commitment to introduce appropriate
measures rather than ‘consider’ the possibility!

4.4.1.
Although the Commission communication is
not as specific as might be wished, the ESC assumes that,
consistent with the draft preamble to the Regulation, the
revised policies and types of assistance for shipbuilders
will extend to allow the same principles to apply
to investment and restructuring in ship repair and
conversion activities. The Commission has confirmed
that this is the intention. The ESC would foresee
difficulties if the scope of the new regulation was not
broadened to cover critical aspects of ship repair
activities and welcomes this more logical approach to
the range of shipbuilding, ship conversion and ship
repair activities.

4.4.2.
Including ship repair within the scope of the
new Regulation attracts the possible criticism that it
widens the range of activities which qualify for assist-
in the new
ance. However, the ESC accepts that,
framework of policy measures, to artificially divide
investment and technology activities separating (for
example) ship conversion from ship repair may lead to
other distortions within the structure of the shipbuilding
industry.

4.5. The wider links with shipping services, ship

owners and ship repair operations

Shipbuilding is a critical component

4.5.1.
in a
spectrum of activities which contribute to the movement
of people and freight by sea, lake and river. In this way,
a competitive shipbuilding industry has an important
part to play in the overall economic performance of the
EU.

4.5.2.
Some of the actions affecting other linked
sectors of the economic chain have implications for
shipbuilding. For example, policies which encourage the
elimination of sub-standard ships and persuade ship
owners to purchase new ships are critically important
in determining new orders. If these policies include
constraints which encourage the placing of new orders
with European yards, through preferential taxation,
finance guarantees or other fiscal measures, this can
affect EU yards. However, such policies should take
into account the existing Guidelines on State Aids to
shipping. Policies to encourage the use of maritime
transport,
including the increasing emphasis on the
development of short sea shipping (partly on environ-
mental grounds) also have a potential to impact on the
ship building industry.

4.5.3.
Policies on ship safety standards may also be a
significant influence. The introduction of more stringent
specifications for different types of ship may be, first, a
safety feature but, second, can influence replacement
rates and the volume of business available to repair and
conversion yards.

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4.5.4.
The ESC is aware that these linkages are
of critical importance in the development of overall
maritime policies and has participated each year in the
consultative meetings of the Maritime Industries Forum.

unsubsidized interest rate and, second, an extended
period of officially supported guarantees, from 8,5 to
12 years, bringing ships into line with the terms permitted
for large commercial aircraft.

4.5.5.
The ESC commends the efforts of the Com-
mission to create a consistent and mutually reinforcing
set of maritime policies ranging from the promotion of
research and innovation, encouraging industry wide
cooperation and, more recently, encouraging the devel-
opment of short sea shipping as a contribution to wider
problems of freight movement around the Community
and in a wider context.

5. Specific comments

5.1. Capacity rationalization

5.1.1.
The Commission knows of 103 shipbuilding
companies within the EU operating in 1997. The biggest
five represent 36 percent of European output. This is a
much lower level of concentration than Korea, where
the biggest five account for 99 percent, and Japan,
where they hold 44 percent. Fragmentation, the lack of
economies of scale, differences in work methods, and
the absence of large ‘series orders’ all contribute to
lower productivity in European yards.

5.1.2.
The case for capacity rationalization is not
only a search for economies of scale by concentrating
work load. Some yards in niche markets can be competi-
tive simply because of the degree of specialization and
this is not always a function of the size of the yard or
enterprise.

An additional factor affecting capacity utiliza-
5.1.3.
tion is the reduction in the demand for naval vessels
within countries of the EU. This also has possibly
adverse implications for the availability and transfer of
technology and innovative processes from one sector to
the other.

5.1.4.
These elements point to the logic of further
efforts to increase productivity and rationalize capacity.

5.2. Export Credits

The Commission has drawn attention to the
5.2.1.
changes envisaged in the 1994 Understanding on Export
Credits which has not yet been implemented. The revised
understanding would up-date the 1981 agreement and
forms one component of the OECD Agreement on the
elimination of State aid.

5.2.2.
The Commission sees the revisions as more
closely reflecting market realities. The principal changes
are, first, the introduction of the use of a Commercial
Interest Reference Rate (CIRR) which is, in effect, an

5.3. Contract aid for orders for developing countries

5.3.1.
Aid for orders from developing countries has
not been subject to the present rules on the ceiling for
operating aid to yards. The Commission proposes to
allow this to continue.

5.3.2.
There are possible distortions arising from this
exemption. First, governments might be tempted to use
these orders to place work in specified yards and
thus avoid competitive bidding within the EU. The
Commission is aware of these potential distortions and
is acting to open up the possibility of competitive bids
from other yards within the EU. Second, such orders
might allow vessels to be used for a developing country
in a manner which displaces other normal competitive
shipping business.

5.3.3.
The ESC is persuaded that a special provision
of this type should be continued. The ESC also welcomes
the assurance that the rules will be amended to open
such contracts to competitive bidding from different
yards in the EU and that monitoring procedures should
ensure that there is no abuse of this concession.

5.3.4. Opening such contracts to bidding from differ-
ent Member States does raise a difficult problem if the
national governments offer different levels of aid to
yards in their country. The ESC suggests that this
issue should be clarified before the new regulation is
introduced.

5.4. Closure aid

5.4.1.
Assistance with the costs of closure, total or
partial, is allowed under the present directive. The
Commission proposes that this aid, including the social
costs of readjustment for former employees, should
continue to be permitted. The ESC welcomes this
provision.

5.4.2.
In a change in the application of this provision,
the Commission proposes that where closure aid is paid,
instead of there being a rule that the facilities must
remain closed for five years together with a requirement
for Commission approval for reopening in a further five
years, the scheme should, in future, require that the
facilities should not return to shipbuilding for a period
of ten years and the prospect of a review after five years
should be removed. The ESC accepts the logic of this
change.

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5.5. Restructuring aid

5.5.1.
restructuring aid in the Seventh Directive.

There are no detailed criteria for assessing

5.5.2.
Since a component of improving the pro-
ductivity and competitiveness of the shipbuilding indus-
try will inevitably include the restructuring of some
enterprises, the Commission is proposing a formal
statement further defining the scope of potential restruc-
turing aid. The basic principle is that shipbuilding
enterprises should have the same rules as apply generally
within the Community. Whether to allow capital injec-
tions, debt write-offs, subsidized loans or rescue aid, the
proposal is to have strict rules using the ‘one time/last
time’ principle backed up by assessment and monitoring
of viability.

5.5.3.
To qualify for restructuring aid, evidence must
be available of the extent of capacity reductions which
will follow. In a sensible change the Commission suggests
that the determination of the capacity reduction should
not be calculated on the notional capacity to be closed
but, instead, the actual level of production in that yard
in the preceding five years.

5.5.4.
The ESC supports both the clarification of the
scope for restructuring aid and the method to determine
the amount of capacity to be removed.

5.6.3. One of the most acute problems facing the
shipbuilding industry worldwide, and hence also in the
EU, is the substantial overcapacity. An effective EU
policy must therefore consider how the EU can help
in solving this problem. Current proposals offer no
immediate action to curb overcapacity but the Com-
mission should be urged to put forward suitable pro-
posals on this matter. In the proposal at issue, care must
be taken to ensure that the EU’s own aid does not
aggravate the problems of world overcapacity.

5.6.4.
Aid for R&D and aid for environmental
protection are to be permitted in terms similar to those
available for other sectors in the Community.

5.6.5.
The ESC acknowledges that these differing
investment aids may usefully encourage the improve-
ment in the competitive position of the firms in the
industry. Since the new regulation will make these aids
subject, potentially, to a five-year limit, or possibly a
review after five years, the ESC expects that an assess-
ment of their impact and effectiveness will be prepared
before the end of the period so that an informed
judgement can be made about the merits of continuing
each element after 2003. The Committee would hope
that, in particular, the Commission will assess whether
any of the changes show distortions which are not
consistent with the evolution of an EU-wide competitive
industry.

5.6.

Investment aid

5.6.1.
As a critical component of the restructuring and
strengthening of the shipbuilding sector, the Commission
proposes that shipbuilders should be eligible for several
types of investment aid. This includes regional invest-
ment aids for modernizing and upgrading facilities in
disadvantaged regions as well as investment aid for
innovation with the restriction that the innovation
should be defined as bringing into use products or
processes that are not currently used commercially by
other EU shipbuilding operators. The ESC notes that
investment aid, linked to competitive improvements, is
not necessarily constrained by the search for capacity
reductions in a modernized yard, although the overall
thrust of Commission policy still needs to take account
of surplus capacity within Member States.

5.7. The overall impact of the new regulation

5.7.1. Whilst operating aid can be granted for con-
tracts signed before the end of 2000, and may be claimed
in the following three-year period, and the industry will
be encouraged to invest and innovate using the other
provisions, the ESC has a concern that the consequence
of the changes will be to increase the level of official
expenditure on shipbuilding. The Commission has
pointed to the limited commitment to completely new
types of funding and estimates that the State aid bill
should not increase significantly, even for a short period.
The Committee believes that the effect of the changes
should be to reduce the level of aid payments.

5.6.2.
Care must naturally be taken to ensure that
investment aids, including regional aid, are not used to
rescue ailing shipyards and one requirement must
therefore be that those firms which receive investment
aid are profitmaking or are assessed to be able to become
profitmaking as a result of the new investment.

5.7.2.
The ESC therefore calls for the regulation to
include a provision specifying that total annual aid
— operating, regional and other investment aids — to
individual shipyards may not exceed a ceiling of 9 % of
turnover averaged over any three-year period.

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5.7.3.
The ESC notes that State aids to shipbuilding,
in particular, operating aid linked with the contract of
the ship, are not clearly defined. In certain instances,
this lack of clear cut definition may lead to confusion
with the State aids to shipping and to cumulative
application of the above two categories of aids. It,
therefore, suggests that this issue be clarified in the
proposed Regulation.

5.7.4.
An important feature of the new regime for
shipbuilding is that the Commission should monitor the
impact of the new arrangements and, in particular, the
impact of the different types of support which will be
available.

5.7.5. M o n i t o r i n g a n d t r a n s p a r e n c y

5.7.5.1.
The Commission mentions the need to ensure
that aid be paid in accordance with the guidelines laid
down by the Council and proposes that monitoring be
carried out in the form of notification by the Member
States to the Commission. It is not envisaged to give
the Commission any independent responsibility for
procuring information from aid recipients, local auth-
orities or others. In the ESC’s view, the Commission
should have both the right and duty in co-operation
with national governments to undertake on-the-spot
checks of production, accounts, etc. so as to ensure that
the above guidelines are observed.

5.7.5.2. On earlier occasions, in connection with the
restructuring of certain shipyards, the Commission
has been empowered to monitor compliance with the
relevant guidelines. It should receive corresponding
powers in respect of all forms of aid referred to in the
regulation.

6. Human resources

The ESC noted that the proposed regulation
6.1.
makes no specific reference to the training needs of the
people employed in the shipbuilding industry. Enhanced
skill levels will be an important component of the drive
to improved productivity and competitiveness. The
expectation of the ESC is that the Commission will be
prepared to use its influence and resources to encourage
appropriate skill development by the firms and training
agencies in each Member State.

7. Conclusions

7.1.
The ESC has, in its earlier Opinion, endorsed
the objectives which were agreed in the proposed OECD
Agreement on shipbuilding. The failure by the United
States to ratify that Agreement is regretted. Whilst the
Committee would still wish to see the OECD Agreement

ratified, the proposed new Regulation has, in principle,
the support of
the ESC as it seeks to encourage
the development of a stronger and competitive EU
shipbuilding industry.

7.2.
The ESC commends the efforts of the Com-
mission to create a consistent and mutually reinforcing
set of maritime policies ranging from the promotion of
research and innovation, encouraging industry-wide
cooperation and, more recently, encouraging the devel-
opment of short sea shipping as a contribution to wider
problems of freight movement around the Community
and in a wider context (point 4.5.5).

7.3.
Recent events in financial markets and exchange
rates in the Far East have created an uncertain environ-
ment for a number of industries, including shipbuilding.
The Committee recognizes that the Commission will
need to monitor events and, if necessary, take appro-
priate action if there is a prospect that the shipbuilding
industry will be adversely affected.

7.4. Whilst the removal of operating aid, and its
replacement by more selective measures lie at the core
of the proposed regulation, the ESC would be reluctant
to support the removal of operating aid if the prospects
for competitive success were considered too low and if
the alternative measures do not offer an equivalent effect
(point 4.2.4).

7.5.
The Committee suggests that a further compari-
son to establish the relative competitive position of the
main producers should be undertaken before a final date
for the removal of operating aid is decided (point 4.3.5).

The Committee welcomes the assurance that at
7.6.
the end of 1999 (one year before the deadline) the
Commission will monitor the market situation and, if
anti-competitive practices are established, will consider
introducing appropriate measures (point 4.3.6).

7.7.
Difficulties might occur if the scope of the new
regulation was not broadened to cover critical aspects
of ship repair activities and the Committee welcomes
this more logical approach to the range of shipbuilding,
ship conversion and ship repair activities (point 4.4.1).

7.8.
The proposals relating to export credits, contract
aid, closure aid, restructuring aid and investment aid
are supported. However, the ESC would be concerned
if the consequence of the changes was to increase the
level of official expenditure on shipbuilding whereas the
effect is supposed to be the opposite; i.e. the reduction
and removal of aid (point 5.7.1).

7.9.
The Commission should monitor the impact of
the arrangements and, in particular, the impact of the
different types of support (point 5.7.3).

C 129/44

EN

Official Journal of the European Communities

27.4.98

7.10.
The Commission should avoid any measures
which could result in an international ‘subsidy race’ and
should continue its endeavours to control, and ultimately
phase out, subsidies to shipbuilding through an overall
agreement within the philosophy of the OECD Agree-
ment. This should be established as a basic principle in

order to avoid the building of vessels for which there is
no economic justification and where the consequences
may be to unfairly distort activity in the shipbuilding
sector and seriously damage the economics of the
shipping industry (point 4.2.5).

Brussels, 25 February 1998.

The President

of the Economic and Social Committee

Tom JENKINS

Opinion of the Economic and Social Committee on the ‘Proposal for a Council Directive on
end of life vehicles’ (1)

(98/C 129/10)

On 2 December 1997 the Council decided to consult the Economic and Social Committee,
under Article 130s of the Treaty establishing the European Community, on the above-mentioned
proposal.

The Section for Protection of the Environment, Public Health and Consumer Affairs, which
was responsible for preparing the Committee’s work on the subject, adopted its opinion on
3 February 1998. The rapporteur was Mr Colombo.

At its 352nd plenary session (meeting of 25 February 1998), the Economic and Social Committee
adopted the following opinion by 85 votes to one with one abstention.

1. Outline of the proposal

1.1.
This ambitious and innovative proposal has its
legal basis in Treaty Article 130s. It follows the example
of the directive on packaging waste in setting target
figures, and will affect a sensitive sector of the European
economy, namely the motor industry. It proposes the
adoption of a preventive approach for a specific waste
stream requiring intervention throughout the product’s
life-cycle right from the design and production stages,
and strict adherence to a hierarchy of waste management
principles favouring re-use and recycling (recovery of
materials).

1.2.
The ‘producer responsibility’ principle adopted
in the new Community strategy for waste manage-
ment (2) is to be put into practice by obliging all
companies operating in the sector to set up an appropri-

ate system for recovery and disposal, with re-use and
recycling targets to be met within specified time-limits.

1.3.
The system will be completed by a ‘certificate
of destruction’, issued only by authorized treatment
facilities, which will be required for deletion of vehicles
from national registers (Article 5).

1.4.
The vehicles to be scrapped will have to be
handled in accordance with the general provisions laid
down in Article 4 of Directive 75/442/EEC and the
list of decontamination requirements and technical
provisions in its Annex (Article 6). Progressively higher
targets for the rates of re-use, recovery and recycling are
to be reached by 2005, 2015 and a date beyond 2015 yet
to be determined (Article 7). It will be the responsibility
of vehicle producers to design and manufacture their
products in ways that will make these targets easier to
achieve.

(1) OJ C 337, 7.11.1997, p. 3.
(2) COM(96) 399 final; Council Resolution of 24.2.1997 in OJ
C 76, 11.3.1997; ESC Opinion in OJ C 89, 19.3.1997.

To add legal weight to this switch in production,
1.5.
the Commission proposes [Article 7(4)] amending Direc-