Due to the perceived strategic importance of the shipbuilding industry to many national governments, in terms of regional development, employment and national defence, many have supported their national shipbuilding industries. For example, the EU provided a direct subsidy to its shipbuilding industry for several years until the end of 2000.

　

Shipbuilding, whether it likes it or not, operates within a political environment. The reasons include employment (despite on-going technological advances, it tends to be a labour intensive industry as well as supporting many satellite/sub-contractor businesses), potential for export earnings, strategic needs, consuming large quantities of steel, manufactures, etc. It is usually very important to regional economies and might offer opportunities to provide aid to third countries.

　

As such, there has been government support of shipbuilding industries in most countries. This support can take many forms ranging from direct subsidy (as seen in Europe up to the beginning of this year) to more discrete indirect methods.

　

In Europe by 1998 well over half of the operating aid, which was granted up to the beginning of 2001 , went to the cruise sector. Since it was clear that the European yards effectively had no competition in this sector, and given that the EU justified the continuation operating aid on the grounds of alleged Korean unfair competition, it is unclear why the provision of operating aid persisted for so long.

　

The problems experienced by some of the leading European cruiseship builders in delivering vessels on time, and the losses made by these yards on major cruise contracts, suggest that non-price factors have a significant bearing upon the success of yards in gaining contracts

　

Several European countries have found ways to support their national shipbuilding industries.

　

　

Italy has passed a new tax law which could potentially save shipowners up to 20% off newbuilding prices. The Italian government has approved the law, which acts retroactively, covering orders placed between 2000 and 2003, but approval from Brussels is awaited. The view is that, since the law is similar to one already in operation in Spain, approval should be forthcoming. The law is expected to provide funding of US$ 440m over 15 years, offering soft loans and tax concessions for vessels that are registered in Italy for at least 4 years. The law looks most likely to benefit owners of dry bulk vessels and owners of specialised craft such as ro-pax ferries.

　

The previously loss-making Fincantieri is currently in the process of being privatised. In June 2000, a group of nine banks acquired a 17% stake in the group by underwriting US$54.5m (E57.32m) worth of new Fincantieri shares. They also hold warrants to increase their shareholding to 29% in June 2002 against the payment of an additional E77.5m. The remaining 83% of the group, which is controlled by the state-owned holding company IRI, is due to be privatised, although general elections this spring in Italy may delay the process.

　

Fincantieri has previously been loss-making for several years, until in 2000, it finally turned a net profit of around E10.84m, following a loss of E236.53m ($225m) in 1999. However, although all the other business units in the group have turned around, the merchant shipbuilding unit is still loss making. White the cruise business made a profit of E24m in 2000, merchant shipbuilding lost E40m. Slots in the merchant shipbuilding and cruise units are fully booked until end 2003 and early 2005 respectively.

　

The fact that merchant shipbuilding is still making a loss suggests that this is due to the yard's lack of competitiveness rather than injury caused by its competitors. Given the losses being made by Fincantieri, it is clear that ordinary market conditions were not allowed to prevail due to the restructuring that was carried out.

　

　

In 2000 the German parliament approved a further DM80m (US$ 35.3m) in shipbuilding subsidies as an immediate measure to help German yards acquire as many orders as possible before the end of 2000. Along with the aid granted by the German states (an additional DM160m), total German subsidies in 2000 were equivalent to DM960m, whereas originally only DM720m was planned for newbuildings delivered up to 2003. The federal government will now have provided DM320m in subsidies, although the VSM says that DM350m was required to reach the 7% level for every newbuilding.

　

The dominance of German owners in the containership sector has played an important role in the fortunes of German shipbuilders. In 1996 and 1999, German owners accounted for all of the containership orders placed at German yards. Therefore, the KG scheme, which was ostensibly a measure directed at shipowners, has clearly provided considerable support to the German shipbuilding industry.

　

The European industry has also benefited from considerable government support for restructuring. Arguably the most notable instance must be the huge sums invested by the EU in the former East German shipyards after German reunification. Under the 1992 privatisation and restructuring plan, the East German yards had a collective capacity restriction of 327,000 tonnes per year placed upon them until 2005 in exchange for the funds granted for restructuring during their privatisation.

　

Apart form the contract aid that was available to German yards, other direct and indirect subsidies are also available. These include subsidised interest credit facilities for shipowners that build at German yards, guarantees given by the coastal states of Bremen, Hamburg, Mecklenburg-Vorpommern, Niedersachsen and Schleswig-Holstein to facilitate the financing of shipbuilding projects in those states, and also additional locally available public guarantees from the federal governments of Bremen and Schleswig-Holstein for securing commercial credit for the investment in shipbuilding facilities.

　

Other subsidies such as those for encouraging employment are also available from local authorities. These take the form of tax breaks, the relaxation of building and planning regulations and the splitting of public tenders to avoid international tenders.

　

It has also been stated in the Third Party Submissions that once soft loans available in Germany are taken into account, the difference between German and Korean prices is negligible.

　

　

Spanish yards also had capacity restrictions placed upon them in exchange for a restructuring programme. A 210,000 CGT limit was placed on "publicly owned" yards. The deal also involved a ban on the reopening of the Astano yard for shipbuilding and further capacity restrictions at other yards, amounting to 17,500 CGT. AESA had a Long loss-making period between 1987-98 (and possibly longer), with accumulated losses over this period amounting to Ptas 587bn. The three-year restructuring plan aimed to return the yard to profitability by 1998, but although losses were reduced between 1996 and 1998, the yard remained unprofitable.

　

Since the Spanish restructuring agreement, AESA did not reduce any capacity (despite its losses), Astano appeared to return to the construction of tankers and other vessels, and the privatisation of Astander apparently meant that it was no longer covered by the capacity restraints.

　

This appears to be a case of major aid being granted to long-term loss-making yards, with little or no real reduction in capacity, and with the yards failing to return to profitability, as agreed under the terms of the restructuring plan, despite having full orderbooks.

　

The merger of AESA and Bazan in Spain could also become a vehicle for government support of loss-making national shipyards. The newly merged company, lzar, has an orderbook worth $3.64bn (E3.83bn), and it plans to invest E733m over the next four years, with almost half of this going to research and development. Bazan is clearly the dominant partner; it was profitable in 2000, while AESA has suffered major losses for several years. As a result, AESA is expected to report losses of around E100m for last year, with lzar not breaking-even until 2003.

　

Another state-owned company can clearly interpret this deal as a rescue for AESA. The commercial shipyard has most to gain from the merger. benefiting from the financial stability of its partner, as well as its design capability and technical capability. By incorporating the military builder into the merchant shipyard, it will be almost impossible to disentangle any government support given to the group and, indeed, government contracts for vessels given to the yard will become an indirect means of support, since both the military and commercial sections of the group will benefit from it. The merger also represents a capacity increase since Bazan was formerly involved solely in naval shipbuilding, whereas it will now also build commercial vessels, and the newly merged group has no plans for rationalisation.

　

The Spanish government eventually plans to privatise lzar, although not in the immediate future. In the meantime, Spain will pump some ESP122bn ($661.5m) into the eight lzar yards to modernise facilities. Of this figure, ESP55bn will be channelled in to technological innovation, and another ESP62bn towards modernising production in naval construction, propulsion and energy, repairs and weapons systems. The rest will go towards developing the company's human resources.

　

Considering the losses being made by AESA before the merger, one could question where normal market factors would have dictated that the yard should close down, were it not for the intervention of the Spanish government.

　

One such incidence was the political pressure applied in Spain in order to ensure that an order for at least one of the Tapias LNG vessels was placed at Spanish yards. Had this influence not been exerted, the order was likely to be placed at a Korean yard. Tapias placed one order with AESA and the other at Daewoo. As of January 2001, Tapias was negotiating another order with each yard. Given the relative inexperience of the Spanish yard at building LNG vessels and the higher cost, it would seem that political pressures played a large part in keeping at least two of the orders in Spain.

　

　

Hellenic is the last of the state-owned Greek Shipyards to be privatised. During the mid 1990s the government failed to find a buyer for the yard. In 1996 the EU sanctioned a massive debt write-off as part of a restructuring plan for the yard. This involved the safe of 49% shareholding to employees and the appointment of expatriate management to run the yard.

　

In the first two years after restructuring the yard recorded modest profits, however, opposition to further redundancies then resulted in over-manning. The management warned the government that to support the current employment level the yard would need to rely on naval work for 60% of its workload if it was to remain profitable. At this time (i.e. in 1999), the Greek government decided to terminate, 22 months early, the 5-year management contract held by Brown & Root, in order to replace it with a Greek management team.

　

The yard recorded a loss of $34million in 1999 and is expected to face a similar loss for 2000. During this time, the yard has won two commercial shipbuilding contracts to build ro-pax ferries for a domestic owner, however, the management have apparently attempted to renegotiate these as they seem likely to be loss making and are behind schedule. In 2000 the yard was awarded Greek naval contracts to build submarines and gunboats, which will provide it with guaranteed work for some years to come. This is clearly a case of government support of a loss-making shipyard, which would otherwise not have survived. Despite the heavy losses made by Hellenic, it has been accused by rival Greek yards of securing work by taking losses on contracts.

　

In 2001 it was announced that an agreement had been reached with the workers' cooperative (which holds 49% of the shareholding) on the basis of the disposal of the yard. This includes employment guarantees for 1 ,400 jobs out of the current 2000 employment level and a guaranteed US$ 4million payment for the workers' shareholding.

　

Hellenic is the largest of the Greek shipyards and the last to be privatised. The smaller Neorion and Elefsis yards have been under private ownership by the Greek Tavoularis group since their privatisation in 1994 and 1997 respectively. Both yards have recorded profits since privatisation and the Neorion yard was successfully floated on the Athens stock exchange in 1999. Elefsis shipyard undertakes both naval shipbuilding and commercial shiprepair whilst the Neorion yard operates solely in the shiprepair sector.

　

　

The Japanese government-engineered rescue of the state-run Hakodate Dock shipbuilding and repair facility is a particularly striking instance of government involvement in the national shipbuilding industry. It was recently taken over by Namura Shipbuilding, and other shipbuilding heavyweights including NYK and Mitsubishi HI. The government's interest in preventing the closure of this facility was the fact that it is the only heavy industry on the northern island of Hokkaido, and therefore has an important part to pray in the local economy and national defence. Namura Shipbuilding will put US$ 6.1m into the Hakodate facility in exchange for a 51% stake. The total investment in the Hakodate facility was in the region of \680m. Observers have likened the rescue to the old "Japan Inc" style of management. Although the Hakodate dock was primarily a naval and shiprepair facility, it has now become part of a commercial shipbuilding group.

　

The rescue makes a mockery of the Japanese government's stated claims of cutting back Japanese capacity in line with shipbuilding demand.

　

　

The reliance of European shipyards on government support is highlighted by the predicament of Cammell Laird. Having lost an important contract for Costa for a cruiseship conversion, the yard's hopes rested on securing a vital US$ 507m cruise newbuilding contract. However, this depends upon loan guarantees from the British government. The discussions have an important political dimension given the upcoming election and the potential effect upon jobs at the shipyard.

　

There are several European yards which combine military and commercial work, making government support for the company fairly easy to disguise. The naval contracts given to yards, often on a preferential basis, as well as more obvious forms of support to the naval builders, will also indirectly benefit the commercial section of the group. A few examples of combined military and commercial shipbuilders are outlined below: