CELEX: 51980PC0461
Language: en
Date: 1980-09-18
Title: PROPOSAL FOR A COUNCIL DIRECTIVE ON AID TO SHIPBUILDING (presented by the Commission to the Council)

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COM (80) 461
Vol. 1980/0160
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 ---pagebreak--- COMMISSION OF THE EUROPEAN COMMUNITIES
                                                COM(80)461 final
                                                Brussels . 18th September 1980
                                                    1
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                                                   i
                      PROPOSAL FOR A COUNCIL DIRECTIVE
                           ON AID TO SHIPBUILDING
                ( presented by the Commission to the Council )
  COM ( 80 ) 461   final
 ---pagebreak--- Subjec* : Proposed 5th Directive on aid to shipbui Lding .
1 . Background
1.1 . The 4th Council Directive on aid to shipbuilding will expire at the
       end of 1980 . This Directive aimed both to define the aids which could
      be considered compatible with the Common market under Article 92(3 ) EEC
      and to exercise a discipline in the grant of such aids and prevent dis­
      tortion : of competition resulting from them .
                    It also sought to encourage the Community industry to
       undertake the necessary structural changes to enable it to survive
       in the current and foreseeable future market conditions .     Over
       recent years considerable restructuring has in fact taken hlace in
       the Community merchant shipbuilding industry .     There have been
       reductions in employment and output : between 1975 and the end of
       1979 employment fell by 35 % and output by over 40 % .     The pace of
       restructuring has varied in different Member States , and although
       some are well advanced in their restructuring programmes , others have
       still a significant way to go(in some cases progress is hindered by
       political difficulties ).
1.2 . The situation on the world market remains one of crisis , with demand
       still depressed , prices low and continuing severe competition for
      the orders that are available . The slight improvement in orders that
       was observable in 1979 was probably due to temporary factors and
       cannot be regarded as the beginning of a permanent upturn in the
       market .   Forecasts of future demand differ , but it seems reasonable
       to suppose that the volume of new orders won by Community shipyards
       over the next few years will remain fairly comparable to that achieved
       in the recent past . There are thus no grounds for hope that an
       upsurge in orders will bring a speedy end to the crisis in the industry .
       Further , pri ces . cannot be expected to show any marked improvement
       for some time to come , since severe price competition , especially
       from the Far East , is likely to continue and, in addition , the anti­
        cipated trade recession will keep freight rates low .
 ---pagebreak---                                         - 2-
1.3 . It is thus clear that the process of adaptation undertaken by Member
        States , and given a framework by the 4th Directive , will nelll to' be
        pursued and that the shipbuilding industry in the Community will con­
        tinue to need aid for a further period , though not necessarily at a
        uniform rate for the whole of the period .
                          In these circumstances , the internal discipline in
        respect of aids must also be continued , to ensure that Member States
        share the burden of the crisis equitably and do not contribute to the
        prolongation of the crisis by allowing excessive capacity to exist or
        prices to be kept artificially depressed by unreasonable levels of
        subsidy .                                  '
1.4 . The experts of the Member States are agreed that there is need for
        a new Directive to come into force on expiry       of the present one .
        They agree    also that the recommendations of the Council Resolution
                      (1)
        of 19.9.1978 on the reorganisation of the shipbuilding industry remain
        valid .   The        5th Directive now submitted has been elaborated with
        the benefit of detailed discussions with the experts on the course of
        multi-lateral meetings and it broadly follows the lines of the 4th
        Directive .   In some respects , however , it goes further than the
        4th Directive and brings within the discipline forms of aid not
        previously covered . It is proposed to have a duration of 2 years .
                                                        V
2 . General Approach of the Directive
2.1 . As in the 4th Directive , production aid , which is the type of aid
        having the most direct and distorting effect on competition and the
     :  market , is regarded as acceptable only as a means of dealing with
        the crisis facing the industry .     Its purpose is to enable Community
        yards to offer prices comparable to those of competition in third
        countries and it should not result in the displacing of orders from
        other Community yards .    It is a condition of the grant of such
        aid that it should be linked with a restructuring programme and it
        should not effect trade to an extent contrary to the common interest .
        The principle of progressive reduction of the aid is also retained .
                                                                          ./.
  ( 1 ) OJ C 229 of 27.9.1978 .
 ---pagebreak---         4'
2.2 . Under the 4th Directive , Member States were required to submit reports
      on the grant of aid to shipowners .   The purpose of this requirement
      was to enable the Commission to consider whether shipowners aid was
      having any appreciable effect on the placing of shipbuilding orders .
      The information received has shown that aid to shipowners tends at
      least in present circumstances to result almost exclusively in orders
      for home yards and therefore to have a effect similar to that of aids
      to shipbuilding .   Since it is not equitable that these aids should
      escape the discipline applied to other aids which have similar effects ,
      the new Directive enables the Commission to examine the position and
      take action if aids to shipowners are endangering the common discipline
      or are obstructing the objectives of the Directive , notably as regards
      restructuring .
2.3 . The Directive also contains provisions for the control of aid given
      in the form of compensation for losses incurred by ship­
      building undertakings . Aid provided by this means lacks transparency ,
      and gives rise i:o .concern among other Member States that , in effect ,
      it may be a means'/ of providing excessive production aid ( for example ,
      if a production aid at the maximum rate of 25 % is granted for a
      particular contract and subsequently an additional loss of 10 %_is
      incurred , then , effectively, a production aid of 35 % has been given).
      The Commission is also concerned that this practice may weaken the
      yards' incentive to reduce losses by restructuring and becoming more
      competitive .
 ---pagebreak---                                        4"
2.4 . The new ■       Directive therefore maintains the pressure towards
       re-organisation and increased efficiency in the Community industry - v
                          i
       with a view making' it able to exist ultimately without state aid .
                                                                     \
       It retains the two aspects which also characterized the 4th Directive ,
       as an instrument of control and an instrument for stimulation of
       necessary industrial change .
2.5 . The Commission recognises that in some Member States extensive
       restructuring has taken place and that scope for further reductions
       in capacity is limited .  It is necessary however to retain the
       restructuring criterion for the granting of aids and these Member
       States will therefore continue to have to show that aid proposed
       is linked with restructuring plans .
     . In these circumstances it will be appropriate to interpret the notion
       of restructuring more flexibly under the 5th Directive and to place
       the emphasis on modernisation and rationalisation rather than on
       pure reduction ofteapacity as in the past .
                                                                     ./.
 ---pagebreak--- 3 = Elements of the Directive
3.1 . Credit facilities ( Article 2 )
      The        Directive provides for Member States to grant credit faci­
       lities for the sale or conversion of ships provided they respect the
      terms of the OECD Understanding . Some differences in definition which
      existed between the OECD Understanding and the 4th Directive in this
      respect have been eliminated in the new draft .
           i
3.2 . Investment Aid ( Article 3 )
      This Article , identical with Article 4 of the 4th Directive , provides
      that the Commission be notified in advance of any investment aid
      which would result in an increase in the production capacity of a
      Member State .     In addition , reports showing all investments in excess
      of 5 million EUA are to be submitted at 6-month intervals .      Although
      very little investment falling within this Article has taken place
      during the currency of the 4th Directive , it is necessary to retain
      the Article as a safeguard and a source of information for the
      Commission .
3.3 . Aids to rescue an undertaking ( Article 4 )
      Under this Article , aid given to rescue a shipbuilding , ship-repair
      or ship conversion undertaking pending a longer term solution of
      the undertaking 's problems may be considered compatible with the
       common market .    The new draft is more explicit than its predecessor
      in the 4th Directive in prohibiting cumulation of rescue aid and
      production aid in the same form . It specifies that rescue aid shall
      not take the form of grants for production provided for in Article 6 .
      This is intended to deal with a problem which has arisen under the
      4th Directive when Member States , proposing to grant a production
      aid in excess of the normal maximum have argued that the additional
      amount has the character of a rescue aid and therefore should be
      authorized under this Article . To accept this would make the concept
      of a production aid limit practically valueless ; hence the revised
      draft .                                              "      .
               .   --Λ .                                                  ./. ■ ■
 ---pagebreak--- 3.4 . Aid to deal with the social and regional effects of restructuring
   . ( Article 5 )
       This is a new Article . It is prompted by the fact that shipyards are
       often located in older industrial areas already experiencing severe
       regional and social problems /   which threaten to be seriously aggra­
       vated by losses in shipbuilding employment .   The Article provides
       for Member States and the Commission to cooperate in this respect :
       the underlying thought is that some Regional Aid Fund monies may be
       specifically allocated to this problem .   This is a very positive
      element of the Directive and is important as an indicator of the
       Community 's concern for the human problems created by the shipbuilding
       crisis .                                                                '
3.5 . Crisis Aid ( Article 6 )
      This Article continues the general approach of its counterpart in the
      4th Directive . It provides that production aid may be considered
      compatible with the Common market if it is linked to restructuring ,
       is degressive and dpes not affect trading conditions to an extent
      contrary to the common interest .
                     %
       In interpreting the concept of degressivity, the Commission will take
       special account of the development of the competition situation at
       world level and . of possible worsening of the regional problems in
       certain parts of the Community .
       The new element in this article is that , in assessing a Member
       State 's proposals for such aids , the Commission will take into
       account other types of aid which benefit shipbuilding in that State .
       This approach is intended to ensure that accumulation of aids of
       different types does not build up to unacceptable totals .
                                                                              - "   f
                                                                        / •       * *
 ---pagebreak---                                       - 7 -
3.6 . Cost Escalation Insurance ( Article 7 )
      Under this Article aid in the form of insurance against inflationary
      cost increases may be considered compatible / provided it satisfies
      the criteria for aids under Article 6 .
3.7 . Aid to Shipowners ( Article 8 )
      As mentioned above ( para 2.2 ), aid to shipowners has been seen , under
      the 4th Directive , to operate to some extent as an instrument of
      support for the shipbui Iding industry of certain Member States .
      This Article therefore proposes to subject these aids to the general
      discipline , by declaring that they shall not endanger the objectives
      of the Directive ( notably as to restructuring ) and shall not discri­
      minate against shipyards in other Member States .   If the Commission
      concludes that these effects are occurring , it may intervene and
      examine the whole aid system of the Member State for the building ,
      sale and acquisition of ships .
3.8 . Other financial measures ( Article 9 )     '   -
      This is a new article , intended to deal with the problem outlined
       in paragraph 2.3 above . Because of the difficulty in identifying
      the precise effects of certain financial measures ( in particular
       loss compensation , capital reorganisation , non-repayable grants )
      on individual orders or on progress with restructuring , the Articte
      adopts a broad formulation which leavesthe Commission scope for
      exercise of discretion . It goes without saying that such aid should
      not obstruct the discipline of Article 6 ( see para 3.5 above ) or the
       general objectives of the Directive , notably as regards the necessary
       restructuring of the sector .
3.9 . Non-Discrimination in marine equipment ( Artide 10)
      This Article provides that marine equipment should not be subject
      to restrictive practices as between Member States .
 ---pagebreak---                              COUNCIL DIRECTIVE
                             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 ;
1 . Whereas the situation of the shipbuilding industry has continued to be
     unfavourable during the period of operation of Direotive 78/338/EEC on
     aid to shipbuilding ; whereas this situation has in particular taken the
                                    production
     form of an imbalance between the/capacity of the industry and demand,
      leading to low price levels ;
2 . Whereas shipbuilding undertakings in the Community have therefore been
     obliged to draw frequently on their financial reserves to take orders ,
     thus reducing their chance of implementing the structural adaptations
     needed to face the prevailing market conditions in the longer term ; /
   « •                    *
                          i                   /
                                                                          concerning
3 . Whereas the Resolution of the Council of Ministers of 19 -September 1978 /
     the reorganisation of the shipbuilding industry in the Community stressed
     the need to maintain within the Community a healthy and competitive ship­
     building industry whose scale of activity should be consistent with the
     size of the Community 's sea-borne trade and respect its economic , social
     and strategic importance ;
4 . Whereas a competitive shipbui Iding^ industry is of vital interest to the
                                                             *                      ,
     Community and contributes to its economic and social development by
     providing a substantial market for a range of industries , including those
     using advanced technology; whereas it contributes also to the maintenance
     of employment in a number of regions , including some which are already
     suffering a high rate of unemployment ; whereas this is also true of
     ship-conversion ari shiprepair ;
 ---pagebreak---                                        - 2 -
 5 . Whereas , if the situation in the industry were normal , the continuation
      of operating aid could not be justified, since , its effect being mainly
      that of conservation, 1 it is not likely to bring about any lasting impro­
     vement in the Community shipbuilding industry 's competitiveness ;
6 . Whereas , however , the continuation of the crisis for a further period has
     serious consequences for the shipbuilding industry which make the imme­
     diate abolition of such aid impossible ; whereas it is necessary to allow
     adaptation of the structures of the industry to the prevai ling market
     conditions to take place gradually ;
7 . Whereas , to this end , operating aid should be temporary and diminishing ,
     so as to encourage the undertakings to make the necessary effort to be­
   ' come competitive , at least in time ; whereas such aid should be subject
     to continuous control in order to avoid distortions of competition within
     the Community ; whereas the granting of such aid should be linked to the
     achievement of restructuring objectives ; whereas in this context the
     restructuring effort is not confined to reduction of production, employ­
     ment and production capacity, but includes all other measures enabling
     the shipbuilding industry to become competitive ; whereas in assessing
     the reduction of production capacity it is appropriate to take account
     of the effort already made ;
8. Whereas, in order to deal with the present difficulties facing the in­
     dustry, and in particular the distortions of . competition which are oc-
     curing, the member countries of the OECD are continuing their efforts to
     remedy the serious structural disequilibrium existing in this industry
     by reducing                world shipbuilding production capacity ; whereas
     this reduction in capacity should be achieved in the least damaging and
     most equitable way possible ; whereas these . .       countries have
     adapted          certain conditions of the OECD Council Resolution on
     credit facilities , in order to bring it more into line with the current
     trend of the market ;       ,
9 . Whereas       Council Directive 78/ 338/ EEC of 4 April 1978 on aid to ship­
     building has, during its period of operation, helped to reduce distortion ,
     of competition between Member States ; whereas this , Directive has also
     enabled the Community to adopt a common position in discussions with
     other shipbuilding countries ;
 ---pagebreak---                                        - 3 -
10. Whereas production structures should be progressively adjusted to the
     new market conditions in such a way that undertakings in the industry
     may become capable of following general economic developments and of
     masting competition on the world market without the support of inter­
     vention by public authorities ; whereas this progressive adjustment of
     production structures should be accompanied by measures to facilitate
     adjustments in employment and on a social level ;
11 . Whereas , furthermore , effective action to eliminate distorsions of
     competition requires a solution covering all aid directly or indirectly
     affecting competition and tracing conditions on the shipbuilding , ship-
     conversion and ship»»repair market ;
12 . Whereas it is necessary to define aid intended as a temporary solution
     for the rescue of a shipbuilding , ehip^-conversion or ship*»repa.ir under­
     taking in order to deal with acute social problems ;
13. Whereas , in view of the continuing crisis in the shipbuilding industry ,
     it is appropriate to provide for aid to facilitate the conversion or
     clos\ire of shipyards under the most equitable social conditions ;
     whereas this aid may provide for the retraining of the workforce or
     facilitate early retirement ;
14. Whereas aid granted to national shipowners for the acquisition of new
     ships should not lead to distortions of competition between national
     shipyards and those of other Member States ;
15 . Whereas any aid Included in direct or indirect financing measures taken
     by Member States , in respect of private or publicly-owned shipyards ,
     should also meet the requirements laid down under this Directive ;
Had adopted this Directive 1
 ---pagebreak---   Article 1
  For the purposes of Articles 3 to 11 of this Directive , the following
  definitions shall apply :
   ( a ) Shipbuilding means the construction in the Community        of the following
                          metal-hulled sea-going vessels ;
           - merchant ships for the carriage of passengers and /or cargo , of not
             less than 150 grt ;
           - fishing vessels of not less than 150 grt ;
           - dredgers or ships for other work at sea , of not less -than 150 grt ,
             excluding drilling platforms ;
           - tugs of not less than 365 KW;
  ( b ) .- Shi^ - conversion means the conversion of metal-hulled sea-going vessels
           of not less than 1,000 grt ,     N on condition that conversion operations
           entail radical alterations to the cargo plan , the hull or the propulsion
           system ;
. Cc ) Shi^rega i r means the repair of the vessels referred to under ( a ) above ;
  ( d ) Salejneans all sales of vessels referred to under ( a ) above ;
                                        meaning
  ( e ) Aid means State aid within the / of Articles92 and 93 of thi- Treaty ^
           including both             -         aid granted by the Stcte itself
           and   that granted by regional or    local authorities .
  Article 2
  Aid in the form of credit facilities for all sales or conversion of vessels
  may be considered compatible with the common market provided that it com­
 plies        w ith the 0ECD Council Resolution of 5 February 19o0 or with any
  agreements replaoing the Resolution.
 ---pagebreak---                                     - 5 -
 Article 5
Member States shall not grant sectoral aid for the creation of new shipyards
or for investment in existing yards if such aid would be liable to increase
the Member State 's building capacity .
    «
In applying general or regional investment aid schemes to the shipbuilding
sector , Member States shall take all steps to ensure that aided investment
does not lead either to increase in the capacity of the sector in a Member
State , or to the creation of employment which is not of a stable nature .
To this end , plans for such application of general or regional aid schemes
leading to increases in shipbuilding capacity in a Member State must be
communicated to the Commission not less than 30 working days before they
are put into effect      .
Member States shall inform the Commission of their decisions to grant aid
for investments in shipbuilding , ship repair or shipconversion yards where
the amount of such investment is in excess of 5 million European units of
account .  This information shall be provided in accordance with the pro­
cedure provided for in Article 11 .
Article 4
Rescue aid intended to maintain a shipbuilding , ship-conversion or ship-
repair undertaking pending a definitive solution of the problems con - •-
fronting the undertaking concerned, in order
 ---pagebreak---  to deal with acute social problems and the regional effects which may arise ,
 may be considered compatible with the common market under the present
 Directive . Rescue aid may not take the form of production aid more parti­
cularly provided for in Article 6 .
Arti c le 5-                                             •
                                                                        r
^2^_ï2_^£§i_yiï!l_i!îË„§2£iâi„âDd=.£ê2i2D§i;_£2Q§f2y£D££S of rest ructurinq
The Member States and the Commission shall cooperate to deal , so far as
possible, with the social and regional consequences of the restructuring of
the shipbuilding and ship repair industries , and to this end Member States
shall inform the Commission as soon as possible of proposals for conversion
and closure of shipbuilding and shiprepair undertakings .
Aid intended to cover the       normal costs arising from the conversion and the
partial or total closure of a shipbuilding or shiprepair yard may be consi­
dered compatible with ^ he common market .
Article 6
                                             i                   i
Cri si s aid
Production aid in favour of shipbuilding         ' may be considered compatible
with the common market if it is granted to deal with the effects of a
crisis             characterised by a poor order situation leading to substantial
         under-uti lization of the means of production *
Such aid shall be progressively reduced ; it shail be granted only if lin­
ked to the attainment of industrial restructuring objectives which will
                                          ultimately
make the industry competitive and able         /     to operate without aid .
 ---pagebreak---                                       - 7 -
 When assessing the compatibility of such measures with the common market ,
 and in particular the level of aid., th© ConimiEnsion shall psy particular
 attention to the situation on the market , the gravity of the crisis in
terms of the balance of the workload remaining available to shipyards and the
need for adaptation of the shipbuilding industry to the conditions and con­
 straints prevailing on the market® Xn addition , the Commission shall examine
the budgetary resources allocated for crisis aid in order to verify that the
programme of adaptation of the industry is comparable with those carried out
in the other Member States of the Community,,
This examination shall take account of all aid provided by the Member State
concerned for the construction , sale and acquisition of ships .
The Commission shall assess the maximum level of aid which may be granted
for the application of the various aid schemes ,,    Authorization to exceed
this level may be given only as an exceptional measure , after the Commission
has been notified.   Such exceptions may not be put into effect unless the
Commission has given its agreement .   The Commission shall adopt a position
as soon as possible , having regard to the urgency of each individual case ,
and in any case not later than thirty working days after notification.
In determining the manner in which the maximum level of aid is to be pro­
gressively reduced , the Commission will take account of the existing maxi­
mum level and of the acuteness of the crisis in the Member State concerned.
The Commission shall be given prior notification of any proposed individual
aid under the measures referred to in the first paragraph where such proposal
is in competition with a tender from another Member State , Such proposals
may not be implemented before the Commission has given its agreement . The
Commission shall verify that such aid does not affect trading conditions to
an extent contrary to the common interest .
                                                          /•
 ---pagebreak---  Member States shall supply the Commission with a table / for its exclusive
use                        setting out the decisions on the aid referred to in
paragraph 1 and an estimate of their effects .
This information shall be provided in accordance with the procedure set
out in Article 11 .
        *
The Commission shall verify , on the basis of the information referred to
in the first and second         paragraphs , and of the order situation in the
Member State concerned , whether efforts to attain industrial restructu-
                             the second
ring objectives mentioned in/paragraph         and the crisis measures which
have been applied are contributing genuinely and in an equitable manner
to the adaptation of the industry to the new conditions on the world ship
building market .
Article 7
Aid and intervention in the form of cost-escalation insurance may be con­
sidered compatible with the common market under this Directive , subject
to the conditions set oufcin Article 6 .
Article 8         ■ :- v "                                              ;>v
Aid granted to shipowners in a Member State linked to the aocjm sition
of new ships may not lead to distortions of competition between natio­
nal shipyards and shipyards in other Meraber States in the placing of
contracts .                                                           ■
 ---pagebreak---                                      - 9 -
Aid to shipowners linked to the acquisition of new ships may      not endanger
the discipline established by Article 6 in parti cular , nor the objectives
pursued by the present Directive , especially in regard to the adaptation
of the shipbuilding industry to prevailing market conditions .
If the Commission observes that one of these effects is likely to occur , '
it shall examine the whole of the aid provided by a Member State for the
building , sale and acquisition of ships .
These     provisions are entirely without prejudice to any future Community
rules on aid to shipowners .
When aid is granted to national shipowners on a selective basis . Member
States shall draw up a report .    This report shall contain information on the
                                             the
total tonnage of orders receiving aid andjshare of this total which has
been placed in national yards .    The volume of aid shall be shown in each
case .
This information shall? be provided in accordance with the procedure set
                        1
out in Article 11 .    The Commission shall at regular intervals draw up
overall reports summarising the information supplied to it .
These reports shall be discussed with Member States in order to ensure that
there is no di scimination in the shipbuilding industry as a result of
such aid .
Art i c le 9
                                         indirect
Axxy elements of aid included in direct or / financing measures taken by
Member States in respect of shipbuilding and ship repair undertakings ,
whether private or piiblic ly-owned,                  may be considered com­
patible with the common market provided that they comply with the criteria
for derogation contained in this Directive .
 ---pagebreak---                                      - 10 -
 Article 10
 No aids granted pursuant to this Directive may be conditional upon dis­
 criminatory praotices as to products originating in other Member States.
 Article 11
 Subject to       the specific provisions of this Directive,, the provisions
 of Articies 92 and 93 of the Treaty shall be fully applicable to shipbuil­
ding , ship-conversion and ship-repair .                                "
Aids planned by Member States under Articles 2 to 9 shall be notified to
the Commission before they are put into effect . They may not be put into
effect before the Commission has given its agreement.
Information to be supplied periodically by Member States under Articles 3 ,
6, 7 and 8 shall be provided half-yearly on 1 March in respect of decisions
taken during the second half of the previous calendarfand 1 September in
respect of decisions taken during the first half ol^current calendar year .
On the basis of the information communicated to it - the Commission shall a*
      intervals
regular / draw up an overall report to serve as a basis of discussion with
national experts . This report shall state , inter alia , the maximum level
of aid obtaining in each Member State during the period in question .
The Member States shall at regular intervals provide the Commission with a
report on the attainment of shipbui Iding restructuring objectives . The
Commission shall determine the due date of this report for each Member
State . The report shall show the results obtained through the application
of the aid referred to in Articles 3~ to 7 .
Article 12
This Directive  shall apply until 31 December 1982 .