EUROPEAN COMMUNITY: SHIPBUILDING INDUSTRY STRUGGLING TO STAY AFLOAT

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• Collection: General CIA Records
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• Document Page Count: 13
• Document Creation Date: December 22, 2016
• Document Release Date: July 13, 2010
• Sequence Number: 2
• Publication Date: June 1, 1985
• Content Type: REPORT

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Directorate of Confidential
Intelligence
M LNllllleemee Awl
Confidential
EUR 85-10110
June 1985
COPY 3 7 9
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Directorate of Conte
Intelligence
European Community:
Shipbuilding Industry
Struggling To Stay Afloat
An Intelligence Assessment
European Issues Division, EUR,
This paper was prepared by I I the
Office of European Analysis. Comments and queries
are welcome and may be directed to the Chief,
Confidential
EUR 85-10110
June 1985
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European Community:
Shipbuilding Industry
Struggling To Stay Afloat
Key Judgments The European Community shipbuilding industry has fallen on hard times.
Information available Output and employment are down sharply since 1975, and the Community's
as of 1 May 1985 share of the world market has shrunk dramatically. Many EC shipyards
was used in this report.
remain in operation only because of government subsidies. Dwindling order
books and the need to improve productivity will, in our view, require further
cuts in jobs and capacity.
A sharp reduction in petroleum shipments between 1979 and 1983 along
with mounting competition from East Asian shipbuilders account for most
of the decline. Tanker capacity in particular has exceeded demand since
1979, while lower labor costs and aggressive sales tactics have favored
Japanese and South Korean producers. In particular, South Korean ship-
building capacity doubled during 1979-84 and is expected to rise by an
average annual 10 to 15 percent over the next few years.
The shipbuilding industries in the four major EC countries are trying to cut
their losses by consolidating firms to improve productivity. Paris, London,
and Rome are heavily involved in reorganizing their industries and are
subsidizing firms to minimize employment losses. Bonn prefers to remain on
the sidelines and let the firms reorganize themselves.
To remain internationally competitive, we believe the industry will be forced
to concentrate on building highly specialized, technically advanced ves-
sels-such as certain naval ships and sophisticated cargo vessels-rather
than continue producing the traditional large oil tankers and bulk cargo
carriers. In the longer run, East Asian shipyards will almost certainly move
into construction of technologically advanced commercial ships and chip
away at the EC's share of this market. At present, however, they are likely to
continue concentrating on more traditional vessels. Japan already matches
the EC in terms of civil technology but is more concerned with the challenge
to their market leadership posed by South Korea. Although costs are higher
in Europe, the EC expects its technology to partially offset this deficiency
and hopes to capture a large enough share of this limited market to make the
venture worthwhile. In any case, the commitment of EC governments to
provide $700-800 million a year in subsidies should help ensure that the
industry stays afloat, albeit in a scaled-back manner.
Confidential
EUR 85-10110
June 1985
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European Community:
Shipbuilding Industry
Struggling To Stay Afloat
Tale of Woe
The EC shipbuilding industry has been deteriorating
faster than its major competitors since the mid-1970s.
Community shipbuilding output plummeted from a
peak of 7.8 million gross registered tons (grt)' in 1975
Figure 1
International: Trends in World
Shipbuilding Output, 1970-838
to 2 million grt in 1980. Although output improved 40
somewhat in succeeding years, by 1983 production
still reached only 2.8 million grt-64 percent below
the 1975 level (see figure 1).
With declining output, employment in the industry 30
also has fallen. In 1975, EC employment in shipbuild-
ing stood at more than 200,000. Preliminary figures
for 1983 show employment at under 100,000 (see
table 1). Britain and West Germany have accounted
for the greatest number of layoffs, about 32,000 and
26,000, respectively. The Netherlands has experi-
enced the largest contraction in percentage terms with
employment in the industry down 61 percent. Al-
though the absolute numbers of workers unemployed
is small relative to the size of the overall EC work
force-about 114 million people in 1983-the crisis is
occurring at a time when few alternative employment 5
opportunities exist for former shipbuilding workers
and overall unemployment already is at record levels.
In the Big Four:
? West German shipyards saw their order books z
shrink from 2.3 million grt in 1970 to roughly
700,000 grt by the end of 1984. Total employment is
down 55 percent since 1975, and more jobs are
likely to be lost as restructuring continues.
? The French shipbuilding industry has shrunk con-
siderably since 1975, with shipbuilding capacity
dropping 50 percent and employment falling by
roughly the same amount. Orders at the end of 1984
plunged almost 40 percent compared with the previ-
ous year.
' Gross registered tons is a measurement of a ship's enclosed space,
including enginerooms, fuel tanks, holds, and passenger and crew
accommodations. One gross register ton is equivalent to nearly
3 cubic meters of space.
? In its first seven years of existence, state-owned
British Shipbuilders has closed 10 yards, 35 docks,
six repair facilities, and four engine plants. British
Shipbuilders experienced another dismal year of
operation in 1983, losing $165 million. Since the
nationalization of 90 percent of Britain's shipbuild-
ing industry in 1977, over 20,000 jobs have been lost
and London has had to provide some $1.5 billion in
subsidies.
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Table I
European Community: Employment in
Commercial Shipbuilding, Selected Years a
EC
210,149
154,270
130,859
120,1%
98,600
Belgium
6,138
5,140
5,100
5,162
4,400
Denmark
16,630
12,000
9,900
11,400
8,200
France
32,500
25,300
23,000
22,200
16,000
Greece
5,000
NA
3,000
Ireland
869
840
750
750
350
Italy
25,000
20,000
19,000
18,000
14,000
Netherlands
22,662
17,540
14,540
13,100
8,920
United Kingdom
54,550
41,050
31,200
24,800
22,580
West Germany
46,800
32,400
27,369
24,784
21,150
? Number employed building new ships.
b Estimated.
? Italian shipbuilding production is down sharply
from the mid-1970s with employment plummeting
by nearly 45 percent. Although the financial losses
of Fincantieri, the state holding company for the
sector, fell in dollar terms from $67 million in 1982
to $61 million in 1983, the deficit increased slightly
in lira terms as sales nosedived 27 percent. Of the
eight firms under Fincantieri's control, only Canteri
Navale Riunite, which builds vessels for the Italian
and other navies, has managed to break even.
Causes of the Decline
Depressed world market conditions and the worsening
competitive position of EC shipbuilders have been the
main causes of the industry's decline. In volume
terms, annual world seaborne trade fell from a peak of
3,800 million metric tons in 1979 to 3,200 million
metric tons in 1983 (see figure 2). Some of this decline
reflects the drop in overall world trade caused by the
economic recession in the early 1980s. The bulk of the
falloff in worldwide seaborne trade, however, stems
from the nearly 30-percent reduction in petroleum
shipments over the period. The decline in world trade
cut the demand for new ships, particularly tankers.
Not only could existing ships handle the volume of
world trade, but their capacity exceeded demand.
Thus, the number of idle vessels grew, further de-
Rising labor costs have compounded the EC ship-
building industry's problems by reducing its ability to
compete. From 1975 to 1980, EC labor costs-wages,
social security taxes, and fringe benefits-increased
an average of 83 percent in dollar terms, compared
with 72 percent for Japan and 67 percent for the
United States (see table 2). Moreover, because worker
productivity in the EC is significantly less than in
Japan, unit labor costs in the Community in 1982, for
example, were more than double those of Japan.
While labor productivity is better in the EC than in
South Korea, higher EC wages have wiped out this
advantage, causing EC unit labor costs to be nearly
three times greater than South Korea's in 1982 (see
table 3).
In addition to higher production costs, the EC indus-
try has faced aggressive sales tactics by the Japanese
and South Koreans, which have reduced the EC's
share of world shipbuilding orders from almost
25 percent in 1970 to less than 8 percent in 1983 (see
figure 3). The Japanese consider their shipbuilding
industry important to their economy and have under-
taken a massive restructuring effort to increase their
pressing the demand for and price of new ships.
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Figure 2
International: World Seaborne
Trade, 1975-83-
Estimated.
Major bulk items are iron ore, coal, and grains.
Major bulk
items h
share of the world market. Shipbuilding employment,
including related industries, was slashed 33 percent
between 1975 and 1981 as Japan moved toward
automating the industry. Shipbuilding capacity, down
more than 37 percent since 1979, is now more eco-
nomical and in line with lower world demand. Since
1978, Tokyo has offered subsidies to shipowners who
scrapped uneconomic oceangoing vessels in favor of
new ones. In the early 1980s, Tokyo also provided
special depreciation allowances to shipping compa-
nies. Moreover, the Japanese Export-Import Bank has
made export credits available to cover 30 to 40
percent of a ship's price. These measures helped
Japan boost its share of world shipbuilding output
from 34 percent to 50 percent during the 1978-81
period.
readily build ships to customers' specifications.
The EC shipbuilding industry also has been particu-
larly hard hit by increased competition from South
Korea. In 1974, the South Korean shipbuilding indus-
try ranked 70th in the world; today it is second only to
Japan. In 1983, South Korea received 19 percent of
world shipbuilding orders. South Korean shipbuilding
capacity doubled during 1979-84 and is expected to
increase at an average annual rate of between 10 and
15 percent over the next few years. Much of South
Korea's success comes from the efficiency of its
modern facilities, cheap domestically produced steel,
and its low-wage, highly disciplined labor force. The
South Koreans have also been able to find openings in
the market and exploit them. Unlike the Japanese
who tend to mass-produce ships, the South Koreans
Efforts To Restructure the Industry
The shipbuilding industries in the four major EC
countries are attempting to improve their internation-
al competitiveness by improving efficiency through
cutting capacity and consolidating firms. Paris, Lon-
don, and Rome are heavily involved in reorganizing
their shipbuilding industries and are providing subsi-
dies to help the restructuring process. No Communi-
ty-wide shipbuilding policy exists, and the EC has
limited enforcement powers to monitor national aids
to the industry in an effort to ensure that EC rules are
not violated (see table 4). Some measures such as 25X1
subsidies given to national shipowners for ships or-
dered in national yards and compensations for con-
tracts at below cost actually violate the Rome Treaty,
which prohibits aid that distorts competition and
adversely affects trade between member states. Apart
from providing subsidies from EC funds, the Commu-
nity can do little to help troubled shipyards.
Outside the Community the OECD set up a Workin25X1
Party in 1963 to examine the shipbuilding industry &
problems. The first action of the Working Party was
to achieve some control over export credit arrange-
ments. Presently, the OECD permits interest rates of
up to 8 percent, a repayment period of eight and a
half years, and a maximum loan of 80 percent of the
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Table 2
Selected Countries: Hourly Compensation of
Shipbuilding Production Workers, Selected Years a
United States
6.89
9.03
10.06
11.54
12.69
13.78
Japan
3.93
6.70
6.46
6.77
7.84
7.09
South Korea
0.60
1.83
1.87
1.82
2.16
2.36
5.17
8.70
9.20
10.41
9.06
8.81
West Germany
7.09
11.16
12.84
14.01
11.67
11.61
Italy
5.75
6.61
7.80
9.16
8.47
8.26
United Kingdom
3.67
4.60
5.74
7.38
7.21
7.49
Netherlands
7.07
10.50
11.89
12.56
10.28
10.21
a Hourly compensation is defined as wages, employer social security
contributions, and fringe benefits.
Table 3
Selected Countries: Productivity and
Unit Labor Costs in the Commercial
Shipbuilding Industry, 1982
Annual Output Per Unit Labor Costs b
Worker (cgrt) ? (US $)
35.3
490
30.8
636
France
25.1
669
Belgium
19.4
954
United Kingdom
16.4
854
Italy
16.1
831
Japan
43.3
330
South Korea
15.1
273
^ Compensated gross registered tons (cgrt), which is the gross
tonnage of a ship multiplied by a compensation coefficient that is
based on the type of ship and the amount of work typically involved
in its construction.
b Labor cost per cgrt.
ship's purchase price. The Working Party also estab-
lished guidelines for the reduction of subsidies to
shipbuilding. Nevertheless, in recent years, member
countries have increasingly allowed participating gov-
ernments to introduce new measures and increase
existing aid in particular cases for "unforeseen and
imperative reasons." Some cheating has also oc-
curred, and member countries of the Working Party
have decided that trying to reduce subsidies is not
practical given the industry's current state.
the same amount as in 1983.
Bonn is not seeking direct participation in the restruc-
turing of the shipbuilding industry because the Kohl
government wants to limit state subsidies to ship-
yards, maintaining instead that it will fight for the
industry by pressing competitor countries to reduce
their subsidies. AG Weser, the Krupp-owned shipyard
in Bremen, for instance, was forced to close last
year-and 2,250 workers lost their jobs-after it
failed to convince Bonn to help cover losses and
advance subsidies on future ship construction. Fi-
nance Minister Gerhard Stoltenberg resisted industry
pressure for more government subsidies and last year
limited Bonn's support to about $80 million, roughly
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Figure 3
International: Share of Shipbuilding
Orders, Selected Years
South
Korea
Others
Even without new subsidies, West German order
books at the end of 1984 stood at 707,000 grt, up 22
percent from the same period a year earlier. West
German shipyards, in the meantime, are consolidating
and becoming more specialized. In Bremerhaven,
Bremer Vulkan, one of the region's largest employers,
has already merged with the Hapag-Lloyd repair
yard. It reported a net profit of nearly $800,000 in
1983, although this was due to a $9.3 million cash
injection provided by Thyssen and the Bremen state
government earlier in the year. Without these funds,
Bremer Vulkan would have gone bankrupt. Bremer
Vulkan will concentrate on naval and merchant ship-
building while repair work will be funneled into
Hapag-Lloyd, which is now known as Lloyd-Werft.
The company plans to invest $29 million at both yards
and rationalize facilities at Bremer Vulkan mainly to
increase productivity. Howaldts-werke Deutsche
Werft (HDW), which is 75-percent owned by the
state-controlled steel firm Salzgitter, is planning to
cut employment by 4,000 at its shipyards in Kiel and
Hamburg. HDW will also center its merchant ship-
building effort in Kiel while focusing on naval vessels
in Hamburg.
Japan
Paris wants to improve the competitiveness of the
French shipbuilding industry, but its first goal is to
prevent the industry from shrinking. To keep all five
of France's major shipyards open, the government
pumped in between $180 million and $290 million
each year from 1978 to 1983. The government also
orchestrated a major reorganization of the industry in
1982, creating Chantiers du Nord et de la Mediter-
ranee (CNM) and allowing Chantiers Dubigeon to be
taken over by Chantiers de l'Atlantique, a subsidiary
of Alsthom Atlantique, a wholly government-owned
industrial conglomerate
Despite Paris's efforts, however, little was accom-
plished and many of the industry's problems remain.
French shipyards ended 1984 with orders amounting
to 313,000 grt compared with 515,000 grt the previ-
ous year, a decline of almost 40 percent. Losses of
almost $97 million in 1983 by Chantiers du Nord et
de la Mediterranee were exceeded in the EC only by
British Shipbuilders. The government now wants to
ensure that all five French shipyards remain open and
no new layoffs occur. Paris particularly wants to keep
from reducing the work force because of the unem- 25X1
ployment situation and the possibility of social disor-
der. Efforts to lay off workers at steel and automobile
plants sparked violent protests last year. Paris cut
planned budget outlays in other sectors to come up
with another $450 million in shipbuilding subsidies in
1984. The move was made after Guy Lengagne,
French Secretary of State for the Sea, determined
that the initial allocation of $200 million was inade-
quate to subsidize the building of five ships promised
to CNM and Chantiers de l'Atlantique. Paris now is
also tying subsidies to cutbacks in capacity and
encouraging diversification from shipbuilding into
ship repair, offshore equipment, and conversions.
The EC Commission early this year blocked French
Government subsidies to CNM and Alsthom-Atlanti-
que shipyards, putting into question Paris's restruc-
turing program. The Commission complaint covers
about $345 million-at 1984 exchange rates-in sub-
sidies to CNM and $35 million in grants to Alsthom.
The aids are supposed to be tied to reductions in
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Table 4
Western Europe: Aids to the Shipbuilding Industry
Central government puts up
12.5 percent of ship's cost, pro-
vided the buyer puts up 30 per-
cent and keeps vessel under
West German flag for at least
eight years. State government
subsidies amount to an addi-
tional 4 percent of ship's cost.
Fifteen to 30 percent of con-
tract price depending on size of
yard and type of vessel.
Up to 30 percent of contract
price plus any losses of British
Shipbuilders.
Up to 30 percent of contract
price.
Credit Assistance to
Shipowners
Grants plus interest subsidies
make the minimum interest
rate of 4 percent on loans. Sub-
sidies provided to LDCs pur-
chasing ships built in West Ger-
many.
Interest rate subsidies at OECD
export rates.
Loans at OECD export terms
plus interest moratorium up to
three years.
Seventy percent of contract
price loaned by the government.
Rome also pays half of interest
costs.
Loans amounting to 80 percent
of contract price repayable over
14 years at 8-percent interest,
four-year moratorium.
Imported materials used in ship
construction are duty free.
Ships are exempt from value-
added tax (VAT).
Imported materials used in ship
construction are duty free.
Ships are exempt from VAT.
Imported materials used in ship
construction are duty free.
2-percent relief for indirect tax-
es. Ships are exempt from
VAT.
Imported materials used in ship
construction are duty free.
Ships are exempt from VAT.
Imported materials used in ship
construction are duty free.
Ships are exempt from VAT.
5.5 percent of contract price.
Funding up to 75 percent of
losses if connected with
restructuring.
Spain Up to 9.5 percent of contract
price.
capacity, but the Commission believes no such link
exists. The Commission is proceeding cautiously and
expects several months to pass before reaching a
resolution. If the investigation reveals that the aids
were improperly granted, the Commission has the
authority to demand the recovery of funds already
distributed, thereby weakening the French restructur-
ing program and hindering Paris's efforts to keep all
of the country's shipyards open.
Interest subsidies to a maxi-
mum of 2 percentage points be-
low OECD export credit rate
for ships.
Interest rate subsidies are avail-
able to shipowners who have
vessels built in Belgium.
Loans up to 80 percent of con-
tract price at 8-percent interest
with a debt service moratorium
lasting up to two years.
Imported materials used in ship
construction are duty free.
Ships are exempt from VAT.
Imported materials used in ship
construction are duty free.
Ships are exempt from VAT.
5.5-percent customs rebate for
imported materials used on do-
mestic ships; 12.5-percent indi-
rect tax rebate prior to VAT.
London is pushing state-owned British Shipbuilders to
reduce its losses and salvage the jobs left in the
industry by selling off sections-such as the Scott
Lithgow shipyard last year-to private interests. The
sale of Scott Lithgow kept the yard open despite the
lack of orders-the government had intended to close
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it; employment will be trimmed, however, from 4,500
to about 2,000 workers. London is also reorganizing
British Shipbuilders, reducing the number of divisions
from five to two, with one covering the construction of
merchant ships and the other, warships. British Ship-
builders is also shifting emphasis from building large
merchant ships to smaller ones such as ferries and
offshore service ships. British orders were 46 percent
lower at the end of last year, and London was to
provide British Shipbuilders more than $300 million
for the 12-month period ending this past March to
cover operating losses and modernization programs.
Historically, British Shipbuilders requires as much as
50 percent more man-hours than their West European
counterparts to perform some shipbuilding tasks. The
company is now claiming its productivity ranks ahead
of all EC shipbuilding countries except the
Netherlands
Rome is providing roughly $1 billion in aid for the
three-year period 1984-86 to help cover losses and
modernize shipyards. Massive aid will be required, as
Italy suffered the sharpest falloff in orders among EC
countries, down 65 percent to only 111,000 grt at the
end of 1984. Included in the aid program is the
reorganization of Fincantieri, the holding company
for the state-owned industry. Fincantieri formerly
controlled eight separate firms, of which the largest
were Italcantieri and Cantieri Navale Riunite. Fin-
cantieri's eight firms have now been merged into one
with four operational divisions:
? Offshore and merchant ship construction.
? Repair and rebuilding.
? Engine construction.
? Naval ship construction.
Capacity cutbacks will lead to a loss of 5,000 jobs and
the closing of at least one shipyard by 1986-proba-
bly Italcantieri's yard in Genoa.
The smaller EC countries, hit equally hard by the
industry's worldwide recession, are also resorting to
cutbacks in employment and capacity to improve
efficiency. The Danish shipbuilding industry is unique
among EC nations in that it is privately owned. Weak
demand forced the industry to slash its labor force by
28 percent in 1983 as compared to the previous year.
Although orders totaling slightly more than 1 million
grt at the end of 1984 were the highest in the
Community, more layoffs may be forthcoming unless
the trend continues.
Following the collapse of the shipbuilding conglomer-
ate Rijn-Schelde-Verlome (RSV) last year, the Dutch
shipbuilding industry is slowly putting the pieces back
together. RSV's failure has left The Hague more
cautious about bailing out troubled shipyards. Be-
tween 1976 and 1984, RSV lost more than $850
million, surviving only through state subsidies until
the government decided to stop supporting the firm.
Orders are on the upswing, ending in 1984 at 245,000
grt, and the industry's productivity now ranks among
the highest in Western Europe. The Verlome yard in
Ireland was a subsidiary of RSV and is the country's
only major shipyard. The yard is not commercially
viable and is heavily dependent on the Irish Govern-
ment-which now owns the yard-for orders.
Belgian order books at the end of 1984 amounted to
205,000 grt, down 12 percent from the end of 1983.
Industry employment has fallen 28 percent since
1975, and the number of major shipyards has been
reduced to two. The industry's outlook remains bleak
due to production costs that rank among the highest
in Western Europe. Despite possessing one of the
world's largest merchant fleets, Greece's shipbuilding
industry is of little international importance. Output
reached only 37,000 grt in 1983 and may slide further
if Hellenic Shipyards-one of the nation's largest
industrial employers-goes ahead with its plans to
close its facilities at Skaramangas. Order books are
thin, and the lack of government subsidies for build-
ing new ships provides little incentive for new con-
struction. With demand for new vessels falling off,
Greek shipyards are increasingly relying on repair
contracts to continue operating.
Outlook
Despite some improvement in shipping markets be-
cause of the world economic upturn, we believe the
EC shipbuilding industry will require additional cut-
backs. More than enough ships already exist world-
wide to handle the expected increase in world trade
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over the next two years. In our view, any pickup in
ship orders after that will be met by continuing
aggressive sales tactics by Japan and South Korea and
by new countries entering the market such as Taiwan
and China. Labor costs in all of these countries are
lower than in any EC country, and West European
governments-most of whom are still trying to cut
deficits-will try to resist offsetting this cost disad-
vantage by increasing subsidies. As a result, EC order
books will likely decline over time, leading to a further
erosion of the EC's share of the world market.
While the EC shipbuilding industry will almost cer-
tainly continue to shrink, it is not likely to disappear
altogether. The Community is the world's largest
single trading power with 90 percent of its trade
outside the Community seaborne. Because of this
dependence and the unemployment situation in the
Community, most EC governments will continue to
provide some financial support to the more viable
portions of the industry. As a result, we believe the
EC shipbuilding industry will increasingly concen-
trate on defense-related vessels and possibly on the
construction of specialized high-technology ships built
to order. Building ships with a high content of
advanced technology is one of the few areas in the
industry where the EC continues to hold an advantage
over the South Koreans-although even here the gap
is narrowing fast.
While some EC countries are increasingly looking
toward building naval vessels as the salvation of their
shipbuilding industry, the move is not because of any
specific NATO policy. Ships of NATO navies are
purchased from yards within the Alliance for obvious
security reasons rather than because of any NATO
directive. Consequently, EC yards must boost sales of
ships to navies outside the Alliance, with those be-
longing to LDCs the most likely candidates. In gener-
al, it is impractical to produce both commercial and
naval vessels in the same shipyard. Consequently, any
decision to step up production of naval ships would
involve reducing merchant capacity and the presump-
tion of some reasonable amount of export demand for
naval ships
Given the bleak prospects for the industry, EC pres-
sure on Japan and South Korea to restrict output will
continue. The Community remains critical of Japa-
nese Government restrictions on output-aimed, in
part, at limiting capacity increases-and wants even
tighter controls. While Tokyo is finding it necessary
to curb output for its own restructuring effort, Seoul
has had less incentive to do so. Cuts by South Korea
in its rapidly growing shipbuilding industry would do
little for the uncompetitive EC industry while indi-
rectly helping South Korea's other competitors move
in on at least part of the market they vacated.
Moreover, limitations could backfire on the Commu-
nity, particularly if the Japanese began penetrating
specialized markets for highly sophisticated ships and
floating structures-the same type vessels EC coun-
tries are relying on to save the industry
The Community may also look to other means to
protect the industry. Because the market for ships
does not readily lend itself to classical forms of
protectionism such as tariffs or import quotas, finan-
cial incentives, primarily in the form of subsidies, will
continue as the most prevalent means of protectionism
for the EC shipbuilding industry. Since 1975, EC
governments have provided $700-800 million annually
in subsidies to compensate for the price differential
between EC and East Asian shipyards and to main-
tain jobs. The Community or individual member
governments also may move to require EC shipowners
to order new vessels only from shipyards within the
Community-or at least require EC exporters to ship
goods only in EC-built vessels.
Should the EC shipbuilding industry go under, the
United States might gain a few orders for naval
vessels with a high advanced-technology content, an
area in which the United States still holds a compara-
tive advantage over more efficient shipbuilding coun-
tries such as South Korea. As a result, US exports
may be limited only to other NATO Allies with US
legal constraints on the transfer of sensitive technol-
ogy possibly affecting these sales. Commercial orders
lost by the EC would be quickly taken by Japan,
South Korea. Taiwan. and other emerging LDC
producers.
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Confiaentiai
ILLEGIB
Confidential
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