Last-minute deal on aid to shipbuilders

Date: 19/09/1996

By Bruce Barnard

THE last-minute compromise reached between member states this week on extending the EU's shipbuilding subsidy regime cannot hide bitter divisions within the industry over illegal pay-outs to ailing yards.

The EU has given up hope of the US signing the delayed Organisation for Economic Cooperation and Development (OECD) deal, originally due to take effect last January, until after the 5 November presidential election. EU ambassadors agreed yesterday (18 September) to extend the existing regime until the end of 1997, and perhaps further if Washington has still not ratified the accord by June next year.

Only the threat of a special meeting of industry ministers tomorrow (20 September) managed to bring the warring factions to an eleventh-hour compromise.

The free trading Dutch and the Nordic trio wanted the EU to scrap subsidies unilaterally, while the French wanted to extend the current regime limiting subsidies to 9&percent; of a ship's contract value until the end of 1998. Other governments called for it to be phased out by the end of 1997.

Relations between shipyards, their governments and the Commission were poisoned by the Bremer Vulkan affair: the climax of a year of allegations of illegal state subsidies within the industry.

The traumatic bankruptcy in early 1996 of Burmeister & Wain, the legendary Copenhagen shipyard, further soured the atmosphere.

The Commission's position was compromised by the revelation that it had agreed to a 'secret' declaration concerning ratification of the OECD accord.

The Danish shipbuilders' association has been a thorn in the Commission's side for several years, constantly bombarding Brussels with complaints about Germany's misuse of subsidies, particularly in the former state-owned yards of eastern Germany.

Washington's failure to ratify the OECD agreement has provided welcome ammunition for EU yards which are hooked on subsidies.

For some, the deal was a sell-out that would have sacrificed European shipbuilders to their Japanese and South Korean rivals. The late French President François Mitterrand interrupted the EU's 15 July 1995 summit in Brussels - called to appoint a successor to Jacques Delors as Commission president - to demand that Commission negotiators walk away from the OECD accord, which was about to be signed in Paris after seven years of tortuous talks.

Highly-unionised shipyards located in unemployment black spots are putting intense pressure on their political representatives to defend subsidies. French MP Etienne Garnier claimed recently that every EU country was breaching the 9&percent; subsidy ceiling. According to Garnier, whose constituency takes in the Chantiers de l'Atlantique shipyard, Germany and Denmark are the worst offenders and Italy pours taxpayers' cash into its state-owned yards.

Denmark, the pace-setter in the war against subsidies, has been caught in the row over recent allegations that its shipyards have received 547 million ecu in illegal subsidies in the past decade.

The government dismissed the charges in early September, rejecting a damning report by international accountancy firm Coopers & Lybrand, but not before it had asked the Commission to investigate the 308 suspect state aid cases involved.

The Commission is treading on difficult ground. Its probe is based largely on the Coopers & Lybrand report which both

the Danish government and shipbuilders have slammed as unfounded and full of errors and misinterpretations of EU rules.

The row in Brussels took place against a shifting backdrop in the industry as the surviving yards take advantage of the reduction in capacity following the demise of Bremer Vulkan, Germany's largest shipbuilder, and B & W.

European shipyards can stay in business by concentrating on more sophisticated tonnage such as container ships, luxury cruise liners and chemical tankers, rather than oil tankers and bulk carriers which are mass produced by the Japanese and Koreans.

Business is getting tougher. World orders fell by 3.5 million gross tons, or 7&percent;, in the first half of the year, according to Lloyd's register.

West European yards accounted for 17.5&percent; of the market at 7.89 million gross tons, trailing well behind Japan at 30&percent; and South Korea with 28&percent;. But on the basis of compensated gross tons - an industry measure based on the labour content of contracts - Europe's share was 26.2&percent;, just inching out Japan at 26&percent; and South Korea at 20&percent;.

Some European yards are continuing to expand - without subsidies. Kvaerner of Norway, the world's third largest shipbuilder, last week took a majority stake in Russia's JSC Vyborg yard to add to acquisitions in Finland, Scotland and Eastern Germany.