US scrutinises hand-outs to EU shipyards

Date: 31/10/1996

By Bruce Barnard

NEXT month's meeting of EU industry ministers will attract more attention than usual from across the Atlantic as a group of die-hard US congressmen mount a rearguard action to torpedo a global accord to outlaw shipbuilding subsidies.

Top of the agenda at the 14 November meeting will be the vexed issue of Union subsidies, or more especially German subsidies, to industry.

While German Industry Minister Günter Rexrodt is in Brussels, officials in Bonn will be finalising details of spending cuts for shipbuilding and other long-pampered sectors such as coal.

The US congressmen will be closely watching Bonn's response to a plea for a 460-million-ecu hand-out to two east German yards formerly owned by the bankrupt Bremer Vulkan group.

Any increase in subsidies for the yards would provide useful ammunition for US politicians gearing up to block ratification of an agreement brokered by the Organisation for Economic Cooperation and Development (OECD) to ban subsidies to yards which together build three-quarters of the world's merchant ships.

The deal, which covers the EU, Norway, Japan and South Korea, is in danger of imminent collapse after the US failed to meet a 'final' 15 June deadline for ratification.

US opponents of the agreement have successfully exploited the fact that it would allow subsidies to restructure yards in Spain, Portugal and Belgium, but permit no government aid to help US defence yards make the post-Cold War transition to the merchant shipping markets.

As a result, the House of Representatives pushed through a heavily amended version of the agreement which the EU, the other signatories and the OECD itself say is totally incompatible with the original text. The Union has made clear it will not renegotiate the agreement.

A sizeable hand-out to the east German yards, even if accompanied by Commission demands for job losses and capacity cuts, would be a powerful propaganda coup for US opponents of the OECD accord.

The collapse of the deal would also play into the hands of certain EU shipbuilding lobbies, particularly in France and in Spain, which are desperately seeking loopholes to justify bigger government subsidies.

But taxpayers in the Union would pay a heavy price if the US fails to ratify the agreement, according to the OECD.

“A resurgence of government assistance of all kinds in the EU countries can be taken for granted,” the organisation warned at an emergency meeting in Paris earlier this month.

But the OECD says the biggest loser would be the US shipbuilding industry. “Given that US yards will probably receive no subsidies, they will be in a significantly worse situation,” it maintains.

In Paris, the US was given a mid-March deadline to come clean on the chances of the deal being ratified by the US congress. But the senior US negotiator conceded that the administration faced an uphill task to overcome congressional opposition and pledged to “do a better job explaining the agreement”.

The EU, however, puts the odds of ratification no higher than 50/50, an assessment shared by the Japanese and South Koreans.

The Union has prolonged its own yard aid scheme - which allows for hand-outs worth 9&percent; of a vessel's contract value - until the end of 1997.

But it is ready to scrap the scheme immediately if the US ratifies the OECD accord.

Under the terms of this deal, vessels attracting subsidies would have had to be delivered before 31 December 1998, based on the expectation that the agreement would come into force, as planned, on 1 January 1996.

To remove legal uncertainties for Union governments and yards, the Paris meeting reached a 'gentleman's agreement' that ships benefiting from subsidies could be delivered up to three years after the subsidy had been committed.

Northern EU yards say their interests are best served by US ratification, as a collapse of the deal would leave a dangerous vacuum which risks igniting a 'hidden' subsidy war in Europe.

Fears of another round of blood-letting were fuelled when Spain's state-owned Astilleros Españoles admitted that drastic action was needed if the company was to meet the targets set out in a Commission-approved restructuring programme.