Do we need a European Trump to protect the shipbuilding industry?

Most Europeans probably think it would be a bad idea to have a kind of leader like Trump in control of European politics. Still, he at least tries to do something to protect American jobs, while economically liberal Europe hardly does anything to protect its industry. This could seriously impact the shipbuilding industry, says SWZ|Maritime’s Editor-in-Chief Antoon Oosting in his latest opinion piece.

Trump puts higher taxes on cheaper Asian, especially Chinese imports. Chinese products that are often produced with state-aid or some other kind of beneficial funding. And he pressed the Chinese to agree on fairer trade politics.

On the other hand, Europe hardly does anything, thereby putting millions of jobs of European workers at risk. And now, while the European Committee wants to radically reduce the output of greenhouse gases (GHG), important industries like our shipbuilding yards have to fear they won’t survive.

South Korea blocks OECD talks on shipbuilding

Just before Christmas, SEA Europe, the voice of the maritime, civil and naval industries in Europe, again raised the alarm. It wants Europe to take unilateral measures to enforce a level playing field in shipbuilding. Reason this time are the failed OECD (Organisation for Economic Co-operation and Development) talks on new competitive conditions in global shipbuilding.

They were aborted due to South Korean resistance. Following the failure of these negotiations, the European shipbuilding umbrella organisation SEA Europe appealed to the EU on the 20th of December to take effective measures against subsidised competition from Asia. Without trade policy protection, it is said one million jobs in domestic shipyards are endangered.

SEA Europe appealed to the EU to take effective measures against subsidised competition from Asia

No effective international trade tools

According to SEA Europe, there are no effective international trade tools for the European shipbuilding industry to address the problem of overcapacity and its root cause (that is, market-distorting support measures provided by non-EU jurisdictions and unfair practices).

This became even more clear than ever after the decision by the OECD WP6 in January to suspend the exploratory discussions on a new Shipbuilding Instrument. Such a decision was de facto triggered by South Korea’s lack of willingness to engage in a meaningful discussion towards any effective international solutions, says SEA Europe in a press release.

Overcapacity poses problem

In 2016, SEA Europe took the initiative to push for a relaunch of the OECD talks in light of the dramatic imbalance of supply and demand in the shipbuilding market exacerbated by market-distorting support practices preventing a recovery. ‘Since day one SEA Europe invited all relevant parties to solve the core problems of the global shipbuilding industry collectively through a new shipbuilding instrument.’

Furthermore, the global shipbuilding industry united at its global summit meeting JECKU (comprising executives from the major shipyards from Japan, Europe, China, Korea and the U.S.) at the end of October last year in Italian Viareggio called on governments to review the framework conditions to address excess capacity and low profitability. Regretfully, since the very beginning, South Korea has blocked any progress on such instrument and the WP6 meeting confirmed there is no prospect of consensual decision-making in the OECD framework, SEA Europa says.

Global shipbuilding instrument needed

According to SEA Europe, the need for a global shipbuilding instrument should be seen in light of the absence of any trade defence instruments in the WTO (World Trade Organization) rulebook, which does not apply in an effective way to shipbuilding due to the specific nature of ships and their market.

‘For EU shipbuilding, moreover, there are no effective tools at all, neither to deter unfair practices nor to respond to unfair foreign competition.’ SEA Europe therefore calls upon the EU to urgently adopt new tools to fill in the current gaps in its domestic toolbox, and thereby safeguard the existence of the strategic EU maritime manufacturing and industrial base, maritime know-how and technical capabilities in Europe.

EU should urgently adopt new tools to fill in the current gaps in its domestic toolbox

In SEA Europe’s vision, this call is fully in line with Action No 8 of the European Commission (EC) Communication on China of 12 March “EU-China – A strategic outlook”, which acknowledges the deficiencies of the existing tools to address unfair competition.

EU-China strategic outlook

‘In “EU-China – A strategic outlook”, the EC has acknowledged that EU policy tools and trade defence instruments do not fully cover all effects of unfair subsidies or support by third countries,’ says SEA Europe Secretary General Christophe Tytgat. ‘This is particularly the case for shipbuilding. This industry has been suffering from a unique lack of effective trade defence instruments resulting in an almost complete loss of major merchant shipbuilding market segments to Asia.’

The EU should apply its own rules to any ship operating in the internal market.

In its statement SEA Europe says: ‘It is regrettable that the OECD WP6 has once again demonstrated its inability to develop an effective international solution, due to the lack of genuine commitment from South Korea. But absence of international rules doesn’t mean absence of rules. For good reasons, the EU has given itself a strong set of competition rules including a tight subsidy control regime. Under the EU state aid rules, it is strictly prohibited for member states to enable their shipyards to offer loss-making prices. However, contrary to the EU, foreign governments can do so to the benefit of their own shipyards and thereby render it impossible for European shipyards to compete on fair grounds. The EU should therefore apply its own rules to any ship operating in the internal market.’

New effective rules

Therefore, the EU should adopt new trade defence and competition rules to ensure equal treatment and safeguard the European maritime technology sector. These rules should take into account the global competitive environment and international trade developments. These also need to be taken into consideration when assessing mergers. ‘If the EU does not take any actions, a strategic sector for Europe generating one million jobs across Europe will be in danger. The time for the EU to act in support of Europe’s shipbuilding sector is now,’ concludes Tytgat.

In the German Hansa-magazine, the German Shipbuilding and Ocean Industries Association (VSM) points out that based on current figures of Clarkson on the year 2019, European shipyards were completely squeezed out of the volume market (containers, tankers, bulkers) after 2008. And the last three years, the big ro-ro companies, like DFDS, Cobelfret and Stena and lately Grimaldi-subsidiary Finnlines, have ordered all their big newbuilds in China.

Since 2008, the European shipbuilders have successfully focused on niche markets. Now, however, Asian shipbuilders are increasingly targeting attractive high-tech shipbuilding such as the construction of cruise ships and offshore installation ships.

NMT joins SEA Europe call

At the New Year’s reception of Netherlands Maritime Technology (NMT), which took place on 16 January at the Maritime Museum in Rotterdam, its President Bas Ort also expressed his worries about the unfair competition of especially South Korea and China. He also calls on the EU to take measures to enable the European shipbuilding industry to survive. This industry faces a huge challenge to develop new and innovative technologies to be able to build sustainable ships.

Yet, to be able to invest, one must first earn profits. And that’s been a big problem for European shipyards since 2008. Fine shipyards like our Dutch Barkmeijer, Croatian Uljanik or German FSG recently faced huge financial problems as banks are withdrawing their credit lines.

To be able to invest, one must first earn profits

If the European plans for accelerating the process of greening the industries only leads to higher taxes, this will certainly lead to the destruction of the European shipbuilding industry. ‘Let the Green Deal of EU-commissioner Frans Timmermans not lead to a Green Dictate,’ Ort said at the NMT-meeting.

European global champion

In the meantime, other parts of the industry have also become aware that the until now very liberal European antitrust-policy on competition needs a thorough re-thinking. Strict EU enforcement of competition rules prevents the development of the global champions necessary to compete with Chinese and US companies, Maersk CEO Soren Skou warned in an interview with Danish business daily Finans. ‘Is it really a good idea that we don’t allow the creation of a European global champion? In doing so, we risk being outperformed by a Chinese company, over which the EU has no influence.’

Skou is a member of the European Round Table for Industry, a lobby group of 55 CEOs and chairs of large European companies. Last month, the group urged the EU to develop a new strategy to enhance global competitiveness. The calls came after Brussels blocked a merger of the rail divisions of Siemens and Alstom last year.

Building cruise ships in China?

In shipbuilding, the industry is just eaten away by the Chinese and South Korean competitors. In the last niche in which the Europeans still rule – building cruise ships – the Chinese government forced Fincantieri to cooperate with China State Shipbuilding Corporation (CSSC) to transfer know-how in the building of cruise ships Carnival Corporation so eagerly wants to exploit on the Chinese market.

In shipbuilding, the industry is just eaten away by the Chinese and South Korean competitors

It is just waiting for the moment that Carnival Corporation will also order its ships for the once famous European cruise line brands like Holland America Line, Cunard, P&O and all the other ones from the yards of CSSC and then hundreds of thousands of jobs in Europe are lost.

This article is the Editor-in-Chief’s monthly opinion piece and was published in SWZ|Maritime’s January issue.

Author: Antoon Oosting, editor-in-chief SWZ|Maritime