CELEX: 51993PC0160
Language: en
Date: 1993-04-20
Title: Proposal for a COUNCIL DIRECTIVE amending Council Directive 90/684/EEC on aid to shipbuilding

COMMISSION OF THE EUROPEAN COMMUNITIES
                                                         COM(93)160  final
                                                         Brussels, 20 ApriI 1993
                                     Proposal for a
                                   COUNCIL DIRECTIVE
ï§^     '^              amend i ng Counc iI D i rect i ve 90/684/EEC
                                  on aid to shipbuilding
                            (presented by the Commission)
iftfr ' ~T,ïm
 ---pagebreak--- 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.
 ---pagebreak---                                     - 2 -
    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).
 ---pagebreak---                                   3 -
 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.
 ---pagebreak---                                     _4-
 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.
 ---pagebreak---     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."
 ---pagebreak---                                     - 6 -
                                 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.
 ---pagebreak---  ---pagebreak---                                                                         ISSN 0254-1475
                                                                  COM(93) 160 final
                                                         DOCUMENTS
 EN                                                                                10
                                   Catalogue number : CB-CO-93-184-EN-C
                                                                ISBN 92-77-54804-5
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