THE EU NEEDS A SUCCESSFUL AND COMPETITIVE SHIPPING INDUSTRY AND THIS DEPENDS ON THE CONTINUATION OF THE GUIDELINES ON STATE AID TO MARITIME TRANSPORT

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1 D. 3997/12 SF THE EU NEEDS A SUCCESSFUL AND COMPETITIVE SHIPPING INDUSTRY AND THIS DEPENDS ON THE CONTINUATION OF THE GUIDELINES ON STATE AID TO MARITIME TRANSPORT INTRODUCTION AND EXECUTIVE SUMMARY This policy paper is submitted on behalf of the European Community Shipowners' Associations (ECSA) 1. It concerns the review undertaken by the European Commission of the Guidelines on State Aid to Maritime Transport ( the Guidelines ). The paper is attached to ECSA s response to the Commission s questionnaire on the Guidelines, which was issued on 14 February 2012 as part of a public consultation. The Guidelines were developed initially in response to the fierce competition from thirdcountry shipping centres with more favourable conditions (in terms of corporate tax liabilities, seafarer costs and crew nationality requirements) and to the then severely declining share of the EU/EEA registered fleet. They have allowed Member States to adopt measures to improve the fiscal and operating climate for shipping companies in line with world norms. These include fiscal measures, such as tonnage tax and accelerated depreciation for investment in ships, and measures to reduce other costs and burdens borne by EU shipowners, such as reduced rates of social security contributions and of income tax for EU seafarers. ECSA records with appreciation that the European Commission s adoption of the Guidelines has been a crucial factor in the containment and reversal of the previous decline of the EU/EEA shipping sector. In most cases, in those Member States that through positive measures have managed to stop the structural decline of their fleet, ships have also been flagged or reflagged to the national register. In contrast, Member States that have not or have only recently applied positive measures, have faced a continuing structural decline of their fleet. Moreover, the Guidelines have been successful in stabilising and/or improving employment opportunities for EU/EEA seafarers. The following demonstrate these positive effects: While the most relevant measure of economic success is the growth of the owned/operated fleet based in EU/EEA Member States, that is currently difficult to quantify in terms of the physical fleet. However, in financial terms, it is clear that many states have seen over the last decade (despite the economic crisis) a very substantial increase in the turnover and GDP contribution, both of their shipping industry and their wider maritime cluster. Full details are given below. The importance of the shipping sector for the EU s economic growth and prosperity was evidenced in a study commissioned by the European Commission (DG MARE) and carried out by Policy Research Corporation in November 2008, which assessed the production value in the European traditional maritime sectors, such as shipping and seaports, at over 300 billion, their direct added value at billion in all EU Member States and Norway, and their direct employment at 1.92 million people. It concluded that 1 ECSA (European Community Shipowners Associations) comprises the national shipowner associations of the EU and Norway. Its aim is to promote the interests of European shipping so that the industry can best serve European and international trade and commerce in a competitive free enterprise environment to the benefit of shippers and consumers.

2 their direct GDP contribution represented 1.09% of the total in the EU-27 and Norway, and their employment 0.9% 2. The importance of shipping and the potential risks were also highlighted in the Commission s 2009 Communication Strategic goals and recommendations for the EU s maritime transport policy until In 2011, the EU/EEA registered fleet 4 consisted of 15,299 ships with a capacity of million gross tons and million deadweight tons 5. In 2004, i.e. the year that the current Guidelines were issued, the EU/EEA registered fleet consisted of 11,818 ships with a capacity of million gross tons and million deadweight tons 6. This means that in the period , i.e. the period of application of the current Guidelines, the EU/EEA registered fleet increased by 29.4% in terms of ships, by 41.5% in terms of gross tons and by 38.0% in terms of deadweight tons. In the period , the EU/EEA controlled fleet 7 increased by 72.2% to amount to million gross tons, representing 41% of the capacity of the world fleet 8. Within the EU/EEA controlled fleet, the share of EU/EEA registered fleet increased by 41.2% to amount to million gross tons 9, whilst the share of EU controlled fleet under third country flags increased by 109.5% to amount to million gross tons 10. The EU/EEA shipping industry also provided 521,928 jobs at sea in 2011, of which 154,858 were held by EU/EEA nationals 11. In 2011 the EU/EEA shipping industry supported over 172,000 jobs ashore and provided thousands of indirect jobs linked to the maritime cluster activities 12. The shipping industry is clearly at the core of the EU/EEA maritime cluster. ECSA is of the view that the Guidelines should be continued. Otherwise, there would be a serious risk that many EU/EEA shipping and shipping-related activities would be relocated away from Europe. As a consequence, the sector which is of clear European interest would be damaged dramatically and inevitably decline again, with adverse effects on employment, the wider maritime cluster and the overall EU economy. It is clear that: The EU/EEA shipping industry is continuing to face strong and unequal competition from third-country registers and from global shipping centres, particularly in Asia and the Far East, that offer an attractive and competitive framework whilst respecting international quality and safety standards 13. These international competitors often benefit from much 2 The Role of Maritime Clusters to enhance the strength and development of European maritime sectors, Policy Research Corporation, report commissioned by the European Commission (DG MARE), November COM(2009), 8 final, The EU/EEA registered fleet comprises ships flying an EU/EEA flag that are controlled by EU/EEA shipowners and by third-country (non-domiciled) shipowners. 5 Source: Clarksons Research Ltd. 6 Source: Lloyds Register Fairplay. 7 The EU/EEA controlled fleet comprises both EU/EEA registered ships and ships under third country flags controlled by EU/EEA shipowners. 8 Source: Clarksons Research Ltd. 9 Clarksons Research Ltd. 10 Clarksons Research Ltd. 11 Source: Figures are based on an internal ECSA survey amongst its members. 12 Source: Figure is based on an internal ECSA survey amongst its members. 13 The differences in framework conditions are documented in Ernst & Young s publication Shipping Almanac. 2

3 lower cost structures and, in many cases, enjoy active support from national governments interested in developing their maritime sector. There is also increasing competition for the location of shipping activities. European shipping companies are global operators where future growth takes place has a lot to do with the business framework offered. The continuation of the Guidelines, without further restrictions, is necessary to maintain a framework to allow Member States to adopt positive measures offering a level playingfield for EU/EEA shipping companies vis-à-vis global competition. Without this, there would be a serious risk of relocation of shipping and shipping-related activities away from Europe. This would dramatically damage the EU/EEA shipping sector, which would inevitably decline and European trade would risk becoming heavily dependent on maritime services provided by actual or potential competitors of EU Member States. Moreover, the EU/EEA would have no fleet reserve to rely upon in times of military crisis and/or peace-keeping operations. The Guidelines have successfully encouraged investments which have potential for significant economic and social return to the EU/EEA beyond the private investment involved in terms of education, know-how, safety and environmental performance. Without them, these benefits will not arise. The Guidelines have created spill-over benefits for the wider maritime cluster bringing considerable increases in value creation and employment, the contribution of shipping to national earnings and the overall EU economy, the flow-back to the public authorities of taxes and social security contributions from the workforce, and investment. In order to remain competitive, the EU/EEA shipping sector requires a continuation of the Guidelines for two main reasons: a) First, the Guidelines target objectives of common interest to the EU. Their most important objective is to secure a strong EU shipping industry which is competitive in the global markets. This is an objective of common interest to the EU as a union of trading nations because of the strategic importance to the EU economy of a strong and competitive shipping industry, as recognised in the above-mentioned 2009 Maritime Strategy Communication 14. The strategic importance of shipping to the EU economy is primarily of an economic nature. But shipping also plays an important role in times of military crisis and/or peace-keeping operations, when Member States should be able to rely on a merchant fleet reserve. To date, the Guidelines have made it possible for the EU/EEA shipping industry to compete with third countries. Without them, the European shipping industry would be unable to compete with third countries that maintain a low/zero tax environment and have lower wage and other costs. In particular, it would lose shipping companies to other aggressively growing world centres, such as China, Dubai, Hong Kong and Singapore and lose more ships to non-eu/eea registers. b) Secondly, the Guidelines have successfully created the right incentives to invest in European shipping without distorting competition and affecting trading conditions to an extent contrary to the common interest. This is because: They facilitate a state aid framework which meets the objective of creating conditions for the European maritime industry which are globally competitive; 14 COM(2009), 8 final,

4 The measures facilitated by the Guidelines only provide incentives for economically viable businesses. They do not allow the granting of operating subsidies to compensate inefficiencies, or to keep failing companies alive artificially. This meets the no net subsidy principle. They have created a well-balanced situation, where the competition for future maritime growth takes place, not between the Member States, but primarily between the EU shipping industry and other global shipping centres, particularly in Asia and the Far East. Accordingly, distortions of trade and competition within the EU have been kept to a minimum 15 and individual EU shipping companies continue to compete vigorously in a free and undistorted market. Furthermore, the European Commission has monitored the application of positive measures by Member States closely, inter alia, through the notification procedure ECSA is aware of only one complaint submitted against the application of the Guidelines, notably against State aid implemented by the Netherlands for operations by Dutch tugboats in seaports and on inland waterways in the Community, on which the European Commission adopted a decision in 2002 (Commission decision of 19 June 2002 on State aid implemented by the Netherlands for operations by Dutch tugboats in seaports and on inland waterways in the Community, OJ L-314/97). 4

5 1. WHY DOES THE EU SHIPPING INDUSTRY NEED EU STATE AID GUIDELINES ON MARITIME TRANSPORT? European shipping companies operate in a global free-trade environment with few market access restrictions. Historically, liberal market access, combined with the unique feature of perfect mobility of the means of production (i.e. the ship), led to the emergence of open registries located in low/no-tax jurisdictions and other jurisdictions that do not have nationality requirements for owners, management or manning of the ship. Since the 1950s, the growing role of these open registries has served as a catalyst to globalise the labour and capital markets of shipping. The European shipping industry is very diverse and, inter alia, includes ships which transport passengers and/or goods and ships which provide specialised services at sea (such as cable-layers, survey ships and offshore support vessels). Over the last two-to-three decades, it has been transformed into an industry based on global factors of production (capital, labour and technology) in an international low/no-tax environment and operating in a global, liberalised market. Between 1970 and 1995, prior to the adoption of workable Guidelines, the share of the EU/EEA registered fleet in world shipping had declined from about 33% in 1970 to less than 14% (see graph 1) 16. In the same period, employment of EU/EEA seafarers had also fallen significantly (see graph 4) 17. This decline was caused by the structural lack of competitiveness of the EU/EEA shipping industry vis-a-vis global competition, which derived in large part from the following external factors: the strong competition faced by the EU/EEA fleet from third-country operators in intra- EU trades and trades to and from the EU, as well as in cross-trades; the uniquely mobile tax base of shipping, which enabled companies to take advantage of the fiscal and social cost benefits associated with third-country registers and to overcome the onerous fiscal and social regimes and strict manning conditions within Europe that imposed higher operating cost burdens on shipowners. the industry s dependence on the international financial and capital markets, the increasingly integrated international labour market, the increasing use of second and open registers and the growing globalisation of the shipping industry and its customers. Such factors clearly presented the EU/EEA shipping industry with both problems and opportunities in the fight to remain competitive on the worldwide market; At that time, faced with these uncompetitive operating and fiscal conditions, EU/EEA shipping companies were forced to flag out a large number of their vessels in order to be able to operate on a viable basis in the global shipping market. This flagging-out resulted in a declining share for the EU/EEA registered fleet in world shipping but also in declining employment for EU/EEA seafarers. Moreover, it had a negative impact on the wider EU/EEA maritime cluster 18 and resulted in a relocation of ancillary activities outside Europe. This led to an even greater loss of employment both on board ships and onshore and resulted in 16 Community Guidelines on State aid to maritime transport, C-205, , page Community Guidelines on State aid to maritime transport, C-205, , page The maritime cluster includes, inter alia, seaports, ship management, shipbuilding, shiprepair, marine equipment manufacturers, marine insurers, marine brokers, banks, law firms, education and know-how. 5

6 a shortage of maritime know-how, thus endangering the whole EU/EEA maritime cluster. In its 1996 Communication Towards a new maritime strategy 19, the European Commission recognised that once ancillary activities are relocated, it becomes very difficult to re-attract maritime business. Against this background and taking into account the importance of shipping for the EU s economic growth and prosperity, the State Aid Guidelines on Maritime Transport were introduced by the then Transport Commissioner Kinnock in 1997 with the aim of stopping the decline of the EU/EEA shipping industry. The importance of shipping for the EU s economic growth and prosperity has again been emphasised in the Commission s 2009 Communication Strategic goals and recommendations for the EU s maritime transport policy until In addition to highlighting the major role of Europe in today s shipping world with its 41% share of the capacity of the world fleet, this Communication recognised explicitly that competitive pressures from shipping nations around the world have increased significantly as a result of globalisation. Taking into account the challenges of globalisation and the ongoing competitive pressures from third-country registers and from the growth of other shipping centres in Asia and the Far East on Member States industries and registers, the 2009 Communication confirmed that it is of key interest for the EU to achieve and maintain stable and predictable global competitive conditions for shipping and other maritime industries. A clear and competitive EU framework for tonnage taxation, income taxation and state aid should therefore be maintained and, where appropriate, improved, in the light of the experience gained under the State Aid Guidelines for Maritime Transport (our underlining). The Communication, moreover, highlighted that the current economic crisis could even more prompt shipping head offices and maritime industries to relocate overseas, undermining the EU s efforts to ensure quality shipping around the world. Hence, there is a need for an appropriate policy approach to ensure the continuous performance of the EU maritime transport system and its contribution to the recovery of the world economy. Beyond the current conjuncture, this policy approach should ensure that Europe retains a core human and technological know-how serving the sustainability and competitiveness of current and future shipping operations The Communication also underlined that positive measures should also contribute to solving the growing shortage of maritime professionals and thus to tackling a shortage in maritime know-how. The Communication concluded that the maintenance of open, competitive shipping markets and the application of flag-blind competition rules are the best way of securing the EU s economic independence. It went on importantly to state that an EU fleet needed for the EU s economic independence may also be guaranteed by EU/EEA control of shipping and does not necessarily require EU flagged ships. 19 COM(96) 81 final,

7 2. THE GUIDELINES ON STATE AID TO MARITIME TRANSPORT HAVE SUCCESSFULLY TARGETED OBJECTIVES OF COMMON INTEREST The strategic importance to the EU/EEA of an economically viable shipping sector and a strong maritime cluster makes it an objective of common interest to encourage the operation of ships from Member States, including flagging or re-flagging to Member States' registers. With 80-90% of the EU s external trade and over 40% of the internal trade being carried by sea, European trade should not have to depend too heavily on maritime services provided by third country shipping companies. Indeed, these companies would tend to act in support of their own long-term commercial or strategic interests, which may well differ from those of the EU/EEA. Moreover, in times of military crisis and/or peace-keeping operations, Member States should be able to rely on a merchant fleet reserve. For the first time in 1986, alongside a shipping policy package based on trade defence and liberalisation measures, the EU acted to stop the decline of EU/EEA shipping that was undermining its long-term maritime interests and its policy of promoting safe, efficient and environmentally friendly ship-operation. Since then, a variety of measures have been introduced building on the 1986 package in particular, the Guidelines on State Aid to Maritime Transport, which were introduced in and updated in The Guidelines on State Aid to Maritime Transport introduced the current sound principle of using positive measures to create a level playing-field for European shipping companies, whilst maintaining normal commercial pressures. They are targeted at the following objectives of common interest: 23 Improving safe, efficient, secure and environmentally friendly shipping; Encouraging flagging or re-flagging to Member States' registers; Contributing to the consolidation of the maritime cluster established in the Member States while maintaining an overall competitive fleet on world markets; Maintaining and improving maritime know-how; Protecting and promoting employment for European seafarers; Contributing to the promotion of new services in the field of Short Sea Shipping following the White Paper on Transport Policy. These objectives are of great benefit to the whole of the European Union, as well as to the shipping industry. They therefore clearly constitute objectives of common European interest. Issued in response to the fierce competition from third-country shipping centres with more favourable conditions (in terms of corporate tax liabilities, seafarer costs and crew nationality requirements) and to the severely declining share of the EU/EEA registered fleet, the 1997 Guidelines allowed Member States to adopt measures to improve the fiscal and operating climate for shipping companies in line with world norms. These included fiscal measures, such as tonnage tax and accelerated depreciation for investment in ships, and measures to 20 Guidelines on State Aid to Maritime Transport, O.J , 97/C, C-205/5. 21 Guidelines on State Aid to Maritime Transport, O.J , 2004/C, C-13/3. 22 In 1989, the European Commission issued positive measures for EU/EEA shipping entitled Financial and Fiscal Measures concerning shipping operations with ships registered in the Community (SEC(89), 921 final, This version of the Guidelines was not considered a practical measure and was never used by any of the EU Member States. 23 Guidelines on State Aid to Maritime Transport, O.J , 2004/C, C-13/3. 7

8 reduce other costs and burdens borne by EU shipowners, such as reduced rates of social security contributions and of income tax for EU seafarers. The continuing competition from third-country shipping companies, which often benefit from much lower cost structures and, in many cases, enjoy active support from national governments interested in developing their maritime sector, indicates that an economically viable EU/EEA shipping sector is dependent on the possibility of using positive measures. The Guidelines provide a solid basis for such measures, in the interest of both the shipping sector and the wider EU/EEA maritime cluster. An assessment of the 1997 Guidelines, carried out in the context of their revision in 2001/2002, showed that those Member States that had applied measures in line with them had succeeded in stopping the structural decline of their national fleet and at least begun to stabilise employment for seafarers. Positive effects were also noted with regard to the wider maritime cluster in terms of value creation, employment and skills, and the contribution of shipping to the national economy and the balance of payments. The application of these Guidelines thus produced positive effects and established a level playing-field for EU/EEA shipping companies vis-à-vis their global competitors. In 2004, the European Commission concluded that a special regime for the EU/EEA shipping industry was still justified because the share of third-country registers in world tonnage had continued to increase even further in the intervening period, from 43% in 1996 to 54% in Moreover, there was no indication of any significant reversal of the trend of increasing employment within the fleet of seafarers from third countries. Against this background and recognising the positive effects of the Guidelines for the EU/EEA shipping industry itself, the wider maritime cluster and the EU economy as a whole the European Commission decided to update and prolong them. Anticipating the European Commission s Maritime State Aid Review, launched on 14 February, ECSA carried out a fact-finding analysis in early 2010 and an update in early 2012, which shows that the 2004 Guidelines have again been successful in targeting the afore-mentioned objectives of common interest. They are as follows. (i) The Guidelines have stopped and reversed the downturn of EU/EEA shipping The first important impact is that the decline of EU/EEA shipping has been halted. 25 In most cases, in those Member States that through positive measures have managed to stop the structural decline of their fleet, ships have also been flagged or reflagged to the national register. Examples are Belgium, Cyprus, Denmark, France, Germany, Greece, Italy, Lithuania, Malta, the Netherlands, Norway, Spain and the United Kingdom. In contrast, Member States that have not or have only recently applied positive measures, have faced a continuing structural decline of their fleet. Examples are Bulgaria, Estonia, Poland, Portugal, Slovenia, and Sweden. The effects of the Guidelines in terms of the evolution of the EU/EEA registered 26 fleet are shown in graphs 1 and 2. Graph 1 shows the decline of the EU/EEA registered fleet, which preceded their adoption in 1997, and graph 2 27 demonstrates the positive effects of the Guidelines following their adoption in 1997 and their prolongation in Attention is 24 Guidelines on State Aid to Maritime Transport, O.J , 2004/C, C-13/3, p. 2 para Cf. World Fleet Statistics 2008, Lloyd s Register Fairplay. 26 The EU/EEA registered fleet comprises ships flying an EU/EEA flag that are controlled by EU/EEA shipowners and by third-country (non-domiciled) shipowners. 27 The gap in figures between the years 2003 and 2004 is a result of the accession of two major maritime nations (Cyprus and Malta) to the EU. 8

9 particularly drawn to the period , i.e. the period of application of the current Guidelines, in which the EU/EEA registered fleet 28 increased by 41.5% to million gross tons 29, and by 38% to million deadweight tons 30. The effects of the Guidelines in terms of the evolution of the EU/EEA controlled 31 fleet are shown in graph 3: Since 2004, the EU/EEA controlled fleet 32 increased by 72.2% to amount to million gross tons in Within this, the share of EU/EEA registered fleet increased by 41.2% to million gross tons 33, while the share of the EU controlled fleet under third-country flags increased by 109.5% to million gross tons The EU/EEA registered fleet comprises ships flying an EU/EEA flag that are controlled by EU/EEA shipowners and by third-country (non-domiciled) shipowners. 29 Source: Clarksons Research Ltd and Lloyds Register Fairplay. 30 Source: Clarksons Research Ltd and Lloyds Register Fairplay. 31 The EU/EEA controlled fleet comprises both EU/EEA registered ships and ships under third country flags controlled by EU/EEA shipowners. 32 The EU/EEA controlled fleet comprises both EU/EEA registered ships and ships under third country flags controlled by EU/EEA shipowners. 33 Clarksons Research Ltd. 34 Clarksons Research Ltd. 9

10 (ii) The Guidelines have succeeded in stabilising and/or improving employment opportunities for EU/EEA seafarers EU/EEA shipping companies are also confronted with challenges concerning the employment of seafarers. Faced with the fact that they operate in a global labour market, the majority of the world s merchant fleet is operated nowadays with crews of different nationalities. A core of European maritime know-how is ensured through the European maritime academies delivering highly qualified seafarers. Many of them build a career starting on board ships in the global labour market, including on service ships and specialised ships with a high degree of technology. In order to safeguard employment for EU/EEA seafarers and to support the efforts of EU/EEA shipping companies to attract youngsters to a maritime career, the Guidelines allow an alleviation of labour-related costs for example, through reduced rates of income tax and social security contributions for EU/EEA seafarers and through training support. This framework of positive measures has been successful in that the Guidelines have helped achieve greater stability in, and in many cases expand, the employment of EU/EEA seafarers. The effects of the Guidelines in terms of employment are shown in graphs 4 and 5. Graph 4 shows a significant decline in employment onboard EU fleet before the adoption of the Guidelines in Graph 5 demonstrates their positive impact on employment since then. Several Member States have successfully introduced positive measures to stimulate investments in maritime education. There is globally an increasing shortage of qualified seafarers, particularly of officers, but the general picture is that Member States that have introduced positive measures to stimulate investment in education have managed to increase the total number of students/cadets (see graph 6) and/or the number of new (entrant) students/cadets (see graph 7) at the national maritime academies. 10

11 Against the background of a positive ship-operating environment in the EU as a whole and in the individual Member States, many shipping companies and national shipowners associations have set up successful public campaigns to attract youngsters to a seafaring career and/or have taken action to keep seafarers active at sea for longer. Closer cooperation between shipowners and educational institutes result in an improvement of the quality of education in order to reduce the number of drop-outs. (iii) The Guidelines have targeted areas with potential for significant economic and social return to the EU/EEA beyond the private investment involved The Guidelines have created significant positive spill-over effects in terms of investments in skills and environmental benefit. First, on skills, they have through boosting shipping companies investments in the training of seafarers helped ensure a critical mass of maritime know-how to support the whole EU/EEA maritime cluster. As well as providing vital know-how with regard to the shipping markets and to shipping operations, EU/EEA shipping also guarantees a flow of skills to the rest of the maritime cluster which underpins the wide range of shipping-related sectors throughout Europe. Many maritime industries have relied traditionally on seafaring skills and experience. The importance of knowledge transfer from the shipping sector to the other sectors of the maritime cluster has been confirmed by research from the Copenhagen Center of Shipping Economics and Innovation at the Copenhagen Business School of EU/EEA shipping guarantees a flow of skills to other EU businesses too. Few sectors create opportunities which make truly international careers possible in shipping companies that is the general rule, with people working in all the growth areas of the world economy. These people obtain invaluable knowledge about world markets that also pass through to other EU industries. In addition, the social partners ECSA and ETF 36 have jointly undertaken a career-mapping exercise to indicate job opportunities onshore for seafarers who come ashore. This has also been echoed in many Member States. The purpose is to make it clear that the profession of seafarer is the start of an attractive career with many possibilities ashore after their time at 35 Cf. Evermore, the Times They Are A-Changin: Expounding the Challenge of Offshoring in the International Shipping Industry, Henrik Sornn-Friese and Martin Iversen, Mercator Media Forum, December 2009, pp The European Transport Workers Federation (ETF) represents more than 2.5 million transport workers from 223 transport unions and 40 European countries, in the following sectors: railways, road transport and logistics, shipping, inland navigation, civil aviation, ports & docks, tourism and fisheries. 11

12 sea, either in shipping companies or across the many other shipping-related businesses in the maritime cluster. 37 Nevertheless, the shortage of qualified seafarers globally and on the European labour market is likely to remain a key problem for the future. 38 Secondly, on environmental benefit, the Guidelines have been successful in promoting investments that improve performance in terms of safety and the protection of the environment. Following investments in newbuildings, the average fleet age of those EU Member States that apply positive measures has decreased sometimes significantly resulting in a more modern, safe, efficient and environmentally friendly fleet. Furthermore, all major EU shipping states and Norway are nowadays on the White List of the Paris Memorandum of Understanding on Port State Control, which underlines even further the importance they attach to safe, secure and environmentally sound shipping. Both of these impacts boosting the skills of the overall cluster and promoting investments that improve safety and environmental performance are clearly objectives of common interest to the EU. Because these are areas which often give rise to underinvestment and inefficient market outcomes and where market forces do not always secure an optimal level of investment, investments in shipping such as those facilitated by the Guidelines give rise to important positive effects and externalities. The overall social and economic benefits they provide are greater than the benefits that the individual shipping company gains and bases its investment decisions upon. Aiding these types of investments of European interest provided such aid does not adversely affect trading conditions to an extent contrary to the common interest (a balance achieved well by the present Guidelines) is recognised as beneficial by the Treaty s State Aid provisions. Without a continuation of the Guidelines, the EU/EEA shipping industry will be unable to make the necessary investments. (iv) The shipping contribution to the broader EU/EEA economy The measures introduced under the Guidelines have not only, when adopted, created a level playing-field for the EU/EEA fleet and shipping companies and achieved stabilisation and/or growth of employment at sea and onshore. They have also had yet further positive spill-over effects on the wider maritime cluster 39 i.e. including seaports, equipment manufacturers, suppliers, shipyards, insurers, law firms, classification societies, banks, brokers and more in terms of value creation and employment, earnings and the balance of payments, and the broader EU economy. The shipping industry is clearly at the core of the maritime cluster in this respect 40. The importance of the shipping industry and the maritime cluster for the EU s economic growth and prosperity were evidenced in a study commissioned by DG MARE and carried out by Policy Research Corporation in November and they were also highlighted 37 Cf. The mapping of career paths in the maritime industries, A project by Southampton Solent University for the European Community Shipowners Associations (ECSA) and the European Transport Workers Federation (ETF) with the support of the European Commission, ECSA and ETF are preparing to update this project in Cf. BIMCO/ISF, Manpower 2005 and 2010 Update - Main Report and Annexes. For a full definition of maritime cluster, see footnote 17 above. 40 This has been evidenced in various studies, including in the Commission study entitled Economic Impact of Maritime Industries in Europe, Policy Research Corporation and Institute of Shipping Economics and Logistics (2001), European Commission, DG3, Enterprise. More recently, this was confirmed in the Commission study entitled the Role of Maritime Clusters to Enhance the Strength and Development in European Maritime Sectors, Policy Research Corporation (2008), European Commission, DG MARE. 41 COM(2009), 8 final,

13 clearly in the Commission s 2009 Communication Strategic goals and recommendations for the EU s maritime transport policy until The DG MARE / Policy Research study 43 indicated that the production value in the European traditional maritime sectors, such as shipping and seaports, amounts to over 300 billion, their direct added value amounts to billion in all EU Member States and Norway and their direct employment totals 1.92 million people. In terms of direct added value, the traditional maritime sectors represent a share of 1.09% in the total GDP in the EU-27 and Norway and for employment, this share amounts to 0.90% 44. Graph 8 illustrates these findings. Moreover, it is clear that those Member States that have applied positive measures following the adoption of, and in line with, the Guidelines have experienced highly beneficial effects in their maritime cluster, in terms of value creation, turnover, GDP contribution and/or foreign currency earnings. The following sequence of graphs illustrates theseeffects, both in relation to the shipping industry and to the maritime cluster, in a number of those Member States; this is a collection of national figures collected in slightly different ways over a lengthy period, so some of the available data and dates will differ. 42 The Role of Maritime Clusters to enhance the strength and development of European maritime sectors, Policy Research Corporation, report commissioned by the European Commission (DG MARE), November See footnote See footnote

14 BELGIUM DENMARK GERMANY 14

15 NETHERLANDS NORWAY UNITED KINGDOM Finally, attention is draw to the fact that an important part of shipping s value creation flows back to the public authorities in the form of taxes and social security contributions from onshore employees, or increased investments onshore. 15

16 3. THE GUIDELINES HAVE RESULTED IN WELL DESIGNED AND BALANCED MEASURES The success of the Guidelines can be attributed to the fact that they have been well designed with respect to two fundamental aspects of State aid: (i) The current Guidelines have provided the right incentives The Guidelines have provided a framework which allows the Member States to: design well-functioning positive measures that achieve objectives of common interest, make it attractive for European shipping companies to operate and/or register ships in the EU, foster maritime know-how. promote and secure a safe and environmental friendly fleet. As mentioned above, these positive measures relate, inter alia, to the fiscal treatment of shipping companies and to labour-related costs. The measures facilitated by the Guidelines are designed in such a way that they only provide incentives for economically viable businesses. They do not allow the granting of operating subsidies to compensate inefficiencies. For example, under the tonnage tax scheme, a corporate profit tax has to be paid even if the shipowner makes an actual loss. Thus, tonnage tax systems do not prop up inefficient entities; on the contrary, they provide a clear incentive to become efficient. This meets the no net direct subsidy principle. Accordingly, individual EU shipping companies continue to compete vigorously in a free and undistorted market. (ii) The Guidelines have avoided distortions of trade and competition contrary to the common interest The Guidelines have made possible a level playing-field approach to Member States positive measures, in a flexible way which is compatible with the retention by Member States of competence in fiscal matters. In practice, the levels of tonnage tax regimes in the EU are broadly convergent 45. The Guidelines have been well designed because they have continued to avoid adversely distorting competition or affecting trading conditions to an extent contrary to the common interest. As Member States have evolved their policies under the Guidelines, the national schemes being submitted to the European Commission for approval appear to be increasingly similar and, consequently, no Member State has substantially more favourable conditions than any other. Furthermore, the Guidelines include a notification procedure through which the European Commission has the opportunity to analyse the competitive effects of all national measures: this has been the key to avoiding distortions of competition within the internal market. The consequence of this is that a level playing-field within the EU is maintained, in which the EU/EEA shipping industries face relatively similar framework conditions. Combined with the 45 See for example, Choosing a profitable course, European tonnage tax regimes for the shipping industry, PriceWaterhouseCoopers,

17 fact that the means of production in shipping are very mobile, this secures relatively equal opportunities within the EU. In terms of where to locate shipping activity, the competition is consequently between the EU and third countries, rather than between Member States. ECSA is aware of only one complaint submitted against the application of the Guidelines, on which the European Commission adopted a decision in This decision dealt with the operation of tugboats in seaports and on inland waterways in the Community and was subsequently acted upon in different Member States. The fact that there has been only one complaint against the application of the Guidelines is significant evidence of the absence of competitive distortions between Member States and it also proves that the notification procedure, through which the European Commission has the opportunity to analyse the competitive effects of all national measures, has functioned very well. 4. CONCLUSION: THE CONTINUATION OF THE STATE AID GUIDELINES ON MARITIME TRANSPORT BEYOND 2012 IS ESSENTIAL It results from the above that the 1997 and 2004 Guidelines on State Aid to Maritime Transport have produced positive effects in EU/EEA Member States that apply them for both the shipping industry, the wider maritime cluster, and for the overall economy of the European Union. These positive effects do not mean that the European Commission, Member States or the European industry can be complacent: The EU/EEA shipping industry will continue to face strong and unequal competition from third-country registers and from global shipping centres particularly in Asia and the Far East, that continue to offer an attractive and competitive framework whilst respecting international quality and safety standards 47. European shipping companies are global operators but still have their head offices and principal shore establishments in Europe. Where future growth takes place has a lot to do with the business framework offered. The continuation of the Guidelines, without further restrictions, is necessary to maintain a framework to allow Member States to adopt positive measures offering a level playingfield for EU/EEA shipping companies vis-à-vis global competition. Without this, there would be a serious risk of a further relocation of shipping and shipping-related activities away from Europe. This has been confirmed by the 2009 Communication Strategic goals and recommendations for the EU s maritime transport policy until The EU/EEA shipping sector would then be damaged dramatically and would inevitably decline and European trade would risk becoming heavily dependent on maritime services provided by actual or potential competitors of EU Member States and Norway. Moreover, the EU/EEA would have no fleet reserve to rely upon in times of military crisis and/or peace-keeping operations. The Guidelines have successfully encouraged investments which have potential for significant economic and social return to the EU/EEA beyond the private investment involved, in terms of education, know-how, safety and environmental performance. Without them, these benefits will not arise. 46 Commission decision of 19 June 2002 on State aid, OJ L-314/ The differences in framework conditions are documented in Ernst & Young s publication Shipping Almanac. 48 Strategic goals and recommendations for the EU s maritime transport policy until 2018, COM (2009) 8 final,

18 The Guidelines have also created positive spill-over effects on the wider maritime cluster, of which the shipping industry is clearly the core business. Member States that apply such positive measures clearly benefit from considerable increases in value creation and employment, the contribution of shipping to national earnings and the overall EU economy, the flow-back to the public authorities of taxes and social security contributions from the workforce, and investment. These findings are evidenced in an ECSA fact-finding analysis carried out in 2010 and 2012 as well as in a number of national maritime cluster studies. The importance of the shipping industry and maritime cluster for the EU s economic growth and prosperity are evidenced in a study commissioned by DG MARE and carried out by Policy Research Corporation in November and are also borne out clearly by the Commission s 2009 Maritime Strategy Communication 51. In summary, for all these reasons, ECSA considers that it is essential that the European Commission should continue to provide a competitive European framework for EU/EEA shipping through a re-affirmation of the current Guidelines on State Aid to Maritime Transport Strategic goals and recommendations for the EU s maritime transport policy until 2018, COM (2009) 8 final,