Justin Stares | LLOYD’S LIST
UPON reading news of China’s scrap-to-build scheme, European Union shipbuilders must have let out a forlorn sigh.
The Chinese government is to stimulate demand for newbuildings by subsidising scrapping of old ships at a rate of $220 per tonne.
According to reports, there are two conditions: only owners of Chinese-flagged ships above 1,000 gt can apply; and any replacement ships must be manufactured locally.
“They copied our idea. I should invoice them,” jokes Reinhard Lüken, secretary general of the Community of European Shipyards’ Associations (Cesa). China’s decision to give domestic industry a helping hand is “very pragmatic”, says Mr Lüken.
Europe, on the other hand, has taken a more dogmatic stance and has all but ruled out any state support for struggling yards.
When the topic was broached informally by Brussels, national capitals were “not very enthusiastic” about doing anything at all, according to Ruth Paserman, the European Commission official with shipbuilding responsibility within the cabinet of EU enterprise commissioner Antonio Tajani.
There was a “new trend” within the commission to “value the industrial base” rather than simply let it relocate, she said. But this trend would take time to spread across the 27 EU member states. “We are not Korea. We are not a single country,” Ms Paserman told a recent European Parliament seminar. Policy reorientation “takes time which perhaps shipbuilding does not have. I hope this is not the case.”
The turning point in the industry battle to convince law-makers to conjure up a subsidy scheme was probably the EU Competitiveness Council in May. This was in reality a meeting of ministers for industry; the title ‘competitiveness’ reflects the benign neglect that has dominated EU industrial policy for the last decade.
Cesa and allies had to move heaven and earth merely to ensure shipbuilding was featured on the agenda — under the rubric ‘any other business’. If it had not been for the joint statement of support Cesa garnered from more than thirty European regions, the Spanish EU presidency might not have put it on the agenda at all.
During the May meeting, the only member state to take the floor was reportedly Italy. The council press release subsequently dealt with the issue in one paragraph. The institution said it “took note” of the “situation and perspectives of the European shipbuilding industry” and suggested remedies. There was no indication the issue would be revisited.
The reality is no doubt that EU governments are broke. If there was any sympathy for the plight of shipbuilding last year, it has evaporated since the wave of austerity took over. The European Commission is simply reflecting the mood in the national capitals.
Which leaves the European Parliament — industry’s last hope.
Andrea Cozzolino, an Italian Euro MP from the Socialist bloc, seems to be the shipbuilding hero in the Parliament. At the June seminar (which he hosted) Mr Cozzolino was openly critical of the prevailing attitude in both the commission and member states.
“Europe must not let go,” he said. There was “excessive inertia” in Brussels and “unfair” competition from South Korea and China.
“I know governments have tight budgets but action in this sector is wise,” Mr Cozzolino said.
Ms Paserman ruled out a scrap-to-build scheme on the grounds that it would be illegal under EU state aid rules.
The car scrapping scheme introduced shortly after the outbreak of the financial crisis was not comparable because under that scheme, aid was directed at consumers, she said. Shipbuilding aid would on the other hand benefit companies and would therefore be considered distorting.
Mr Cozzolino rejected this argument. “Was the car scrapping scheme legal?” he asked. “I don’t know if it was.”
Industry, too, claims scrapping can be justified under existing state aid guidelines allowing for government intervention with environmental objectives.
The Italian MEP, who has tried unsuccessfully to launch a scrap-to-build scheme in his home region, is now mustering support for a Parliament plenary debate on shipbuilding. How many of his colleagues will attend?
Beyond the legal technicalities, it is important to keep in mind the big picture.
The decline in European industry is not new. The vertiginous growth of Chinese shipbuilding and the continued dominance of South Korea have already squeezed Europe into a niche of high technology ships and cruiseships. This niche is also now under attack.
The EU has totally abandoned certain industrial sectors, such as computer manufacturing. Not only is Asian industry more cost competitive, it is also actively supported by government.
Will shipbuilding be the next EU victim? To judge from Ms Paserman’s comments, there are those in Brussels who will regret the coming collapse. At the same time she was frank enough to admit that there is today no willingness to support EU industry.
Given the time needed to turn the EU juggernaut around, Brussels is close to concluding that for EU shipbuilding, it might already be too late.