Spain in deep water over aid to shipyards

Date: 24/09/1998

By Chris Johnstone

THE European Commission is bracing itself for a clash with Madrid over the future of some of Spain's biggest shipyards, as an end-of-year deadline draws near for them to break even or face severe capacity cuts.

The yards, grouped together in the publicly owned Astilleros Espanoles, were granted a 'one-time last-time' aid payment for restructuring totalling 1.38 billion ecu in June 1997.

The financial package was clearly identified as an exemption from the Union's tough subsidy rules which applied at the time. It was only approved by other EU governments after Madrid promised that no more cash would be given to yards which did not break even by the end of 1998.

Commission sources have already warned that the future looks bleak for some of the yards, with just a few months to go before aid is cut off.

Astilleros announced losses of around 120 million ecu for 1997, half those of a year earlier but still a huge sum to turn around. Although the shipyards are operating at around 90&percent; of capacity, with an order book in June totalling 30 vessels, the margins per ship are not high enough and are unlikely to rise in a highly competitive international environment.

Competition Commissioner Karel van Miert said recently that the situation was being monitored closely and warned that it was likely that Spain's current shipbuilding capacity would have to be cut.

EU officials have been compiling quarterly reports for the Commission on whether the aid conditions are being met, and supplying six-monthly updates to national ministers.

An immediate 12.5&percent; reduction in capacity was one of the conditions for the 1997 subsidy clearance, together with a series of measures including a continued round of closures at the Astano yard and a ban on the Astander yard undertaking conversion work as long as it remains publicly owned.

Other types of support for shipbuilding such as aid investment for innovation, regional subsidies for modernisation, and research and development on environmental projects have been allowed to continue.

The Spanish government has so far given no indication as to whether it will seek a relaxation of previous subsidy discipline. However, other governments are already warning that there is no room for negotiations. “That suggestion would not stand a chance. The last restructuring package only just scraped through the Council of Ministers,” said a national official.

Spain's problems come as EU governments begin considering how they can frame new international rules to crack down on subsidies to shipbuilders.

Past attempts to agree a world-wide curb on shipbuilding aid through the Organisation for Economic Cooperation and Development (OECD) failed because the US refused to sign up to the proposed accord.

Ahead of an OECD meeting on 6-7 October, EU governments are now studying whether a new deal covering only the big four - the EU, Norway, Korea and Japan - is possible.

“The exclusion of the US is not such a big deal for Europe because EU shipyards do not directly compete with American ones,” said a source. Japan and Korea are said to be keen on an international deal, but there is still a great deal of tension in relations between both countries and the Union.

The EU is continuing to push Seoul for clear promises that International Monetary Fund cash to bail out the economy is not being used to keep shipyards open. EU shipbuilders have been pressing for the Commission to take a firm stand on diverted aid, given that anti-dumping duties are unlikely to be levied against Korean exports because of the devaluation of South East Asian currencies.