Yard closure intensifies debate on state subsidies

Date: 30/11/1995

By Tim Jones

THE announcement that Denmark's Burmeister & Wain shipyard will close after 152 years, while another yard is under threat, has brought the question of subsidised shipbuilding to a head.

With much of the ageing fleet of merchant vessels needing replacement in the coming decade, the opportunities for shipbuilders remain plentiful, as long as they can compete in cost and quality with their rivals.

The continuation of state aid payments, both legal and covert, is starting to cause resentment among shipbuilders particularly in Sweden, Denmark, the UK and western Germany.

“Shipyards should compete on the basis of their own commercial abilities and not depending on the size of the national bank,” complains Thorkild Christensen, managing director of the Association of Danish Shipbuilders. “We are being hit very hard by subsidised competition from other countries.”

While B&W was also a victim of the strength of the Danish krone against the US dollar, Danes feel it was harmed by unfair competition, especially from German and Spanish yards, and the failure of many countries to ratify an international subsidy-cutting accord. That agreement, brokered by the Organisation for Economic Cooperation and Development in 1993-94, was meant to come into force on 1 January 1996.

The signatories - the EU, along with the US, South Korea, Finland, Norway and Sweden - agreed to end direct production aid from governments to shipbuilders.

But Japan and the US still have to ratify the agreement, while South Korea has announced its aim to increase capacity by the year 2000 to 9 million tonnes from 4.5 million tonnes now.

As a result, the French government called for a delay in EU ratification. Paris has long been sceptical of the OECD accord, partly because of the capacity increase in Korea, but also because the US was allowed to maintain the 'Jones Act' whereby vessels intended for national maritime transport must be built in US yards.

France was persuaded to sign the agreement, which Jacques Chirac dubbed a 'maritime Blair House' last year, only after being allowed to pay social aid to two French yards.

Industry ministers voted earlier this month to extend the EU regime which allows governments to allocate subsidies to shipyards worth 9&percent; of the contract value until next June, or earlier if Japan and the US ratify the accord in the meantime.

But European shipbuilders are as unhappy with each other and the EU as they are with their rivals in Asia and the US.

The Danish shipbuilders' association expects a European Court of Justice decision early next year into its complaint against subsidies to East German Baltic shipbuilder MTW. The association claims the Commission exceeded its powers in allowing the subsidies to MTW, which competes directly with Danish yards in building container and cruise ships, because it allowed the yard to double capacity and permitted late state aid payment. The Commission contests the claims.

Danish Industry Minister Mimi Jacobsen has also called on the Commission to open a register of state aid to yards to show exactly how much each one receives in subsidy and their capacity quotas.

UK shipbuilders have echoed this call.

Many state-owned yards are operating on losses equivalent to half their revenue from sales, said an industry official, adding: “That amounts to a hidden subsidy. No private business could stay open with those kinds of losses. The EU has got to address these questions.”

Ironically, these will not necessarily be addressed even if the OECD agreement is ratified. Since it only stops direct production aid, it still leaves open the door to research and development subsidies and export credits. But, to Thorkild Christensen, it would be a good start. “All we want is for international rules to be adhered to,” he said.