opinion

Shipping and subsidies

By Stefan Zrinzo Azzopardi

There are different forms of subsidies that a government may give to a business organisation. There is the so called operational aid and there are subsidies that are given in order to restructure the organisation.

During the past few weeks, the ship repair sector was given significant coverage by the local media. Most of us recall the rash manner with which the Prime Minister declared that the subsidy annually granted by government to the dockyards was to cease.

In this article I intend to underline some issues related to the subsidies given to the dockyards in light of Malta's pending application for EU membership.

A historical background
When the Nationalist Government applied for full membership in 1990, few were aware of the drastic changes that had to be implemented to bring Malta in line with the law of the European Union. This need for change was made evident when the European Union Commission, sent us the Avis in 1993.

In the Avis, the Commission explained with great precision what changes Malta had to undergo for it to be eligible to become part of the European Union. The phrase by which the European Commission used to describe the changes that Malta had to undergo was "a root and branch overhaul". In other words, most practices that were used at the time in Malta, had to be substituted with new ones.

The ship building sector was referred to in various parts of the Avis. One may notice that when the Commission mentioned this sector it made direct reference to the subsidies that this particular sector received.

Subsidies
It is a known fact that the European Union has strict rules regulating subsidies. The general rule is that governments of member states should refrain from subsidising commercial entities, either in a direct an indirect manner. Although EU law provides for exceptions, there still remains the notion that in principle, the European Union disagrees with subsidies.

The local scenario
One can recall that various persons within the pro-membership lobby constantly stated that Malta was fully prepared for full membership in the EU. Clearly, the ship repair and ship building sector was not prepared and is still subject to further changes in order to be in line with EU law.

These two sectors were never given the proper attention that they merit and no plan was ever implemented before 1996 for their restructuring, even though the Nationalist government stated that the Dockyards were prepared for membership.

One must also point out that due to the particular circumstances of our country, the ship building and ship repair sectors, in order to survive, require state aid even though this is to be capped.

Types of subsidies
There are different forms of subsidies that a government may give to a business organisation. There is the so called operational aid and there are subsidies that are given in order to restructure the organisation.

In this sector, that are subsidy is known as operational aid, and is completely unacceptable for the European Union. The only form of subsidy that the European Union accepts is subsidy for restructuring of organisations and closure aid.

To date, the Maltese dry-docks and ship building yard receive operationalaid as well as other financial support such as guarantees for loans taken by the operators in these sectors. Thus, if one looks at the present situation of the dry docks in the light of European Union law, one will find that the Dry docks, is it is surely not in conformity with the laws of the Union and consequently unprepared for EU membership.

The present situation
The Labour government between 1996 and 1998, started working on a long term plan to decrease subsidies granted to the ship-building and ship repair sectors. The reduction of these subsidies was to be the result of a long term programme with which this sector would be able to operate with less subsidies. This plan was being put in to practice in the beginning of 1997. In its first year of implementation it had a lot of positive effects.

Unfortunately, during the past three years, the Nationalist government did not continue to implement any form of plan to improve the situation within this sector. Although the Nationalist government states that it is pushing for full membership, with regards to the ship repair and ship building sectors, it was ready to settle for a seven year transitional period.

Transitional periods do not solve problems. They do not even address problems. Transitional periods merely postpone problems - a characteristic akin to the Nationalist government.

Achievements
It is clear that the ship repair and the ship building sectors are in need of a new life. This task is of utmost importance to our country and is required irrespective of full membership in the European Union. Our country cannot continue spending money on the dry docks without having a clear plan for the future.

The Maltese Drydocks have a potential that has not been studied carefully. It is the source of new opportunities for our country. We cannot look at these sectors as something of the past. These sectors must be given a new lease of life, which will result in the creation of opportunities that to date, have been ignored.