As early as 1956, a 10-year program for the renewal of the Spanish fleet was undertaken that added over 1 million gross tons to the Spanish fleet. With the introduction of national multi-year economic plans in the mid-1960s, the expansion of the fleet and the shipbuilding industry were included as priority sectors for expansion. The current Plan foresees a fleet of 6.2 million gross tons by 1975 and 10 million by 1980, compared to slightly under 4 million tons at the end of 1971.

During the first 10-year program, a government-owned shipping company ordered ships for its own account in order to maintain full employment in the yards, to provide orders for the government-owned steel company and transportation of raw materials for the government-owned oil and steel companies. It also built a new shipyard. Most of its ships were resold to private operators who were helped in their purchases by very cheap government credit. The yard was transferred to a governmentowned shipbuilding company. Cheap credit and tax benefits have continued to be available to domestic operators during the second and third Plans, and the rapid expansion of the Spanish economy has created a market for Spanish bulk-carriers to haul increasing quantities of imported bulk commodities.

As a privileged industry, the shipyards have also received substantial tax and credit benefits. They may receive rebates equal to 18.5% of the selling price of the vessels they deliver. Through 1972, the government arranged export financing that provided foreign buyers with lower interest rates on Spanish-built ships than were available from most other shipbuilding countries. Competitiveness is also helped by the low rate of personal and corporate income tax and the relatively low level of social security charges.

A "concerted action" program for the shipbuilding industry was developed in the late 1960s, signed in 1970 and has virtually been completed. The government sought to promote mergers among the 28 firms and 41 yards that existed in 1968. The larger yards have been re-grouped in 4 companies. Participating yards were offered free depreciation for a 5-year period. Investment equipment could be imported with a 99% reduction in customs duties. The government-owned Bank for Construction Credit was to lend 70% of the cost of proposed conversions and investments to be repaid over 9 years at 6%, with a 3-year period of grace in amortization payments.

After the first devaluation of the dollar relative to the peseta, the Bank for Construction Credit increased its loans to the yards for financing their investments. After the second devaluation early in 1973, the government agreed to pay off old contracts at the pre-devaluation rates, a general measure of particular value to ship yards, with their longlead, fixed price contracts denominated in dollars.

When a major shipbuilder neared bankruptcy two years ago as a result of underbidding on contracts, the government acquired a 60% equity in the company, refinanced it and enlisted the assistance of the naval shipbuilding company to supply engines to meet contractual commitments. Expansion of capacity continues and a project to establish a new yard to build LNG vessels is under active consideration.

Building on the base of the domestic market for ships, Spanish yards have become a competitive industry on the world market, producing a growing volume of large bulk carriers in modern facilities. By 1973, building for foreign owners had become at least as important as domestic orders. Some 43% of the current value of ships exported in 1973 (about $100 million) were sold to flag of convenience operators,

mostly U. S. nationals. The following table shows the growth of the

The tanker fleet is expected to be large enough to handle 100% of Spanish oil imports by 1977 or 1978. Thereafter, if the yards continue to produce tankers for the domestic fleet at current rates, Spanish flag tankers may be competing for third country cargoes. Operators also expect permission to purchase second-hand liners on the world market and register them under Spanish flag in order to permit greater penetration of the Spanish liner trades. Hitherto, Spanish flag registry has been reserved to Spanish-built vessels.

A. Direct Support

The government budget shows some $28 million of operating subsidies paid to three companies in 1973. All but $1.7 million of this sum was for an operator in the cabotage trades, who provides regular service at low rates for the Balearics, the Canaries and Spanish Africa. The other two lines received payment for maintaining service to Latin America.

The budget also provided $9.1 million for research and improvement of the fishing fleet and $1.1 million for an oceanographic institute. Otherwise no direct operating or construction subsidies would appear to be available for the maritime industry.

However, the system of primas (premiums) for customs duties and rebating of indirect taxes, both presumably incorporated as additions to the normal cost of building a ship in Spain, could be regarded as the equivalent of a ship construction subsidy. The "primas," sometimes described as rebates of customs duties, are particularly vulnerable to such interpretation, in part because they are itemized as an appropriated expenditure in the government budget. Moreover, payments are made to the shipbuilder in three installments while the ship is under construction. The 1974 budget estimated that $56 million was disbursed on this account in 1973.

The prima is not a reimbursement of customs duties actually paid, since imported materials for incorporation in a vessel at the request of a foreign buyer is permitted without payment of duty. Practically all other materials incorporated in ships for domestic owners must be procured in Spain if produced there. The "prima" is defended as compensating for the higher cost of materials and components procured in Spain and is related to the tariff protection afforded such materials. The industry claims that 70% of the cost of construction in Spain consists of materials and that the average import duty is 20%, thus justifying a 14% premium to equalize domestic and foreign costs.

The prima was fixed at 9% of the contract price in the 1950s, or 6% if the propulsion plant was imported. The percentages have subsequently been reduced to 7 and 4.5 respectively. On ships for the cabotage trades, the rate is 3.5%. Under the 1972 - 75 Plan, the premium was to have been 5% and then to be eliminated at the end of 1975 in accordance with the OECD Arrangement on the reduction of aids to ship construction.

The 7% rate was retained as partial compensation to the yards for losses sustained as a result of the 1971 revaluation. A reduction to 5% is under consideration for 1974.

The prima is a result of negotiation between the industry and the government. It is not the result of a calculation of the difference between the foreign and domestic cost of materials and components used in ship construction. In January, 1974 it was claimed that Spanish ship steel

was 10% more expensive than the domestic price paid in Germany. On the other hand, Spanish steel is produced by a government-owned company and prices are controlled. Ship construction bids have been based on the authorized estimate of a 6% annual increase in steel prices.

The 12% rebate of indirect taxes is more controversial, because such a rebate is paid on all exports, the rate varies narrowly around 12% for all heavy industrial products, and Spanish authorities contend that such a rebate is comparable to the rebate of value-added taxes by Common Market countries. While ships are the only products on which the rebate of indirect taxes is paid on sales to domestic buyers (except for vessels built for the cabotage trades), Common Market countries also treat ships sold to domestic buyers as an export for purposes of rebate of the valueadded tax. On the other hand, the 12% Spanish rebate is fixed arbitrarily, like the 7% Spanish "prima" and unlike the Common Market rebate of valueadded tax which is determined by an accounting of tax actually paid by shipyard suppliers. While value-added taxes alone equalled 5. 7% of German GNP in 1971, and other taxes on goods and services added another 4% of GNP, all Spanish taxes on goods and services equalled 6.5% of GNP.

The 12% rebate is paid out of custom receipts and does not appear as a budgetary item. It is calculated on the price of the ship after