Where is the level playing field?

Malcolm Latarche
Malcolm Latarche

18 September 2017


Almost every time the question of formulating or implementing new regulation, especially environmental regulation, comes up within the shipping industry some organisation or another will invariably call for a level playing field. It is something that has been happening for so long that looking back over the last two decades it seems that the level playing field is so elusive as to be unlikely to ever be achieved but vested interests often use calls for it purely because someone or some country has responded to calls from its own interests to be put first. It is not only in the area of regulation that there are calls for fairness and even-handed treatment. Few can forget that in the early years of this century, European shipbuilders were pushed to the edge of extinction by what they saw as unfair competition from South Korean chaebols supported by the government and financial institutions there. There were also allegations of unfair competition in Europe itself with the EU upholding complaints of subsidies illegal under EU rules against Spain’s state-owned IZAR conglomerate that saw it liquidated in 2005 and yards sold off. Since then Polish and Romanian shipbuilding has been adversely affected by EU competition and subsidy rules. It is interesting that Spain defended its support of its shipbuilding industry by declaring its support not as subsidies but as a matter of national security. A very similar argument is now being used by the French government as it seeks to reverse an earlier decision to sell the STX yards to Italy’s Fincantieri. The more recent decline in European shipbuilding has not so far been attributed to unfair subsidies probably because the type of ships most in demand have not been constructed in European yards for some time now. It is not unfair subsidies that has made Asia the centre of shipbuilding but its lower labour costs. Although a year ago, Sea Europe the organisation that brings together European shipbuilders and marine equipment manufacturers did warn that a new era of unfair competition was imminent. At a meeting with the European Commission and member states, Reinhard Lüken, Managing Director of SEA Europe’s German member VSM and Chairman of SEA Europe”s Market Monitoring and Trade Committee said “The current collapse of most market segments in standard ship types heats up global competition. Many governments around the world react with massive state support, bail-outs and protectionist measures such as growing local content requirements. This constitutes serious threats to the successful and competitive European maritime enterprises. Policy-makers in Europe must be highly alert and watchful to safeguard European interests in a level playing field.” SEA Europe’s Secretary General Christophe Tytgat added, “We call upon European decision-makers to support our industry in overcoming unjustified trade obstacles and unfair competition, to the benefit of European business and the European economy”. Lüken and Tytgat had in mind the situation in countries such as South Korea, China, US and Brazil where state support and protectionist measures do discriminate against Sea Europe’s members. For most of the last decade, South Korean shipbuilding was generally run on commercial lines but not long after the Sea Europe announcement there was vindication of Sea Europe’s view when last October South Korea said it was establishing a state-backed ship financing company to improve the financial health of Korean shipping companies with an initial budget of almost $6bn. More recently, China has moved to provide state-backed finance for its own state-owned shipyards while forcing some of the weaker private organisations to go to the wall. Europe may claim to take the moral high ground when it comes to competitive practices although the cases mentioned do show that EU member states are not averse to taking decisions that favour their own interests either as a nation state or domestic organisations. In the weeks before this issue of the ShipInsight Journal was sent to press, two items of news were reported in our weekly newsletters. The first concerned a German programme to fund the provision of LNG facilities in ports and conversion of ships to run on LNG and the second a plan by the Danish government to scrap registration fees for ships joining the Danish flag fleet. Germany has a long history of assisting its shipyards and marine equipment manufacturing sector both at local state and federal level. In 2015, it established a National Master Plan for Marine Technology (NMMT) aimed at raising the output and profile of the German marine sector. The organisation of NMMT brings together Federal and state governments and industry organisations. In the light of that, the new funding programme that has been set up by Germany’s Federal Ministry for Transport and Digital Infrastructure (BMVI) to promote the upgrading and conversion of ships to run on LNG is just the latest initiative to assist local companies. As we reported in August, The Association of German Shipowners (VDR), believes the move “will help German shipowners pay the considerable additional costs for gas-fuelled ships and is a real benefit for the environment”. As things stand, it would appear that the funds are only available to German projects so other nations also need to step up to the mark otherwise the industry will not have the level playing field it so often demands. The question might also be asked that since Germany is an EU member state, do the funds for any projects meet the subsidy and competition requirements of the EU. The Danish government’s plan to drop registration fees in a bid to grow the country’s two registers has been welcomed by representatives of the Danish shipowning community. They say it will remove a costly obstacle that deters owners from registering newly purchased second-hand ships under Danish flag. The fee which is charged at 0.1% for registration and an additional 0.1% for recording a mortgage is a one-off fee for all ships joining the Danish flag. It is hard to say if the decision is aimed at dissuading Danish companies from flagging out or if the intention is to attract more vessels run by operators based outside Denmark to the Danish flag. Whatever the reason, there will doubtless be those that consider it as upsetting the level playing field and a blatant attempt to gain an advantage over competing flag states. To read the full article order a copy of the latest journal.