European Standing Committee B
Wednesday 25 March 1998
[Mrs. Ann Winterton in the Chair]
Aid to Shipbuilding
10.30 am
The Minister for Science, Energy and Industry (Mr. John Battle): May I remove my jacket, Mrs. Winterton?
The Chairman: Yes; gentlemen and, indeed, ladies may remove their jackets if they find the Room slightly warm. Thank you for your courtesy.
Mr. Battle: I welcome this scrutiny debate on the Commission's proposals for a new European Union shipbuilding aids regime, which will be the central element of the Commission's accompanying communication, which sets out a new approach to improving the competitiveness of the EU shipbuilding industry. We have submitted two explanatory memorandums on the proposals for a new EU shipbuilding aids regime and on the accompanying communication.
The Commission proposals are designed to improve the competitiveness of the shipbuilding industry. If there were a banner flying above the Department of Trade and Industry, it would have on it the word ``competitiveness'', as achieving that is the key challenge that we all face in every area of industry as we approach the 21st century. If the main banner had competitiveness on it, there should be accompanying flags around it, supporting it, on which there would be words such as innovation, creativity, new ideas and sparky brains, because those factors underpin competitiveness. Competitiveness is achieved not by undercutting costs and lowering wages, but by improving performance by using creativity, innovation, new ideas in engineering, technology and other factors.
In ``Competitiveness UK'', the President of the Board of Trade set out our competitiveness strategy, which will be based on the three pillars of modern companies, an enterprising nation and strong markets. The latter pillar of strong markets--which, in Europe, are still to be built--ensuring fair and open EU markets, is a key focus of the proposals.
I am sure that the Committee will agree that we in Britain have a strong engineering base, rooted in a tradition of world-class experience and quality. That is vital for a successful, competitive economy. I do not want to undermine the word ``engineering''. Some people think of it as a 19th-century word, and of engineering as a 19th-century concept--as heavy metal bashing. However, engineering has progressed through the 20th century, and advanced engineering techniques will lead our industry into the 21st century. We will have a competitive edge, not least because of the quality engineering that exists now and should be developed as part of our manufacturing base, and not written off, as it has been in recent decades.
Shipbuilding has a proud and successful tradition in terms of engineering in the United Kingdom. I have seen first-hand in the past few months the excellence of the technology and engineering in UK yards on visits to, for example, Harland and Wolff in Belfast and A and P Shiprepairers on Tyneside. That excellence still exists, and will carry us forward into the future, provided that we perfect the European regime.
The EU recognises that a new approach is now needed to improve the competitiveness of the shipbuilding industry. Subsidies did not deliver a competitive industry with long-term prospects and jobs. Shipbuilding is the last EU industry still receiving systematic and automatic aid--hence the EU's decision in 1994 to remove subsidies under the terms of the shipbuilding agreement of the Organisation for Economic Co-operation and Development. We endorse that approach. We believe that the Commission's proposals represent a significant step towards that objective and that they will create a sounder basis in the future for improving the competitiveness of the UK industry. That view is shared by most member states.
Our priority is to work in partnership with the UK shipbuilding industry to improve its competitiveness. A key part of that aim is to have an EU aid framework that gives the best prospect of improving the competitiveness of the industry--we do not believe that the current EU subsidies regime does that. Indeed, it can be damaging to UK shipyards because of the distortion to competition which results from the fact that some of our main EU competitors pay higher subsidies. We believe that the rules can be open to abuse and that subsidies simply compete against themselves because much of the competition is within the EU. We have therefore been determined to secure a reduction in the special subsidies for shipbuilding, which we want to return to normal EU rules. That reflects our view that the artificial states aid policy in the EU is not the way forward.
Shipbuilders and ship repairers in Great Britain agree with our policy. Although the relevant negotiations are still to take place, I dare to suggest that that policy should be applied across the EU as a whole. However, there is a problem: we have not achieved that new approach to shipbuilding because the United States failed to ratify the 1994 OECD agreement. That is frustrating because the United States is not a major international commercial civil shipbuilder, and it is still uncertain whether the United States will sign the agreement, despite our extensive lobbying. The EU therefore decided last year that, in the shipbuilding industry's interests, it could not wait indefinitely for United States ratification, and it agreed, as a contingency measure, to replace the current shipbuilding aid regime with a new approach, which we are discussing today. If the United States signed the OECD agreement, the system would fall into place, and the world would have a common song sheet--we would all know the way forward.
The Commission proposes an end to operating aid and a return to regional aid and environmental aid, which operate along normal EU rules, together with new aid for shipbuilding innovation. I must stress that approach, because it relates to the need for new methodologies, working practices and technologies, which will take the industry forward and give it a competitive edge. Tougher rules on restructuring aid will be applied. Only one tranche of that aid--rather than several tranches--will be allowed in future. We must also apply more rigorous monitoring and enforcement, which are essential to secure an internal level playing field, to use the jargon. That will ensure that the system is transparent and that it contains no hidden advantages. UK yards currently suffer from unfair competition because of the misuse of EU rules, and we must stop that. We are pressing hard to tighten the Commission's proposals on monitoring.
The UK shipbuilding industry shares our support for the Commission's proposals, which are the best alternative, in the meantime, to the OECD agreement. There have been extensive discussions between my Department and the Shipbuilders and Shiprepairers Association, which represents the UK industry. We discussed the proposals as recently as Monday when it restated to officials of the Department of Trade and Industry its support for them. Our industry now concentrates on medium-sized specialist vessels. The main competition in that sphere is not south-east Asian countries but the European Union. That is why it is important to get the arrangements right. Harland and Wolff, our largest remaining yard, has successfully diversified away from standard tankers to the high-value floating platform systems. We believe that the Commission's proposals for the aid regime are very much in the interests of the United Kingdom shipbuilding industry.
The accompanying measures set out in the Commission's communication, such as those for stimulating demand by encouraging the use of more short-sea vessels--the short journey vessels--and the replacement of substandard ships will help to underpin the proposed new aid regime.
Operating aid in particular is not an effective way to help our yards to improve their competitiveness and deal with competition from south-east Asia and elsewhere. Despite two decades of operating aid, the cost-price gap between EU and third country yards appears to have increased. It has thus not met its objective of enabling European shipyards to match external competition. Furthermore, much of the competition facing UK yards comes from within the EU. We waste precious resources simply to match other EU operating subsidies, of whose value we are not sure. We are thus engaged in a counter-productive, tail-chasing race.
Of course we recognise the fears that have been voiced about removing EU operating aid without an effective means of dealing with potential external unfair pricing. Questions have been raised by the south-east Asian economic crisis. However we believe that the tough terms of the IMF package for Korea, for example, to reform its financial and corporate sectors, offers the best prospect of getting its shipbuilding industry to operate on a more open, market-oriented basis. That will help to establish fair competition for EU yards. Moreover, the Commission proposals take account of those concerns. There will be monitoring of any potential unfair competitive practices from south-east Asia or elsewhere, under the full range of trade rules. If it is found that Euorpean industry is being injured, appropriate measures will be taken.
I should finally add, as we now hold the presidency of the European Union, that we are making encouraging progress with the EU negotiations on the new aid regime. The proposals are supported by a clear majority of member states and we are hopeful of reaching agreement under our presidency at the May Industry Council. The key issues that we must resolve are the timing of the end of operating aid and the limits to be attached to regional aid. We are actively exploring possible solutions with the key member states. I commend the proposals to the Committee and I hope that we shall be able to use them as a basis for negotiating an agreement in the European Union to improve the competitive prospects for ship building--not least in the United Kingdom.
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