Opinion of the Economic and Social Committee on the 'Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions: Towards a new shipbuilding policy'
27. 4. 98 EN Official Journal of the European Communities C 129/37 Opinion of the Economic and Social Committee on the ‘Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions: Towards a new shipbuilding policy’ (98/C 129/09) On 6 October 1997 the European Commission decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community, on the above-mentioned communication. The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing the Committee’s work on the subject, adopted its opinion on 6 February 1998. The rapporteur was Mr Simpson. At its 352nd plenary session (meeting of 25 February 1998) the Economic and Social Committee adopted the following opinion by 80 votes to one with two abstentions. 1. Preliminary comments 1. 1. For many years, shipbuilders within the Euro- pean Union have faced intense competition for new shipbuilding orders. Shipbuilding capacity has been increased, particularly in South Korea. Because of the nature of the competition, often perceived to be based on injurious pricing practices, shipbuilders in the Union have been permitted to receive State Aid within ceilings set under the terms of various shipbuilding directives of which the most recent was the Seventh Council Directive (1). 1. 2. Late in 1996, the Seventh Directive was renewed and extended to be effective until the end of 1997. This extension had the support of the Economic and Social Committee (ESC) (2). Then, in April 1997, an agreement in principle was made that would extend this provision until the end of 1998. 1. 3. The main provision of the Seventh Directive is from their national that shipbuilders may receive, authorities, operating aid for shipbuilding and ship conversions (but not ship repair) up to a maximum of 9 percent (4,5 percent for smaller vessels and conversions) of the contract price. This level of assistance has been progressively reduced from a ceiling of 28 percent which was established in 1987. In the six year period from 1990 to 1995 (inclusive) a total of ECU 8,3 billion of State Aid to shipbuilding was notified to the Commission. Part of this aid, ECU 3,5 billion, was allocated to support the restructuring of firms in the industry. Operating aid totalled ECU 4,8 billion. Since 1994 there has been an expectation that 1. 4. the OECD Agreement ‘respecting normal competitive conditions in the commercial shipbuilding and repair industry’, which was completed in December 1994, would secure a new regime in which all the main shipbuilding countries could cooperate. This agreement would have required the removal of most forms of state aid and, in parallel, would have introduced procedures (1) OJ L 351, 31. 12. 1994. (2) OJ C 30, 30. 1. 1997. designed to challenge any instances of injurious pricing. This agreement has not been ratified by the government of the United States and has not been implemented. 1. 5. The present Commission communication is a response to the lack of progress on implementing the OECD Agreement. The need for alternative actions was anticipated in the earlier ESC opinion (2). The ESC wishes to re-emphasize its continuing hope that the OECD Agreement might still be ratified by the United States administration thus allowing a more comprehen- sive arrangement to be implemented. 1. 6. The Commission has presented proposals which provide that the extended Seventh Directive would lapse when the OECD Agreement enters into force as it would if the new Community regime is adopted. 2. Trends in the shipbuilding industry 2. 1. Shipbuilding has, for at least two decades, been a difficult industry within which to operate profitably in the EU. Depressed demand, expanded building capacity in the Far East, and predatory pricing, have created very difficult trading conditions. 2. 2. In the last twenty years, shipbuilding production in the EU has fallen by over 40 percent. In 1976, EU countries produced 27 percent of the world output, measured in ‘compensated gross tonnage’. In 1986, this had fallen to 23 percent of a much reduced total, and in 1996 it had fallen again to 21 percent in a significantly increased global market. Production in Korea rose from just over one percent of world output in 1976 to 22 percent in 1996. 2. 3. In the eight years, 1988 to 1996, world shipbuild- ing output has begun to recover from the large fall in the previous decade. World output, although still below C 129/38 EN Official Journal of the European Communities 27. 4. 98 the levels reached in the mid-1970’s, has nearly doubled. Production within the EU has increased only by just over 50 percent, but is still not up to the levels of the early 1980’s. b) structural changes, including consolidation of yards and closures of non-profitable ones; c) formation of strategic alliances between yards; 2. 4. Employment in building new ships in the EU totalled 65 600 in 1996. This contrasts with 96 100 in 1986, and 208 800 in 1975. This large reduction in direct employment has also meant a big reduction in indirect employment of even larger numbers of people in the industries which supply shipbuilders and in other sectors. The pattern of employment from 1988 to 1996 offers tentative evidence to suggest that employment numbers have nearly stabilized. The Commission forecasts that, partly because 2. 5. of the need to replace older vessels, demand for new ships will remain at this higher level for the next few years before it falls again. Capacity is not adequately used and is still increasing so that in 2000 production will use not more than 70 percent of the available capacity. Since the Commission Communication was writ- 2. 6. ten, currency fluctuations in the Far East have been dramatic. In particular, the devaluation of the ‘won’ in Korea will have serious implications for a number of sectors, particularly shipbuilding. This adds a new dimension to the prospects for the industry which cannot be fully assessed at present (January 1998) and may require some reassessment of the conclusions reached by the Commission. 3. Commission proposals 3. 1. The aim of the Commission is that, during the next five years, from the end of 1998, shipbuilding policies should facilitate the improvement of the com- petitiveness of the industry. A new regulation would be adopted for five years, until the end of 2003, which should allow sufficient time for the new provisions to generate a structural change in shipbuilding and see evidence of a stronger competitive industry. 3. 2. At the end of that period, shipbuilding would be subject to the same rules as all other industries. Shipbuilding in the EU is being challenged to improve its competitive position in the world market to the point where viability is established and employment can be maintained. A number of areas of ‘best practices’ which 3. 3. would improve productivity, relative to competitors, have been identified by the Commission. These include: a) strategic planning, focusing on ship types with growing demand; d) better integration of ship owners and equipment manufacturers into production processes; e) purchasing policies, including maximizing the ben- efits of subcontracting; f) closer collaboration with other industries for inno- vation and technology transfer; g) aggressive pro-active marketing; h) more effective use of R&D in design of prototypes; i) upgrading of production facilities; j) investment in improving the quality and use of human resources. In the application of these practices, the Com- 3. 4. mission proposes, as part of a new regulation which will be effective until 2003, that: 1) grant aid on contracts to build ships should end from 1 January 2001; 2) a series of measures designed to enhance productivity and competitiveness should be codified as a basis for bringing this industry into a similar competitive regime to other industries in the EU. The detailed proposals are that: — the permission to grant operating aid should end on 31 December 2000 (provided that the OECD Agreement has not been brought into force before that date. The OECD Agreement would have a broadly similar effect); — export credits for ships should continue to be allowed under the 1981 OECD Understanding but subject to possible up-dating as envisaged in the 1994 OECD Understanding which is not yet in force and would allow not only export credit but also credit terms for ships for the home market; — contract related aid granted as development assist- ance to developing countries should continue to be permitted; — aid to finance the closure costs of structural adjust- ments, including social measures to mitigate the consequences of total or partial closure, should continue to be permitted; — aid for restructuring a shipbuilding enterprise should be allowed on the same basis as the general Com- munity guidelines for such aid in other sectors but 27. 4. 98 EN Official Journal of the European Communities C 129/39 with the strict proviso applying the ‘one time/last time’ principle for financial restructuring; — investment aid granted under regional aid schemes should be allowed provided the project is to improve the productivity of existing installations; — investment aid for innovation would be allowed provided that the project relates to innovative products and processes that are not currently used by other EU operators in shipbuilding; — aid for R&D should continue to be allowed on the conditions laid down in the Community framework; — aid for environmental protection on Community guidelines should be allowed. 4. General comments 4. 1. Basic theme 4. 1. 1. The basic theme of the Commission communi- cation is that, with transitional assistance for five years, from 1998 to 2003, the shipbuilding industry in the European Union should, as a result of the actions of individual enterprises, overcome its structural disadvan- tages and be able to compete on world markets. As a caveat, the Commission acknowledges that this would also be subject to the existence, especially from non-EU competitors, of fair trading conditions on a global scale. 4. 1. 2. The ESC endorses this objective. Continuing efforts to create fair trading conditions will be needed. As a consequence, the ESC recommends that further decisions on shipbuilding should be made based on regular assessments of progress towards the end of this five-year period. 4. 1. 3. Of course, the competitiveness of shipbuilding in the EU varies from yard to yard and between different types of shipbuilding. There are, it is acknowledged, examples of highly competitive builders in certain market segments. However, in general, the industry still has difficulty in competing against other builders, some of whose pricing regimes are regarded as predatory. 4. 2. Motives for a policy change 4. 2. 1. The Commission has recommended the ending of approval for operating aid for shipbuilding. The motivation is complex. Part of the motivation seems to be a concern that the present operating aid, financed by national governments, has not been accompanied by the desired level of restructuring in the industry. A further consideration is the lack of any strong incentive in the scheme to improve competitiveness. The ESC agrees with, and supports, this conclusion reached by the Commission. 4. 2. 2. Although some parts of the industry have become internationally competitive, the communication does not argue that the competitive position of the whole industry is now strong enough to justify this withdrawal. Indeed, it argues that State aid policy needs to be refocused to promote and underpin efforts to improve competitiveness. This leads into support for investment in innovation and R&D. 4. 2. 3. The case to remove operating aids can be made both because (i) it is now the only sector of manufacturing with this scale of direct aid and (ii) the Commission questions whether the expenditure represents a cost- effective use of public funds which may distort intra-EU competition as well as partially offsetting the disadvan- tages relative to non-EU competitors. 4. 2. 4. The ESC would be reluctant to support the removal of operating aid if the prospects for competitive success were considered too low and if the alternative measures do not offer an equivalent effect. However, the long-term aim should continue to be an industry which can compete with other world shipbuilders. The Commission should avoid any measures 4. 2. 5. which could result in an international ’subsidy race’ and should continue its endeavours to control, and ultimately phase out, subsidies to shipbuilding through an overall agreement within the philosophy of the OECD Agree- ment. This should be established as a basic principle in order to avoid the building of vessels for which there is no economic justification and where the consequences may be to unfairly distort activity in the shipbuilding sector and seriously damage the economics of the shipping industry. 4. 3. Competitiveness The ESC is concerned to consider whether the 4. 3. 1. adverse factors which have justified an approved but diminishing level of operating aid, have now been reduced to the point where competitive viability can reasonably be expected. 4. 3. 2. In earlier years the Commission has undertaken work to calculate a justifiable common maximum aid ceiling which was based on an estimate of the difference between the costs of the more competitive Community C 129/40 EN Official Journal of the European Communities 27. 4. 98 shipbuilders and the prices being quoted by international competitors. This work was used in 1995 to justify the setting of the current 9 percent ceiling. 4. 4. Ship repair operations The last cost-price comparative study was 4. 3. 3. undertaken in 1996/1997. This Commission study is not quoted in the Communication but is understood to have suggested that the competitive cost-price gap for certain types of ships had actually widened. No reliable forecasts for the next decade are practicable. However, the trends in market share do not suggest that the relative position has improved significantly. In addition there is now the added uncertainty of the effects of currency devaluations on the cost differences with producers in the Far East, which may make for more fundamental changes in the financial elements of competitiveness. 4. 3. 4. The Commission does note that ‘many EU yards still lack competitiveness, (and) in particular lag behind their major Far East competitors in terms of productivity’. Also, it concludes that the market is likely to become even more competitive with total demand starting to soften in the next decade. These are not reassuring conclusions on which to justify the with- drawal of operating aid. The competitive position of EU yards varies between yards and especially for different types of ships. The ESC recognizes that, within the shipbuilding sector, the more successful EU yards will be likely to specialize in those vessels where expertise and skill inputs give some comparative advantage. The ESC therefore would suggest that a further 4. 3. 5. comparison to establish the relative competitive position of the main producers should be undertaken before a date for the removal of operating aid is decided. In particular, the Committee has reservations about the productivity comparisons quoted in the Commission communication since it is not clear that these have been corrected to allow for differences in the annual average working hours of shipbuilding employees in each coun- try. This would affect a better understanding of the nature and scale of competitive differences. 4. 3. 6. The Commission should consider whether there is any evidence of continuing market distortion caused by injurious pricing from competitors. The ESC welcomes the assurance that at the end of 1999 (one year before the deadline) the Commission will monitor the market situation and, if anti-competitive practices are established, will consider introducing appropriate measures. This assurance would be more convincing if there was a commitment to introduce appropriate measures rather than ‘consider’ the possibility! 4. 4. 1. Although the Commission communication is not as specific as might be wished, the ESC assumes that, consistent with the draft preamble to the Regulation, the revised policies and types of assistance for shipbuilders will extend to allow the same principles to apply to investment and restructuring in ship repair and conversion activities. The Commission has confirmed that this is the intention. The ESC would foresee difficulties if the scope of the new regulation was not broadened to cover critical aspects of ship repair activities and welcomes this more logical approach to the range of shipbuilding, ship conversion and ship repair activities. 4. 4. 2. Including ship repair within the scope of the new Regulation attracts the possible criticism that it widens the range of activities which qualify for assist- in the new ance. However, the ESC accepts that, framework of policy measures, to artificially divide investment and technology activities separating (for example) ship conversion from ship repair may lead to other distortions within the structure of the shipbuilding industry. 4. 5. The wider links with shipping services, ship owners and ship repair operations Shipbuilding is a critical component 4. 5. 1. in a spectrum of activities which contribute to the movement of people and freight by sea, lake and river. In this way, a competitive shipbuilding industry has an important part to play in the overall economic performance of the EU. 4. 5. 2. Some of the actions affecting other linked sectors of the economic chain have implications for shipbuilding. For example, policies which encourage the elimination of sub-standard ships and persuade ship owners to purchase new ships are critically important in determining new orders. If these policies include constraints which encourage the placing of new orders with European yards, through preferential taxation, finance guarantees or other fiscal measures, this can affect EU yards. However, such policies should take into account the existing Guidelines on State Aids to shipping. Policies to encourage the use of maritime transport, including the increasing emphasis on the development of short sea shipping (partly on environ- mental grounds) also have a potential to impact on the ship building industry. 4. 5. 3. Policies on ship safety standards may also be a significant influence. The introduction of more stringent specifications for different types of ship may be, first, a safety feature but, second, can influence replacement rates and the volume of business available to repair and conversion yards. 27. 4. 98 EN Official Journal of the European Communities C 129/41 4. 5. 4. The ESC is aware that these linkages are of critical importance in the development of overall maritime policies and has participated each year in the consultative meetings of the Maritime Industries Forum. unsubsidized interest rate and, second, an extended period of officially supported guarantees, from 8,5 to 12 years, bringing ships into line with the terms permitted for large commercial aircraft. 4. 5. 5. The ESC commends the efforts of the Com- mission to create a consistent and mutually reinforcing set of maritime policies ranging from the promotion of research and innovation, encouraging industry wide cooperation and, more recently, encouraging the devel- opment of short sea shipping as a contribution to wider problems of freight movement around the Community and in a wider context. 5. Specific comments 5. 1. Capacity rationalization 5. 1. 1. The Commission knows of 103 shipbuilding companies within the EU operating in 1997. The biggest five represent 36 percent of European output. This is a much lower level of concentration than Korea, where the biggest five account for 99 percent, and Japan, where they hold 44 percent. Fragmentation, the lack of economies of scale, differences in work methods, and the absence of large ‘series orders’ all contribute to lower productivity in European yards. 5. 1. 2. The case for capacity rationalization is not only a search for economies of scale by concentrating work load. Some yards in niche markets can be competi- tive simply because of the degree of specialization and this is not always a function of the size of the yard or enterprise. An additional factor affecting capacity utiliza- 5. 1. 3. tion is the reduction in the demand for naval vessels within countries of the EU. This also has possibly adverse implications for the availability and transfer of technology and innovative processes from one sector to the other. 5. 1. 4. These elements point to the logic of further efforts to increase productivity and rationalize capacity. 5. 2. Export Credits The Commission has drawn attention to the 5. 2. 1. changes envisaged in the 1994 Understanding on Export Credits which has not yet been implemented. The revised understanding would up-date the 1981 agreement and forms one component of the OECD Agreement on the elimination of State aid. 5. 2. 2. The Commission sees the revisions as more closely reflecting market realities. The principal changes are, first, the introduction of the use of a Commercial Interest Reference Rate (CIRR) which is, in effect, an 5. 3. Contract aid for orders for developing countries 5. 3. 1. Aid for orders from developing countries has not been subject to the present rules on the ceiling for operating aid to yards. The Commission proposes to allow this to continue. 5. 3. 2. There are possible distortions arising from this exemption. First, governments might be tempted to use these orders to place work in specified yards and thus avoid competitive bidding within the EU. The Commission is aware of these potential distortions and is acting to open up the possibility of competitive bids from other yards within the EU. Second, such orders might allow vessels to be used for a developing country in a manner which displaces other normal competitive shipping business. 5. 3. 3. The ESC is persuaded that a special provision of this type should be continued. The ESC also welcomes the assurance that the rules will be amended to open such contracts to competitive bidding from different yards in the EU and that monitoring procedures should ensure that there is no abuse of this concession. 5. 3. 4. Opening such contracts to bidding from differ- ent Member States does raise a difficult problem if the national governments offer different levels of aid to yards in their country. The ESC suggests that this issue should be clarified before the new regulation is introduced. 5. 4. Closure aid 5. 4. 1. Assistance with the costs of closure, total or partial, is allowed under the present directive. The Commission proposes that this aid, including the social costs of readjustment for former employees, should continue to be permitted. The ESC welcomes this provision. 5. 4. 2. In a change in the application of this provision, the Commission proposes that where closure aid is paid, instead of there being a rule that the facilities must remain closed for five years together with a requirement for Commission approval for reopening in a further five years, the scheme should, in future, require that the facilities should not return to shipbuilding for a period of ten years and the prospect of a review after five years should be removed. The ESC accepts the logic of this change. C 129/42 EN Official Journal of the European Communities 27. 4. 98 5. 5. Restructuring aid 5. 5. 1. restructuring aid in the Seventh Directive. There are no detailed criteria for assessing 5. 5. 2. Since a component of improving the pro- ductivity and competitiveness of the shipbuilding indus- try will inevitably include the restructuring of some enterprises, the Commission is proposing a formal statement further defining the scope of potential restruc- turing aid. The basic principle is that shipbuilding enterprises should have the same rules as apply generally within the Community. Whether to allow capital injec- tions, debt write-offs, subsidized loans or rescue aid, the proposal is to have strict rules using the ‘one time/last time’ principle backed up by assessment and monitoring of viability. 5. 5. 3. To qualify for restructuring aid, evidence must be available of the extent of capacity reductions which will follow. In a sensible change the Commission suggests that the determination of the capacity reduction should not be calculated on the notional capacity to be closed but, instead, the actual level of production in that yard in the preceding five years. 5. 5. 4. The ESC supports both the clarification of the scope for restructuring aid and the method to determine the amount of capacity to be removed. 5. 6. 3. One of the most acute problems facing the shipbuilding industry worldwide, and hence also in the EU, is the substantial overcapacity. An effective EU policy must therefore consider how the EU can help in solving this problem. Current proposals offer no immediate action to curb overcapacity but the Com- mission should be urged to put forward suitable pro- posals on this matter. In the proposal at issue, care must be taken to ensure that the EU’s own aid does not aggravate the problems of world overcapacity. 5. 6. 4. Aid for R&D and aid for environmental protection are to be permitted in terms similar to those available for other sectors in the Community. 5. 6. 5. The ESC acknowledges that these differing investment aids may usefully encourage the improve- ment in the competitive position of the firms in the industry. Since the new regulation will make these aids subject, potentially, to a five-year limit, or possibly a review after five years, the ESC expects that an assess- ment of their impact and effectiveness will be prepared before the end of the period so that an informed judgement can be made about the merits of continuing each element after 2003. The Committee would hope that, in particular, the Commission will assess whether any of the changes show distortions which are not consistent with the evolution of an EU-wide competitive industry. 5. 6. Investment aid 5. 6. 1. As a critical component of the restructuring and strengthening of the shipbuilding sector, the Commission proposes that shipbuilders should be eligible for several types of investment aid. This includes regional invest- ment aids for modernizing and upgrading facilities in disadvantaged regions as well as investment aid for innovation with the restriction that the innovation should be defined as bringing into use products or processes that are not currently used commercially by other EU shipbuilding operators. The ESC notes that investment aid, linked to competitive improvements, is not necessarily constrained by the search for capacity reductions in a modernized yard, although the overall thrust of Commission policy still needs to take account of surplus capacity within Member States. 5. 7. The overall impact of the new regulation 5. 7. 1. Whilst operating aid can be granted for con- tracts signed before the end of 2000, and may be claimed in the following three-year period, and the industry will be encouraged to invest and innovate using the other provisions, the ESC has a concern that the consequence of the changes will be to increase the level of official expenditure on shipbuilding. The Commission has pointed to the limited commitment to completely new types of funding and estimates that the State aid bill should not increase significantly, even for a short period. The Committee believes that the effect of the changes should be to reduce the level of aid payments. 5. 6. 2. Care must naturally be taken to ensure that investment aids, including regional aid, are not used to rescue ailing shipyards and one requirement must therefore be that those firms which receive investment aid are profitmaking or are assessed to be able to become profitmaking as a result of the new investment. 5. 7. 2. The ESC therefore calls for the regulation to include a provision specifying that total annual aid — operating, regional and other investment aids — to individual shipyards may not exceed a ceiling of 9 % of turnover averaged over any three-year period. 27. 4. 98 EN Official Journal of the European Communities C 129/43 5. 7. 3. The ESC notes that State aids to shipbuilding, in particular, operating aid linked with the contract of the ship, are not clearly defined. In certain instances, this lack of clear cut definition may lead to confusion with the State aids to shipping and to cumulative application of the above two categories of aids. It, therefore, suggests that this issue be clarified in the proposed Regulation. 5. 7. 4. An important feature of the new regime for shipbuilding is that the Commission should monitor the impact of the new arrangements and, in particular, the impact of the different types of support which will be available. 5. 7. 5. M o n i t o r i n g a n d t r a n s p a r e n c y 5. 7. 5. 1. The Commission mentions the need to ensure that aid be paid in accordance with the guidelines laid down by the Council and proposes that monitoring be carried out in the form of notification by the Member States to the Commission. It is not envisaged to give the Commission any independent responsibility for procuring information from aid recipients, local auth- orities or others. In the ESC’s view, the Commission should have both the right and duty in co-operation with national governments to undertake on-the-spot checks of production, accounts, etc. so as to ensure that the above guidelines are observed. 5. 7. 5. 2. On earlier occasions, in connection with the restructuring of certain shipyards, the Commission has been empowered to monitor compliance with the relevant guidelines. It should receive corresponding powers in respect of all forms of aid referred to in the regulation. 6. Human resources The ESC noted that the proposed regulation 6. 1. makes no specific reference to the training needs of the people employed in the shipbuilding industry. Enhanced skill levels will be an important component of the drive to improved productivity and competitiveness. The expectation of the ESC is that the Commission will be prepared to use its influence and resources to encourage appropriate skill development by the firms and training agencies in each Member State. 7. Conclusions 7. 1. The ESC has, in its earlier Opinion, endorsed the objectives which were agreed in the proposed OECD Agreement on shipbuilding. The failure by the United States to ratify that Agreement is regretted. Whilst the Committee would still wish to see the OECD Agreement ratified, the proposed new Regulation has, in principle, the support of the ESC as it seeks to encourage the development of a stronger and competitive EU shipbuilding industry. 7. 2. The ESC commends the efforts of the Com- mission to create a consistent and mutually reinforcing set of maritime policies ranging from the promotion of research and innovation, encouraging industry-wide cooperation and, more recently, encouraging the devel- opment of short sea shipping as a contribution to wider problems of freight movement around the Community and in a wider context (point 4. 5. 5). 7. 3. Recent events in financial markets and exchange rates in the Far East have created an uncertain environ- ment for a number of industries, including shipbuilding. The Committee recognizes that the Commission will need to monitor events and, if necessary, take appro- priate action if there is a prospect that the shipbuilding industry will be adversely affected. 7. 4. Whilst the removal of operating aid, and its replacement by more selective measures lie at the core of the proposed regulation, the ESC would be reluctant to support the removal of operating aid if the prospects for competitive success were considered too low and if the alternative measures do not offer an equivalent effect (point 4. 2. 4). 7. 5. The Committee suggests that a further compari- son to establish the relative competitive position of the main producers should be undertaken before a final date for the removal of operating aid is decided (point 4. 3. 5). The Committee welcomes the assurance that at 7. 6. the end of 1999 (one year before the deadline) the Commission will monitor the market situation and, if anti-competitive practices are established, will consider introducing appropriate measures (point 4. 3. 6). 7. 7. Difficulties might occur if the scope of the new regulation was not broadened to cover critical aspects of ship repair activities and the Committee welcomes this more logical approach to the range of shipbuilding, ship conversion and ship repair activities (point 4. 4. 1). 7. 8. The proposals relating to export credits, contract aid, closure aid, restructuring aid and investment aid are supported. However, the ESC would be concerned if the consequence of the changes was to increase the level of official expenditure on shipbuilding whereas the effect is supposed to be the opposite; i. e. the reduction and removal of aid (point 5. 7. 1). 7. 9. The Commission should monitor the impact of the arrangements and, in particular, the impact of the different types of support (point 5. 7. 3). C 129/44 EN Official Journal of the European Communities 27. 4. 98 7. 10. The Commission should avoid any measures which could result in an international ‘subsidy race’ and should continue its endeavours to control, and ultimately phase out, subsidies to shipbuilding through an overall agreement within the philosophy of the OECD Agree- ment. This should be established as a basic principle in order to avoid the building of vessels for which there is no economic justification and where the consequences may be to unfairly distort activity in the shipbuilding sector and seriously damage the economics of the shipping industry (point 4. 2. 5). Brussels, 25 February 1998. The President of the Economic and Social Committee Tom JENKINS Opinion of the Economic and Social Committee on the ‘Proposal for a Council Directive on end of life vehicles’ (1) (98/C 129/10) On 2 December 1997 the Council decided to consult the Economic and Social Committee, under Article 130s of the Treaty establishing the European Community, on the above-mentioned proposal. The Section for Protection of the Environment, Public Health and Consumer Affairs, which was responsible for preparing the Committee’s work on the subject, adopted its opinion on 3 February 1998. The rapporteur was Mr Colombo. At its 352nd plenary session (meeting of 25 February 1998), the Economic and Social Committee adopted the following opinion by 85 votes to one with one abstention. 1. Outline of the proposal 1. 1. This ambitious and innovative proposal has its legal basis in Treaty Article 130s. It follows the example of the directive on packaging waste in setting target figures, and will affect a sensitive sector of the European economy, namely the motor industry. It proposes the adoption of a preventive approach for a specific waste stream requiring intervention throughout the product’s life-cycle right from the design and production stages, and strict adherence to a hierarchy of waste management principles favouring re-use and recycling (recovery of materials). 1. 2. The ‘producer responsibility’ principle adopted in the new Community strategy for waste manage- ment (2) is to be put into practice by obliging all companies operating in the sector to set up an appropri- ate system for recovery and disposal, with re-use and recycling targets to be met within specified time-limits. 1. 3. The system will be completed by a ‘certificate of destruction’, issued only by authorized treatment facilities, which will be required for deletion of vehicles from national registers (Article 5). 1. 4. The vehicles to be scrapped will have to be handled in accordance with the general provisions laid down in Article 4 of Directive 75/442/EEC and the list of decontamination requirements and technical provisions in its Annex (Article 6). Progressively higher targets for the rates of re-use, recovery and recycling are to be reached by 2005, 2015 and a date beyond 2015 yet to be determined (Article 7). It will be the responsibility of vehicle producers to design and manufacture their products in ways that will make these targets easier to achieve. (1) OJ C 337, 7. 11. 1997, p. 3. (2) COM(96) 399 final; Council Resolution of 24. 2. 1997 in OJ C 76, 11. 3. 1997; ESC Opinion in OJ C 89, 19. 3. 1997. To add legal weight to this switch in production, 1. 5. the Commission proposes [Article 7(4)] amending Direc-