There is wide agreement that investment in research, development and innovation (RDI) is essential for improved competitiveness. This is even more so for a specialised capital goods industry such as shipbuilding. RDI investment has to focus on both product development and production methods.

　

 Although European shipbuilders are today already investing a significant part of their turnover in RDI, additional efforts are required to meet Community objectives in the field of research and innovation.

　

 In this respect it is recognised that the European Community research framework programmes have increasingly supported RDI efforts of the European shipbuilding industry. This support provides particular benefits by bringing together a critical mass of European research to develop longer-term solutions which address issues concerning training, the environment, safety and competitiveness and take into account the wider commercial, environmental arid regulatory perspectives. The "InterSHIP" project, being the largest integrated project supported by the Community Framework Programme under the surface transport heading, can serve as a good example.

　

 Based on the encouraging experiences made within the Maritime Industry Forum framework and growing technological requirements, the continued focus on a long term strategic vision for shipbuilding related RDI is essential. This vision must be commensurate with the long operational life cycle of ships and should encourage the sustained active participation of all maritime stakeholders in order to address all issues (industrial, regulatory, operational etc.) within the wider shipbuilding RDI environment. Such a vision can be used to direct policy development, to allocate resources efficiently and to ensure the maximum long term benefit for the European shipbuilding industry.

　

 A fundamental obstacle to improved RDI investment results from the application of the current Community Regulation. The Community framework for state aid for research and development has been effective to ensure EU competition rules, but, due to certain specific characteristics of the sector, the shipbuilding industry has not been able to receive adequate RDI aid from Member States. Therefore new ways and means are needed in order to encourage RDI in the sector, while ensuring frull compliance with the principles of the internal market.

　

 Possible solutions could flow from the fact that in shipbuilding a significant part of the innovation activities is integrated in the design and production process itself, while in many other industries RDI activities are carried out before series production starts. Consequently, the largest part of the product development and of the innovation activities is carried out after the signature of the sales contract.

　

 Current operating conditions are puffing a significant economic and financial burden on the EU shipbuilding industry. An increasing number of European shipbuilders operate in, and depend on, high-tech market niches, requiring continuously growing investments in RDI in order to maintain the leadership position held today.

　

 While maintaining the basic concepts of the current regulatory framework and without prejudice to the competition in the internal market, the specifics of the shipbuilding industry should not be an obstacle to the application of aid intensities as used in other sectors with comparable activities. This may require clarifying the eligible expenditures including prototyping costs, and providing an incentive for the adoption of innovative technical solutions across the European shipbuilding and marine equipment industry.

　

 In the absence of a regulatory framework that can be applied effectively European shipbuilders have less means to offer highly developed technological solutions with the remit that the development of new types of ships would no longer be cost efficient. Given the risk connected with RDI activities in general and the increasing unwillingness of financial institutions to finance innovative projects in such circumstances, shipyards may not be able to respond to ever-higher demands coming from their customers. Revenues could decrease further from already low levels and there is a serious danger that EU shipbuilding technologies could be caught in a downward spiral in the absence of appropriate measures to foster RDI investment.

　

　

 With regard to RDI the LeaderSHIP 2015 Advisory Group made the following specific recommendations:

　

　

　

 The Commission is aware of the problems raised and, by way of response, is in the process to adapt the rules applicable, in particular with regard to innovation aid. Furthermore, it will closely monitor the effects of the present conditions for Community-funded research and development in the sector and propose further adjustments if deemed necessary.

　

　

　

 Securing financing, both for the construction phase (pre-delivery) and the operational phase of the vessel (post-delivery), is crucial for shipbuilding projects to come about. Shipbuilding financing almost always includes guarantees, either issued by private banks or state institutions.

　

 Typically, a shipyard's annual production value exceeds its own value as a going concern, and a partly built ship is not recognised as a capital asset. With large volumes of purchased equipment, the value added by the yard's own activities amounts to the smaller part of the total contract sum, while it has to assume full liability for the entire project. Most shipowners require bank guarantees for any down payment made during the construction of the vessel, thus increasing the amount needed for the total project financing even further.

　

 A number of commercial banks are reducing their interest in shipbuilding and hence their commitment to a vital, but volatile industry. Reduced interest will lead to less expertise, which in turn accelerates this process.

　

 All these factors lead to growing difficulties for the arrangement of the ship financing. Although problems may differ depending on shiptype, they constitute a serious impediment to the competitiveness of EU shipbuilders.

　

 Three issues are crucial for the financing needs of European shipyards: guarantees covering the gap between the post-delivery financing schedule and the standard mortgage based loans of commercial banks; guarantees for the pre-delivery financing of the project, covering the working capital and the refund guarantees issued by the builder's banks; and, a hedging instrument for the currency risk.

　

 In addressing these issues, some key principles have to apply: all instruments must be self-sustained and transparent. The applicable premiums must reflect the risk that is being run. The operation of the instruments has to be efficient, decisions should be clear and predictable. Any action proposed has to be in strict compliance with EU rules. WTO and OECD regulations should be fully respected as well.

　

 In most Member States guarantees by the export credit agency (ECA) are available to finance shipbuilding projects. However, ECAs are designed to provide loans for export orders to countries that pose a political or economic risk. No such "country risk" exists for the vast majority of the shipowners ordering at European yards. In these cases an export credit guarantee is either not available or not the appropriate answer to cover the gap between the owner s actual financing requirements and the mortgage based loans available from commercial banks.

　

 It is therefore desirable to explore the possibility of establishing an EU-wide guarantee fund, to be operated by a European body in a manner that is compatible with the rules of the common market and the OECD principles. Premiums should reflect the quality of the ship owner, the type of ownership, the employment of the ship, the type and duration of its charter and other factors that might influence the risk level of the loan. To this end a system of a limited number of rating categories could be applied. Fees, which depend on the rating, shall ensure that the guarantee scheme complies with the OECD rules.

　

 A common (or approximated) standard for guarantee schemes to be implemented by all EU Member States, following the key principles outlined above, could provide an alternative solution. However, the harmonisation of such financial instruments is a very difficult exercise. In any case, tools implemented should reflect practical requirements, ensuring a fast and efficient decision making process.

　

 Concerning pre-delivery financing a similar approach could be pursued. A guarantee covering the difference between the actual cost price and the down payments made by the owner, increased by the value of the outstanding bank guarantees for down payments, is absolutely essential. In this case also, a European-wide guarantee instrument would be desirable, with common or approximated standards in EU member states as an alternative.

　

 With regard to the management of currency risks the situation in the EU varies widely. In order to assure fair and equal conditions, an insurance covering the risks in bidding and contracting in foreign currencies seems essential. Since banks do not provide such a facility at a reasonable cost, the export credit insurance companies, covered by appropriate re-insurance, are the obvious choice. Since the rates of exchange are largely dominated by the interest rate policy of the major currency controllers, a key role in the re-insurance of currency risks could be played by a European entity.

　

　

 The LeaderSHIP 2015 Advisory Group gave particular attention to the issue of financing and arrived at the following recommendations:

　

　

　

 In the light of the above, the Commission undertakes to explore, together with industry, whether a European entity such as the European Investment Bank can take a leading role in pre- and post-delivery financing. Priority should be given to the issue of pre-delivery financing as this has shown to be the most problematic element. Post-delivery financing is normally easier to secure as the completed vessel can be used as collateral and a number of specialised banks are active in this particular field. The Commission is also prepared to explore, in co-operation with stakeholders, whether and how the re-insurance of currency risk can be achieved on a European level.

　

　

　

 Over the last decade the European Union has increased its profile in the fields of maritime safety and protection of the marine environment by assembling a sizeable number of laws.

　

 The EU shipbuilding and shiprepair industry has always supported the adoption of this legislation, in particular with regard to the creation of a European Maritime Safety Agency (EMSA) and the strengthening of the Port State Control regime.

　

 Industry holds the view that modern ships are designed and built to safely withstand the severest weather and that proper maintenance, undertaken by reliable yards, could have prevented recent ecological disasters. Unfortunately, the present situation in the shipping and shipbuilding industries is characterised by very volatile freight rates and a significant decrease of newbuilding prices over the last years. These trends risk affecting the quality of new ships and the maintenance of the existing fleet. Recent ship losses have shown significant structural as well as operational deficiencies. There is a clear trend in ship design to reduce construction and/or operating costs. It needs to be analysed to which extent such changes are compromising the integrity of the vessel and its cargo in rough weather conditions.

　

 Against this background, a number of lines of action are required, namely the elimination of sub-standard vessels from EU waters, increased responsibilities to be faced by operators improved technical surveys, and a quality assessment scheme for shipyards on a world-wide level. On all of these points the EU shipbuilding industry has an essential role.

　

 With regard to the elimination of sub-standard vessels, the shipbuilding industry can provide crucial expertise to the European Maritime Safety Agency. To this end, a joint expert committee should be established, devoted mainly to the following tasks: To assess the industrial impact of existing or pending EU legislation concerning maritime transport and, in particular, maritime safety; to analyse possible further proposals to enhance maritime safety; and to support the EU within the IMO. First efforts in this context have been undertaken within the LeaderSHIP 2015 frame.

　

 Making operators more responsible should encourage "quality shipping" and thus provide an incentive to invest in better and safer ships. European yards are prepared to offer appropriate designs, exceeding the current minimum standards.

　

 Promoting a more transparent, uniform, efficient and independent system of technical surveys of vessels can equally draw on the shipbuilding expertise available from the European shipbuilding industry. This is particularly true for the marine equipment industry and the knowledge providers who are world leaders in their respective fields.

　

 Encouraging higher safety and environmental standards and providing a useful guide to shipowners, operators and surveyors indicating yards whose ships risk becoming rapidly sub-standard or suffer from high maintenance and repair costs is a long term objective to which EU shipyards can meaningfully contribute through the definition of good industry practice.

　

 These actions should be developed at Community level, but also in the framework of the competent international for a such as the IMO.

　

 In addition, the EU shipbuilding industry has an important role to play in increasing overall European transport safety and reducing the negative impact on the environment through Short Sea Shipping. Short Sea Shipping and European shipbuilding can provide each other with new market opportunities. Short Sea Shipping and its inter-modal integration generally require new or specially adapted vessels and advanced and flexible ship designs that are a domain of European shipyards. The comparatively smaller size of these vessels gives an advantage to domestic yards.

　

　

　

　

 The Commission fully supports these recommendations which are in line with its existing policies in the field. With regard to Short Sea Shipping it calls upon all policy makers to fully develop and exploit this opportunity for a sustainable surface transport system across Europe through an appropriate framework, taking into consideration the specific conditions of European coastal waters and the applicable EC state aid rules.