II. DIRECT AND INDIRECT MARITIME SUBSIDIES A. French Shipping Lines The French merchant fleet increased from 3.9 million gross tons in 1960 to 7.2 million tons at the beginning of 1973 (12.2 million deadweight). The liquid bulk fleet had grown by 1.7 million g. r. t. between January 1970 and January 1973, reaching the 4.7 million ton level. Another 2.9 million gross tons (7.3 million d. w. t.) costing almost $1.3 billion, was on order for the account of French owners in January 1973. Forty-one percent of the gross tonnage (37% of the deadweight tonnage) on order at the beginning of 1973 was with foreign yards. Moreover, the modernization of the fleet was largely accomplished by the end of the 1960 decade. Its competitive quality was further improved by the sale or scraping of an additional 500, 000 g. r.t of older and smaller vessels during the course of 1972, as owners responded to higher wages, inflationary pressures on other costs and a reduction in franc freight rates that followed the exchange rate adjustments that occured at the end of 1971. Nevertheless, the French fleet handles only a third of the oceangoing tonnage that moves in and out of French ports. The sixth plan foresaw an increase in the gross registered tonnage of the fleet to 10. 3 million by 1976 and a 90% increase in deadweight tonnage between the beginning of 1971 and 1976, principally as a result of the addition of large and small tankers, container ships and RO/ROS. The intent was to stabilize the deficit in the French balance of payments on account of maritime transport services at the 1968 level, about $160 million per year. That deficit for 1972 was around $400 million. This expansion and rejuvenation of the French fleet was accomplished with the help of substantial government support and encouragement. The fifth and sixth plans gave it a strong impetus. The government has a substantial equity in two major shipping lines and has actively encouraged mergers and regrouping in the industry, so that the ownership of the French fleet is among the most concentrated in the world. French lines do not compete against each other in any one conference and joint companies have been established with the shipping lines of other Common Market countries to assure orderly markets for liner and other services. The cabotage trades are completely protected and French companies have a de facto monopoly on traffic to Guiana, Guadaloupe and Martinique. Two-thirds of all crude oil imported into France must be carried on French flag ships or on approved charters. The requirement is not rigidly enforced, but the recent and prospective expansion of the liquid bulk fleet is remarkable. Importing companies may satisfy the requirement if they maintain enough French flag carrying capacity to import 85% of their crude requirements, even if the ships are chartered into other services. Until the 1960s, French fleet operators were restricted by capital controls to the purchase of ships primarily from French yards. As recently as 1968 and 1969, only 15% of the new orders placed by French owners went to foreign yards. Construction subsidies paid to the shipyards were intended to provide operators with vessels at prices comparable to those paid by their competitors. In the late 1960s, the construction subsidies were replaced by equipment grants to the operators. The government also pays part of the interest costs on new ship loans, to assure that the operators can finance their ship acquisitions at low rates of interest, at least comparable to rates available to their competitors. Operating subsidies were offered until 1970; some continue to be paid for passenger services. The shipping companies also benefit from the company profit tax rules which serve to keep their tax liabilities at negligible levels. The government pays part of the cost of seamen's social security contributions and heavily subsidizes the cost of accidents and illness aboard ship. Production in French shipyards increased from less than 250,000 g.r. t. of ships in 1960 to 663, 000 tons in 1968. In that year, the shipbuilding industry entered into a professional contract with the government, in which both agreed to define each year a common policy for ship construction. The agreement was to include production targets, efforts to improve productivity on the part of the yards and the financial and economic assistance to be provided by the government. The contract was limited to five major shipbuilders, reducing the number of subsidized yards from 14. A consolidation of shipbuilding companies has taken place as a result, and some yards have ceased the building of ships. The companies have further agreed to operate within two groups. The first, comprising Chantiers d' Atlantique and Chantiers Dubigeon-Normandie, has agreed that the former will build large tankers and LNG carriers, while the latter will concentrate on middle-sized ships and ferry boats after completing its merger with three smaller companies in the Nantes/ St. Nazaire area. The second group includes the yards in La Ciotat, Dunkerque and La Seyne and has led to cooperative marketing and research. The contract, and the subsequent regrouping and modernization of the French shipbuilding industry, has led to an increase in gross tonnage delivered to 1.2 million g. r. t. in 1972. The orderbook of the yards rose from 1.4 million g. r. t. at the beginning of 1966 to 4.3 million g.r.t. at the beginning of 1973. Moreover, while only 14.5% of the 1966 orderbook was for the account of foreign owners, that percentage had risen to 47.5% by the beginning of 1973. In addition, 89% of the January 1973 orderbook consisted of large tankers and gas carriers. The French shipbuilding industry appears to have become highly specialized and competitive as a result of the agreement between the industry and the government. The government provided some investment subsidy and a substantial amount of cheap credit to finance the industry's investment program. It has also provided substantial sums in the form of direct payments to the shipyards. The traditional percentage subsidy for ship construction has been reduced to minimal proportions in accordance with the Common Market agreement, but a generous inflation insurance scheme encouraged bids for new orders at competitive prices and has resulted in large payments of government funds to the shipbuilders. The shipbuilding industry has also benefited from subsidized credit to domestic buyers and to the yards for financing their foreign orders. The yards are further supported by the general provisions of the French tax system that minimize their income tax liabilities and from an exemption from the 20% value added tax that applies to ships built for both domestic and foreign ship owners. Other assistance may be forthcoming to meet special situations. When La Ciotat found itself in difficulty in 1971, a five-year technical agreement was concluded, under which a French naval yard agreed to help fulfill its contracts for four gas carriers. Direct Support C. (1) Shipping Companies French shipping lines receive direct subsidies in the form both of interest subsidies and equipment grants toward paying the cost of certain types of vessels. Government subsidy of the cost of accidents and illness at sea is another major contribution to reducing ship operating costs. Under the fifth Plan, equipment subsidies for ship operators were paid up to 12% of the acquisition cost. The 1968 budget provided $20.5 million for this program. The sixth Plan set a ceiling of $73 million for equipment subsidies over a 5-year period, equal to 4.5% of planned investment of $1. 64 billion in new ships. The grants are available irrespective of whether the ships are purchased from domestic or foreign yards, but the capital export control machinery can be used to limit foreign purchases. The grants were fixed at a given percentage of the acquisition cost of various types of vessels. The percentages were announced in April 1971, suspended in July 1971, reinstituted in July 1972 with minor reductions in the percentages and suspended again in December 1972. The suspensions resulted from a rate of new orders by French owners that threatened the ceiling. Their purpose was to revise the percentages to minimize the need for a higher ceiling. All ships will receive the percentages stipulated for their category even though ordered during periods of suspensions. By mid-1973, it was clear that the ceiling would be used up and it appeared that the sum programmed for ship purchase subsidies during the sixth Plan would have to be increased. (The increased value of the franc had already raised the original ceiling to $85 million in terms of its dollar value by that time). The principal percentages announced in July, 1972 were as follows: nil for passenger ships and VLCCs 3% for other tankers, gas carriers and large bulk carriers 15% for cargo vessels, container ships, barge carriers RO/ROS 10% for other dry cargo vessels The 1974 budget showed 1973 expenditures for this program of $14.6 million, out of authorizations in 1973 and previously for programs not yet completed of some $42 million. It projects expenditures in 1974 of another $19 million. New authorizations for 1973 and 1974 were $17 million per year. |